News from September 16-20, 2002

House Telecom Subcommittee to Hold Hearing on Draft DTV Bill
9/20. The House Commerce Committee's Subcommittee on Telecommunications and the Internet announced that it will hold a hearing on the transition to digital television on Wednesday, September 25. The Subcommittee also released a draft of a proposed bill [16 pages in PDF] and a summary of that draft bill.
The draft bill requires broadcasters to cease analog service by the end of 2006, requires the FCC to write rules that mandate that digital devices capable of receiving a digital signal recognize the use of a broadcast flag by January 1, 2006, prohibits the FCC from imposing dual must carry requirements, and requires digital television cable compatibility.
The draft bill amends the Communications Act of 1934, at Section 309(j)(14), to require that television broadcasters are required to cease analog television service, and operate in digital, by December 31, 2006.
The draft bill also requires the Federal Communications Commission (FCC) to initiate a rule making proceeding to write rules to require digital devices capable of receiving a digital signal to recognize the use of a broadcast flag by January 1, 2006. The purpose of this is to prevent the unauthorized redistribution of marked digital terrestrial broadcast television content over the Internet.
The draft bill also provides that cable operators are not required to carry both the analog and the digital signal during the transition to digital television.
The draft would also require the FCC to promptly initiate another rule making proceeding to revise its rules "to ensure the nationwide interoperability with cable systems, and the nationwide portability, of equipment capable of receiving, recording, or displaying, or navigating among, television signals that is sold as capable of providing digital television service using a cable connection."
Such rule revisions would, among other things, "require all cable operators, by July 1, 2005, to transmit signals in accordance with a uniform family of technical standards accredited by the American National Standards Institute and prescribed by the Commission, that enable subscribers to receive, without the need for a separate cable set-top box, at a minimum -- (i) basic and premium digital television cable programming offered by the cable operator in both standard and high definition; and (ii) standard definition digital programming offered on a per program or per channel basis without the use of integrated bidirectional communications".
Such rule revisions would also "require all cable operators, by July 1, 2005, to make available to subscribers point of deployment modules for use with digital television receivers that are manufactured in accordance with a uniform family of technical standards accredited by the [ANSI] and prescribed by the [FCC]".
Industry Reaction. The Consumer Electronics Association (CEA) stated in a release that "This draft legislation is a welcome, critical and helpful step toward driving the digital television transition. ... "We especially appreciate the draft bill's focus on the single most important issue related to mass market acceptance of DTV - cable compatibility. The draft legislation would establish fair, pro-consumer requirements to ensure compatibility between digital cable and digital television products. Indeed, the draft's guarantees of nationwide portability and compatibility will finally allow all of America's 70 million cable households to participate in the DTV transition." The CEA also stated that "the draft contains many other provisions which require further review and discussion."
Robert Holleyman, P/CEO of the Business Software Alliance (BSA), stated in a release that "An ongoing concern of our industry has been to ensure that whatever technologies are deployed to protect content do not impede technological progress, increase the cost of software and computers to consumers, or erode the performance of computers, ... We commend the Committee for having issued a draft that seeks to take these considerations into account." He added that "the draft raises a number of important issues which will require careful consideration and discussion".
Robert Sachs, P/CEO of the National Cable Telecommunications Association (NCTA) stated in a release that "The leadership and staff of the House Energy & Commerce Committee have devoted considerable time and resources in a very constructive process to bring industries together and facilitate the transition to digital TV. We look forward to working with the committee as it considers the staff draft and ways to resolve the many complex issues involved in the DTV transition. At the same time, we will continue to work to achieve inter-industry solutions to as many of these issues as is possible."
Treasury Official Urges Unified Rule Writing Process, But Diverse Supervision
9/20. Peter Fisher, Undersecretary of the Treasury for Domestic Finance, gave a speech titled "The Need to Reduce Regulatory Arbitrage" at the Brooklyn Law School Center for the Study of International Business Law.
He presented a case for a single rule maker for all financial services (similar regulatory treatment for similar products), but argued that there should remain separate entities for supervision. He said that this is because while there will be financial supermarkets, information and communication technology will permit "small firms to outsource many functions and thereby recapture some of the advantages previously associated only with economies of scale".
He argued that "there is a compelling case for greater coherence in our rule writing process for financial services, perhaps even for a ``super-regulator´´. But I draw a sharp distinction between financial regulation – rule writing -- and financial supervision." (Emphasis in original.)
He stated that "A single rule writer would need to respect two principles: first, that like products and like services should receive a like regulatory treatment and, second, that distinct products and distinct services should receive distinct regulatory treatment."
He continued that "Supervision -- the hands on business of looking over the shoulders of the financial intermediaries -- will and should remain divided among a number of different agencies and organizations, focused discretely on individual firms, products, and different policy objectives."
He also explained his reasoning. He said that "I am skeptical of the view that the future belongs to large conglomerates operating as financial ``supermarkets.´´ Large financial firms do have some important advantages, among them greater potential for diversification. Diversification spreads risk and stabilizes earnings."
However, said Fisher, "Advances in information and communication technology offset some of the scale and diversification advantages that large institutions may have. Today, technology permits small firms to outsource many functions and thereby recapture some of the advantages previously associated only with economies of scale."
"Thus, I expect that we will have a world in which nimble financial institutions of varying sizes, including both financial supermarkets and more focused financial firms, will compete with one another. As a society, we have – and want to retain – different, competing forms of financial intermediation, whether based on charter, product, function, or other form," said Fisher.
BellSouth & SBC File §271 Applications for Florida, Tennessee and California
9/20. BellSouth filed a Section 271 application with the Federal Communications Commission (FCC) to provide in region interLATA service in the states of Florida and Tennessee. Meanwhile, SBC filed a §271 application for the state of California.
The FCC approved BellSouth's application for the Georgia and Louisiana on May 24. It approved BellSouth's application for Alabama, Georgia, Kentucky, Louisiana, Mississippi, North Carolina and South Carolina on September 18. If approved, BellSouth would have authority to offer long distance service in all of the states within its original territory.
The FCC has already approved SBC's applications for the states of Arkansas, Kansas, Missouri, Oklahoma, and Texas. See also, FCC web page summarizing §271 applications and SBC release.
AT&T continues to oppose the granting of §271 applications. An AT&T officer stated in a release condemning the FCC's September 18 decision that "BellSouth enters the market controlling virtually all residential service and the lion's share of business customers. This decision removes BellSouth's incentives to open its markets to competition. State regulators now must ensure that BellSouth does not squash what little competition exists."
The FCC has 90 days to act upon these applications. Also, the Department of Justice's Antitrust Division is required to first issue its evaluations of these applications.
The FCC also issued a protective order [PDF] in the Florida and Tennessee proceeding, and a protective order [PDF] in California proceeding, pertaining to the submission to the FCC of certain documents. The FCC also issued notice [PDF] regarding the Florida and Tennessee proceeding, and a notice [PDF] regarding the California proceeding, that specify various deadlines. The FCC also assigned docket numbers. The Florida and Tennessee proceeding is WC Docket No. 02-307; the California proceeding is WC Docket No. 02-306.
The following are key deadlines in these proceedings:
October 9. Deadline to submit comments to the FCC regarding SBC's California application.
October 10. Deadline to submit comments to the FCC regarding BellSouth's Florida and Tennessee application.
October 25. Deadline for the DOJ to release its evaluation of BellSouth's Florida and Tennessee application.
October 29. Deadline for the DOJ to release its evaluation of SBC's California application.
November 1. Deadline to submit reply comments to the FCC regarding BellSouth's Florida and Tennessee application.
November 4. Deadline to submit comments to the FCC regarding SBC's California application.
December 19. Deadline for the FCC to rule on SBC's California application.
December 19. Deadline for the FCC to rule on BellSouth's Florida and Tennessee application.
Microsoft Meets with FCC Re Broadband Regulation
9/20. Representatives of Microsoft held two meeting with senior Federal Communications Commission (FCC) officials regarding regulatory classification and treatment of high speed Internet access services via cable and wireline facilities. Microsoft stated in a disclosure letter [PDF] to the FCC that "the Microsoft participants discussed the need for the Commission, regardless of the statutory classification applied to broadband services, to adopt the safeguards embodied in the connectivity principles presented by the High Tech Broadband Coalition ..."
The HTBC has filed numerous comments with the FCC in various FCC proceedings which pertain to broadband regulation. See for example, July 1, 2002 comments [PDF], April 7, 2002 comments [PDF], June 17, 2002 comments [PDF], July 17, 2002 comments of the HTBC.
Microsoft further stated in its letter that "The content, applications and devices that have proliferated as the Internet has become a mass market medium have proliferated in large measure because innovators have been able to rely on the fact that, in the dial-up world, the provider of the underlying facility does not -- and indeed cannot -- discriminate against the types of information traversing its system or the devices that are attached to that system." Microsoft added that "it is not clear that those norms -- and thus the benefits that flow from them -- will prevail in the broadband world envisioned by the Commission's NPRMs."
Microsoft was represented at the meetings by their counsel, Scott Harris of the law firm of Harris Wiltshire & Grannis, and by Craig Mundie, Marc Berejka and Pierre De Vries of Microsoft. They met with Bill Maher (the new Chief of the FCC's Wireline Competition Bureau), Jeffrey Carlisle (Senior Deputy Bureau Chief), Scott Bergmann (Legal Counsel), Jessica Rosenworcel (Legal Counsel), Jane Jackson (Associate Bureau Chief), Michelle Carey, and Brent Olson. They also met separately with Ken Ferree (Chief of the FCC's Media Bureau), Deborah Klein (Chief of Staff), Bill Johnson (Deputy Bureau Chief), Barbara Esbin (Associate Bureau Chief), Peggy Greene (Associate Bureau Chief), Eric Bash and John Norton.
The letter referenced several open FCC proceedings, GN Docket No. 00-185, CS Docket No. 02-52, CC Docket No. 02-33, and CC Docket Nos. 95-20 and 98-10.
4th Circuit Rules No Recovery Under Privacy Act for Disclosure of SSNs Without Showing of Actual Damages
9/20. The U.S. Court of Appeals (4thCir) issued its split opinion [48 pages in PDF] in Doe v. Chao, holding that a plaintiff must prove actual damages to recover under the Privacy Act for improper disclosure of Social Security Numbers by the federal government. See, full story.
DOJ Official Addresses International Competition Network
9/20. William Kolasky gave a speech titled "The International Competition Network: Guiding Principles for Merger Review". The International Competition Network (ICN) is an international entity comprised of about 65 nations' antitrust and competition regulatory authorities, such as the U.S.'s Federal Trade Commission (FTC) and Antitrust Division. The ICN will hold a meeting on September 28-29.
Kolasky is a Deputy Assistant Attorney General in the Antitrust Division of the Department of Justice. He spoke to the International Bar Association's Sixth Annual Competition Conference in Fiesole, Italy.
He said that the ICN is "helping to tame the multinational merger thicket that has grown up around us as an increasing number of jurisdictions -- roughly 65 at last count -- have enacted merger notification regimes."
"The concept behind ICN was to form a global network of competition authorities focused exclusively on competition -- ``all antitrust all the time´´ as my boss Charles James put it. The goal was twofold. First, to provide support for new competition agencies both in enforcing their laws and in building a strong competition culture in their countries. Second, 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."
He said that while "The spread of merger notification is, of course, a positive development as a general matter ... These benefits, however, do not come without cost."
He elaborated that "The first significant cost is the cost of determining in which jurisdictions a particular transaction must be notified. The second is the cost and potential delay associated with preparing and filing the required notifications and then responding to requests for additional information as multiple agencies review the transaction. The third is the uncertainty created by the potential for conflicting outcomes, a potential we saw realized last year in GE/Honeywell."
"As cross border trade and investment grows, and as more and more jurisdictions enact antitrust laws, it becomes all the more critical that antitrust agencies impose no unnecessary bureaucratic roadblocks on the merger process and that antitrust authorities worldwide continue to achieve greater convergence. Of course, we do not expect to achieve convergence in the first year, or even the second or third years. Rather, ICN members expect to maintain a continuous, collegial, and focused dialogue and to achieve meaningful improvements in the practice of international antitrust enforcement, one step at a time, over both the short and long terms. In that way we can hopefully turn the multinational merger thicket into a well manicured English garden," Kolasky concluded.
James, Muris, Monti, Others to Speak at International Competition Network Meeting
9/20. Charles James, the Assistant Attorney General in charge of the Antitrust Division, and Timothy Muris, the Chairman of the Federal Trade Commission (FTC), will participate in, and speak at, the first annual conference of the International Competition Network (ICN) in Naples, Italy on September 28-29.
Muris will speak on the morning of the 28th. James will speak on the afternoon of the 28th. Other speakers will include Mario Monti (Commissioner for Competition, European Commission), John Vickers (Director General, UK Office of Fair Trading), Giuseppe Tesauro (Chairman, Italian Competition Authority), Konrad von Finckenstein (Commissioner, Canadian Competition Bureau), and James Rill (former Co-Chair, DOJ's International Competition Policy Advisory Committee).
See also, DOJ release, FTC release, and conference agenda [PDF].
GAO Reports on Allocation of Export Reviews Between State and Commerce
9/20. The General Accounting Office (GAO) released a report [PDF] titled "Export Controls: Processes for Determining Proper Control of Defense Related Items Need Improvement".
The U.S. export control system is divided between one regulatory regime managed by the Department of State (for defense items) and a second regulatory regime managed by the Department of Commerce (for dual use items that have both military and commercial applications, such as certain computers and software). This GAO report addresses how various export permit applications are allocated between the two departments.
The GAO report finds that "Determining which department has jurisdiction over an item and how that item is controlled is fundamental to the proper implementation of the bifurcated U.S. export control system. Yet over the years, the U.S. government has experienced interagency disagreements over proper jurisdiction for items, and companies have been uncertain about which department controls the export of their items."
The report concludes that "Commerce has improperly classified some State controlled items as Commerce controlled and has not adhered to regulatory time frames for responding to requests. Improper classifications have occurred because Commerce rarely obtains input from State and Defense before making decisions."
The report also asserts that "in several instances, Commerce improperly provided companies with classifications for State controlled items, increasing the risk of such items being inappropriately exported."
The report also states that "The bifurcated U.S. export control system seeks to manage risks by balancing national security and foreign policy with economic interests. Commerce has altered this balance by not implementing the commodity classification process in a manner that considers other stakeholder interests."
The report was prepared for Rep. Christopher Shays (R-CT), Chairman of the House Government Reform Committee's Subcommittee on National Security, Veterans Affairs, and International Relations.
9th Circuit Rules in Favor of Rocky Horror Cybersquatter
9/20. The U.S. Court of Appeals (9thCir) issued its opinion [PDF] in Interstellar Starship Services v. EPIX, a cybersquatting case.

Background. Epix makes and markets electronic imaging hardware and software products, and provides associated consulting services. It has registered the mark "Epix" with the USPTO. Michael Tchou, the sole founder, officer, director, and employee of Intersteller Starship Services (ISS), registered the domain name The website associated with this URL originally promoted Tchou's technical services and digital image processing. However, it now only promotes a minor production of the Rocky Horror Picture Show (RHPS). It includes pictures of men in women's underwear.
District Court. ISS filed a complaint in U.S. District Court (DOre) against Epix seeking declaratory judgment of non-infringement. Epix counterclaimed for trademark infringement, unfair competition, among other claims. The District Court, finding no likelihood of confusion, granted summary judgment to ISS. Epix appealed. The Appeals Court reversed and remanded. On remand to the District Court, Epix amended its complaint to include a claim of cybersquatting under the 1999 Anticybersquatting Consumer Protection Act (ACPA), 15 U.S.C. § 1125(d).
Following a bench trial, the District Court held that while ISS's past use of to promote Tchou's business infringed the Epix trademark, its present use to display RHPS pictures does not infringe the Epix trademark. The District Court also found no cybersquatting violation under the ACPA and no trademark dilution under Oregon law. The District Court refused to transfer the domain name to Epix.
Appeals Court. The Appeals Court rejected Epix's arguments on appeal that there is a likelihood of initial interest confusion among consumers, and that ISS violated the ACPA. Central to the Appeals Court's analysis on both issues was its conclusion that Tschou acted in good faith.
Affirmed. Tchou gets to keep the domain name.
Groups File Amicus Brief in FISA Appeal
9/20. The Center for Democracy and Technology (CDT) and other groups filed an amicus curiae brief [54 pages in PDF] with the U.S. Foreign Intelligence Surveillance Court of Review in a proceeding titled "In Re Appeal from July 19, 2002 Opinion of the United States Foreign Intelligence Surveillance Court". The brief supports affirmance.
The brief states that this case "raises the question whether federal law enforcement officials can use the Foreign Intelligence Surveillance Act ... to initiate, control or direct surveillances for criminal investigation. In the court below, the government sought a judicial ruling that FISA can be used where the primary or even exclusive purpose of surveillance is to gather evidence of criminal conduct."
The brief argues that "While FISA now allows coordination, consultation and information sharing between intelligence and law enforcement officials, it does not authorize surveillance whose primary or exclusive purpose is law enforcement. Indeed, expanding the scope of secret surveillance under FISA would violate the Fourth Amendment and the Due Process guarantees of the Fifth Amendment, and would jeopardize the First Amendment right to engage in lawful public dissent."
9/20. The House Commerce Committee's Subcommittee on Telecommunications and the Internet released a draft of a proposed bill [16 pages in PDF] regarding the transition to digital television. The bill would require broadcasters to cease analog service by the end of 2006, require the FCC to write rules that mandate that digital devices capable of receiving a digital signal recognize the use of a broadcast flag by January 1, 2006, prohibit the FCC from imposing dual must carry requirements, and require digital television cable compatibility. See also, Subcommittee's summary of draft bill.
People and Appointments
9/20. The Senate confirmed Reena Raggi to be a Judge of the U.S. Court of Appeals (2ndCir) by a vote of 85-0.
More News
9/20. The FCC published a notice in the Federal Register that it seeks further comments to refresh its record regarding customer proprietary network information (CPNI) implications when a carrier goes out of business, sells all or part of its customer base, or seeks bankruptcy protection. This is the FCC's Third Further Notice of Proposed Rulemaking in CC Docket Nos. 96-115, 96-149 and 00-257. Comments are due October 21, 2002; reply comments are due November 19, 2002. See, Federal Register, September 20, 2002, Vol. 67, No. 183, at Pages 59236 - 59239.
Senate Commerce Committee Approves Nanotechnology Bill
9/19. The Senate Commerce Committee approved S 2945, the 21st Century Nanotechnology Research and Development Act, by a voice vote. The bill was introduced by Sen. Ron Wyden (D-OR), Sen. Joe Lieberman (D-CT), Sen. George Allen (R-VA), and others, on September 17. See, Committee release.
Sen. Wyden stated in the Senate on September 17 that "This bill would authorize a coordinated interagency program that will support long term nanoscale research and development leading to potential breakthroughs in areas such as materials and manufacturing, nanoelectronics, medicine and healthcare, environment, energy, chemicals, biotechnology, agriculture, information technology, and national and homeland security. Building on the National Nanotechnology Initiative, the bill would authorize appropriations for research throughout the government while providing tools for better cross agency management and coordination." See, Cong. Rec., Sept. 17, 2002, at S8678.
The bill provides that "The President shall establish a National Nanotechnology Research Program." This Program would establish goals for nanotechnology research, invest in research and development programs, and provide interagency coordination.
The bill lists among its many findings that "Nanotechnology will provide structures to enable the revolutionary concept of quantum computing, which uses quantum mechanical properties to do calculation. Quantum computing permits a small number of atoms to potentially store and process enormous amounts of information. Just 300 interacting atoms in a quantum computer could store as much information as a classical electronic computer that uses all the particles in the universe, and today's complex encryption algorithms, which would take today's best super computer 20 billion years, could be cracked in 30 minutes."
The bill authorizes the appropriation of $476 Million in FY 2003 and $547 Million in FY 2004. The bill includes in its funding areas the following: "Nanoelectronics, optoelectronics, and magnetics".
Senate Commerce Committee Approves FTC Reauthorization Bill
9/19. The Senate Commerce Committee approved S 2946, the Federal Trade Commission Reauthorization Act of 2002, by a vote of 16-7. The bill was introduced by Sen. Byron Dorgan (D-ND) and Sen. Ernest Hollings (D-SC) on September 17. The bill reauthorizes the Federal Trade Commission (FTC) for FY 2003, 2004, and 2005.
The bill authorizes the appropriation in FY 2003 of $179 Million with approximately 1087 full time staff; in FY 2004 it authorizes $207 Million with approximately 1158 full time staff; and in FY 2005 it authorizes $224 Million with approximately 1208 full time staff.
The Senate Commerce Committee stated in a release that "The bill provides the FTC jurisdiction over telecommunications common carriers, allowing the FTC to use its expertise and enforcement powers to better protect consumers from the fraudulent advertising and deceptive business practices in this industry."
Senate Commerce Committee Approves NSF Doubling Act
9/19. The Senate Commerce Committee approved S 2817, The National Science Foundation Doubling Act, by a voice vote. The bill was introduced by Sen. Ted Kennedy (D-MA), Sen. Ernest Hollings (D-SC), and others, on July 22, 2002.
Among the programs authorized by the bill are Information Technology, Nanoscale Science and Engineering, Math and Science Partnerships Initiatives, and the Science, Mathematics, Engineering, and Technology Talent Expansion Program.
The bill provides that the Information Technology program is "An information technology research program to support competitive, merit based proposals for research, education, and infrastructure support in areas related to cybersecurity, terascale computing systems, software, networking, scalability, communications, and data management."
The bill provides that the nanoscale program is "A nanoscale science and engineering research and education program to support competitive, merit based proposals that emphasize research aimed at -- (A) discovering novel phenomena, processes, materials, and tools that address grand challenges in materials, electronics, optoelectronics and magnetics, manufacturing, the environment, and healthcare; and (B) supporting new interdisciplinary centers and networks of excellence, including shared national user facilities, infrastructure, research, and education activities on the societal implications of advances in nanoscale science and engineering."
The Committee also approved by voice vote an amendment [2 pages in PDF] offered by Sen. Ron Wyden (D-OR) and Sen. Max Cleland (D-GA), that provides for a ten year retrospective report on and review of National Science Foundation (NSF) programs to promote participation of women, minorities, and persons with disabilities in science, mathematics and engineering fields.
Senate Adds Cyber Security Amendment to Homeland Security Bill
9/19. The Senate approved by unanimous consent an amendment to HR 5005, the Homeland Security Bill, offered by Sen. Orrin Hatch (R-UT) that pertains to cyber security. It is essentially the same as HR 3482, the Cyber Security Enhancement Act, sponsored by Rep. Lamar Smith (D-TX), which passed the House on July 15, 2002, by a vote of 385-3.
See, story titled "House Passes Cyber Security Enhancement Act" in TLJ Daily E-Mail Alert No. 470, July 16, 2002, for a section by section summary of the bill. See also, House Roll Call No. 296.
Sen. Hatch (at right) said in a statement in the Senate that "one of the many important tasks of the new Department of Homeland Security will be protecting our country's computer infrastructure from cyber attacks. Computer technology is at the heart of our country's economy and has improved every aspect of our lives. Terrorists and others who wish to harm our country recognize that cyber attacks on our vital computer and related technological systems can have a devastating impact on our country, our economy and the lives of our people." However, the amendment would pertain to cyber crimes generally, not just those committed by terrorists.
Sen. Hatch continued that "The amendment will strengthen our criminal laws and provide greater flexibility to communications providers and law enforcement when necessary to prevent and protect against devastating cyber attacks. Specifically, the amendment would increase the criminal penalty in Section 1030 of Title 18 of the United States Code for a cyber attack to a maximum of 20 years imprisonment where such an attack causes serious bodily injury, and life imprisonment where such an attack causes death. Currently, Section 1030 provides a maximum punishment of only 10 years imprisonment for a cyber attack which results in serious bodily injury or death."
Sen. Hatch also commented that "it is not difficult to imagine an assault on a computer system which might cause death or serious bodily injury. For example, a hacker who infiltrates a hospital database to erase records may thereby cause a patient to be deprived of necessary medication or treatment. As another example, consider the possibility of a cyber attack on a natural gas distribution pipeline that opens safety valves and releases fuel or gas. Attacks on sophisticated control systems, such as those involving natural gas, oil, electric power and water, which typically use automated supervisory control and data acquisition (SCADA) systems, would have a far reaching effect."
Senate Subcommittee Holds Hearing on Antitrust Enforcement
9/19. The Senate Judiciary Committee's Antitrust Subcommittee held an oversight hearing on enforcement of the antitrust laws. Charles James (Assistant Attorney General for the Antitrust Division) and Timothy Muris (FTC Chairman) both testified.
See, opening statement of Sen. Herb Kohl (D-WI), Chairman of the Subcommittee, opening statement of Sen. Mike DeWine (R-OH), the ranking Republican on the Subcommittee, and opening statement of Sen. Orrin Hatch (R-UT).
James addressed a wide range of topics in his prepared testimony, including criminal enforcement, merger reviews, gun jumping, the Microsoft case, the American Airlines case, and the case against software makers MathWorks and Wind River Systems. He also addressed globalization and coordination with the European Union. Finally, he covered recent Department of Justice (DOJ) analysis of intellectual property issues, remedies in merger enforcement, and coordinated effects.
Microsoft. James reviewed the post judgment history of the case, including settlement. He stated that "the proposed consent decree represents a complete and fully successful resolution of the case, in that it enjoins the conduct found to be unlawful, prevents recurrence of that conduct, and takes proactive steps to restore lost competition. Moreover, it provides for immediate relief, in that Microsoft agreed to be bound by the decree’s terms upon signature. Consequently, Microsoft has already modified its licensing practices to permit computer manufacturers to substitute competing middleware products for those provided as part of its operating system, modified its new XP operating system, and begun to release important interfaces and protocols that will enable third-parties to develop products and services that will interopperate with Windows."
FTC DOJ Clearance Agreement. James also touched on the ill fated clearance agreement between the FTC and DOJ, which was abandoned when Sen. Ernest Hollings (D-SC) threatened to cut budgets. James stated that "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. ... 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."
Intellectual Property. James also addressed IPR and antitrust, and the joint hearings held earlier this year by the FTC and DOJ. He stated that "In recent years intellectual property issues have arisen with increased frequency in our merger and civil conduct investigations and enforcement actions. While intellectual property and antitrust law share the common purpose of promoting dynamic competition and thereby enhancing consumer welfare, issues at the intersection of intellectual property and antitrust can be murky. More than ever before, the creation and dissemination of intellectual property is the engine driving economic growth.
"Consequently," said James, "as antitrust law addresses the competitive implications of conduct involving intellectual property, and as intellectual property law addresses the nature and scope of intellectual property rights, care must be taken to maintain proper incentives for the innovation and creativity on which our national economy depends."
He added that "Both we and FTC believed that a thorough review of the issues in this important area should be undertaken" and that "We expect to publish a report in 2003".
Muris also addressed intellectual property in his opening statement. He stated that "The continuing development of ``high tech´´ industries and the significance of intellectual property rights influence our antitrust agenda. The U.S. economy is more knowledge based than ever. While the fundamental principles of antitrust do not differ when applied to high tech industries, or other industries in which patents or other intellectual property are highly significant, the issues are often more complex, take more time to resolve, and require different kinds of expertise. To address these needs, we now have patent lawyers on staff, and we sometimes hire technical consultants in areas such as electrical engineering or pharmacology."
B2Bs. Muris also addressed business to business electronic market places. He stated that "the Commission has not formally taken enforcement action against any B2Bs since it closed its investigation of Covisint in September 2000, but we stand ready to take such action if an appropriate case arises."
He added that the FTC "views positively the development of B2Bs because of their potential to generate significant efficiencies for our economy, winning for customers lower prices, improved quality and greater innovation. At the same time, we are aware of B2Bs’ potential to inflict competitive harm. By their nature, B2Bs either bring together competitors in a collaborative environment, or constitute vertical collaborations between suppliers and purchasers in an industry or market. These arrangements may facilitate anticompetitive conduct, either in the markets for the goods and services traded on B2Bs (or derived from those traded on B2Bs), or in the market for marketplaces themselves." (Parentheses in original.)
Muris also discussed the FTC's Internet Task Force, and the Internet Competition Workshop.
House Committees Hold Hearing on SS Numbers and Identity Theft
9/19. The House Judiciary Committee's Subcommittee on Immigration, Border Security, and Claims, and the House Ways and Means Committee's Subcommittee on Social Security held a joint oversight hearing titled "Preserving the Integrity of Social Security Numbers and Preventing Their Misuse by Terrorists and Identity Thieves".
See, prepared testimony of witnesses: James Lockhart (Deputy Commissioner of Social Security), Charisse Phillips (State Department), Robert Bond (Secret Service), Grant Ashley (Federal Bureau of Investigation), James Huse (Social Security Administration), Matthew Reindl, and Chris Hoofnagle (Electronic Privacy Information Center).
NTIA Extends ICANN Contract for One Year
9/19. The Commerce Department's National Telecommunications and Information Administration (NTIA) amended and extended its memorandum of understanding (MOU) with International Corporation for Assigned Names and Numbers (ICANN) for the management of the the domain name system (DNS). See, document titled "Memorandum of Understanding Between the U.S. Department of Commerce and the Internet Corporation for Assigned Names and Numbers: Amendment 5".
The original MOU was executed in November of 1998. The current MOU was set to expire on September 30, 2002.
Recently, there has been wide dissatisfaction with the performance of the ICANN. See, story titled "Senate Subcommittee Holds Hearing on ICANN", TLJ Daily E-Mail Alert No. 450, June 13, 2002.
The NTIA also issued a statement critical of the ICANN. The statement provides that the ICANN "must be globally and functionally representative, operate on the basis of open and transparent processes, and possess robust, professional management".
It further stated that the NTIA "views the one year term of this extension to be a critical period for ICANN to make substantial progress on the remaining transition tasks. Indeed, the tasks themselves have been revised and augmented to highlight areas where both ICANN and the Department agree that ICANN's attention needs to be focused. During this one year term of the MOU extension, the Department will be closely monitoring ICANN's efforts, particularly through a quarterly reporting mechanism, and expects to see significant advancement."
The NTIA statement elaborated that the "ICANN should not be ``the government of the Internet.´´ Particularly, as the registry and registrar markets become increasingly competitive, the Department believes that market forces should play a greater role and that ICANN's involvement in policy making in this area should be correspondingly narrow."
It also stated that the NTIA has been "disappointed that ICANN's progress on the MOU tasks has moved so slowly", and that the MOU was extended in part because of the "uncertainty that would be generated by a drastic change in direction on DNS management".
NTIA Director Nancy Victory said in a release that "Although the MOU tasks have been augmented, ICANN should be a technical coordination body whose policy making role is limited ... ICANN should not be the government of the Internet."
The Center for Democracy and Technology (CDT) stated that "The new MOU imposes some new tasks on ICANN regarding improved accountability, transparency, and overall security of the Internet's Domain Name System, but fails to provide guidance on what the appropriate limits on ICANN's power should be."
GAO Reports on USPTO
9/19. The General Accounting Office (GAO) released a report [PDF] titled "Intellectual Property: Information on the U.S. Patent and Trademark Office's Past and Future Operations".
The report states that "As the U.S. economy depends increasingly on new innovations, the need to patent or trademark quickly the intellectual property resulting from such innovations becomes more important."
The report details U.S. Patent and Trademark Office (USPTO) statistics: "Patent activity grew substantially from fiscal year 1990 through 2001. The numbers of patent applications filed and patents granted nearly doubled, and the inventory of patent applications more than tripled; patent pendency increased from slightly over 18 months to nearly 25 months; and the number of patent examiners increased by about 80 percent," according to the report. Also, "Between fiscal years 1999 and 2001, fee collections increased from $887 million to $1.085 billion ..."
The report also reviews and contrasts the USPTO Business Plan, released February 2002, and The 21st Century Strategic Plan, released in June, 2002, both of which cover FY 2003 through 2007.
The report was prepared for Rep. Jim Saxton (R-NJ), the Chairman of the Joint Economic Committee, and Rep. Lamar Smith (R-TX), a member of the House Judiciary Committee. Rep. Smith stated in a release that "It is critically important that the USPTO become more efficient, accurate and productive in its duties so that innovators aren't stifled by delay nor encumbered by red tape.  When the process fails, American intellectual property and our economy suffer."
New Bills
9/19. Rep. Mike Ferguson (R-NJ) and Rep. Harold Ford (D-TN) introduced HR 5414. The Congressional Record describes this as "A bill to facilitate check truncation by authorizing substitute checks, to foster innovation in the check collection system without mandating receipt of checks in electronic form, and to improve the overall efficiency of the Nation's payments system". It was referred to the House Committee on Financial Services.
9/19. Rep. Lamar Smith (R-TX), Rep. George Gekas (R-PA), Rep. John Conyers (D-MI), and Rep. Jane Harman (D-CA) introduced HR 5424. The Congressional Record describes this as "A bill to prevent the crime of identity theft [and] mitigate the harm to individuals victimized by identity theft". It was referred to both the House Judiciary Committee and the House Financial Services Committee.
People and Appointments
9/19. Jonathan Sokobin was named Deputy Chief Economist of the Securities and Exchange Commission's (SEC) Office of Economic Analysis. He was previously a member of the faculty at Southern Methodist University (SMU). See, SEC release.
More News
9/19. The House Commerce Committee's Subcommittee on Oversight and Investigations authorized the issuance of subpoenas in connection with the Committee's investigation into Global Crossing, Qwest and related entities. The subcommittee adopted a resolution, by a vote of 11-0, that provides, "the Chairman of the Committee on Energy and Commerce, with the concurrence of the Ranking Minority Member, may authorize and issue subpoenas to testify and subpoenas duces tecum to any person or entity in respect of matters involved in, relating to, or arising from the Committee’s investigation of Global Crossing Ltd., Qwest, and related entities."
9/19. Michael Powell, Chairman of the Federal Communications Commission (FCC) gave a speech [PDF] to the National Summit on Emerging Tribal Economies in Phoenix, Arizona. He discussed, among other topics, telecommunications in Indian Country, and the benefits of broadband. He stated that " With a sufficient technology infrastructure, Indian Country can take advantage of many of the economic realities of rural life to become competitive in any number of technology industries. Independent professional workers working from reservations via broadband facilities could constitute an attractive workforce for both tribal and non-tribal companies. Broadband infrastructure deployed to support tribal entrepreneurs will allow them to gain access to business information once reserved only to the largest multinational corporations."
9/19. The House Judiciary Committee's Subcommittee on Courts, the Internet, and Intellectual Property held a hearing on HR 5119, the Plant Breeders Equity Act of 2002. See, opening statement of Rep. Howard Coble (R-NC), Chairman of the Subcommittee. See also, prepared testimony of witnesses: James Toupin (USPTO), Vincent Garlock (American Intellectual Property Law Association), Craig Regelbrugge (American Nursery & Landscape Association), and Peter DiMauro (International Center for Technology Assessment).
FCC Commissioner Addresses Government Role in Broadband Deployment
9/18. Federal Communications Commission (FCC) Commissioner Kevin Martin gave the opening address at a half day conference hosted by the Alliance for Public Technology (APT) and the High Tech Broadband Coalition (HTBC) titled "From Debate to Deployment: Making Broadband Competition Work for All Americans".
Martin stated that broadband deployment will spur economic growth and provide the benefits of distance learning, public safety and emergency response, telemedicine, and rural medicine. He advocated moving quickly on pending broadband related proceedings, promoting facilities based competition, and removing financial and regulatory obstacles to broadband deployment.
Martin outlined four principles. (Martin also discussed these principles in a speech on October 26, 2001, titled "Framework for Broadband Deployment".) First, the government should establish a "stable, reliable and fast regulatory environment".
He stated that "Broad proceedings that remain pending for extended periods will contribute to uncertainty. More protracted uncertainty can prolong financial difficulty. Regulatory uncertainty and delay can function as entry barriers" and limit investment, thereby "impeding deployment of new services".
He said that "I believe that it is time for the Commission to take action on these various proceeding involving broadband competition, including the UNE triennial, performance measures, and the broadband proceedings that are currently before us." He elaborated that the FCC should act first on the UNE triennial, and that it should act this year.
Martin's second principle is that "the Commission needs to focus more on facilities based competition."
"In the past, the Commission has adopted a framework that may have discouraged facilities based competition by allowing competitors to use every piece of an incumbent's network at super efficient prices," said Martin. "Under such a regime, new entrants have little incentive to build out facilities, since they can use the incumbent's cheaper and more quickly. And incumbents have less incentives to build new facilities, since they must share them with their competitors at regulated prices."
Martin's third principle is that governments should reduce the financial burden they impose on broadband. He state that "Currently, at every level of government, we often, we too often see broadband deployment and telecommunications as a potential revenue stream."
He continued that "from federal and state excise taxes, the kind of taxes that have traditionally been reserved for decreasing demand for certain products, such as alcohol and tobacco, to local franchise fees, which are sometimes designed to recoup more than the cost that the government bears for allowing services to be deployed, such as repairing streets, governments impose taxes that actually discourage demand, and therefore discourage the deployment of broadband telecommunications services."
He also stated that "I do not support the FCC's proposal to extend universal service contribution obligations to the providers of broadband Internet access. In my view, the contribution requirement ... would be essentially an Internet access tax that represents an unnecessary financial burden on such Internet service providers and actually creates a barrier to broadband deployment."
Martin's fourth principle is that governments should remove regulatory barriers to broadband deployment. He stated that "For competitive carriers, many of these regulatory hurdles occur at the state and local level. These include local rights of ways, permits for zoning and tower citing".
Martin also briefly touched on various proposals for Congressional legislation. He said that "There are several different legislative proposals for providing direct and indirect financial incentives for broadband deployment." He said that "more targeted relief" such as "reform and modernization of depreciation schedules can actually help spur deployment." However, he concluded that "even more important than providing direct relief right now, I believe the government should first commit itself to exercising self restraint by placing additional financial burdens on broadband."
In responses to questions from the audience, he further elaborated the FCC's UNE remand proceeding. He does not know if the FCC will file a petition for writ of certiorari from the U.S. Court of Appeals (DCCir). He hopes that the FCC will act this year. He also addressed universal service.
Afterwards Martin spoke with reporters outside the conference room. He discussed primary video, must carry, the FCC's likely timing in the UNE remand and broadband related proceedings, and E-911.
TLJ transcribed extended excerpts from Martin's speech, responses to questions from the audience, and responses to questions from reporters outside the event. The transcription was made from TLJ's audio recording of the event. The quality of the audio recording was poor, and Commissioner Martin spoke over a noisy breakfast audience. Hence, this transcript includes many omissions, and is certain to contain errors. Nevertheless, for whatever it may be worth, the transcript is in the TLJ web site.
FCC Approves BellSouth Long Distance Application
9/18. The FCC approved BellSouth's application under Section 271 to provide in region interLATA services in the states of Alabama, Kentucky, Mississippi, North Carolina, and South Carolina.
BellSouth Ch/CEO Duane Ackerman stated in a release that "The approval of this application by the FCC, the first approval of five states at one time, proves that BellSouth is in compliance with the Telecom Act of 1996, that our markets are open to local competition, and that millions of additional customers in our operating region will now experience the benefits of increased competition for long-distance services". He added that "We will be in the marketplace in these five states on September 27 with the competitive long distance offers and packages our customers want." Ackerman is also scheduled to speak at a Federal Communications Bar Association (FCBA) luncheon in Washington DC on Thursday, September 26.
The FCC approved BellSouth's Section 271 application for Georgia and Louisiana in May of this year. The FCC's docket number for this five state application is WC 02-150. For more information, contact Aaron Goldberger of the FCC's Wireline Competition Bureau at 202 418-1591.
FCC Releases Order With Competition Analysis of Radio Ownership
9/18. The Federal Communications Commission (FCC) released a Hearing Designation Order [18 pages in PDF] in its proceeding on the application to assign the license of radio station WAAM(AM), in Ann Arbor, Michigan, from Whitehall Enterprises to Clear Channel.
While the license involved in this proceeding (MB Docket No. 02-284) is not significant, the order includes the FCC's interim public interest analysis, and competition analysis, in a subject that is currently the subject of several pending Notice of Proposed Rulemaking (NPRM) proceedings.
The FCC order states that "we are unable to make the required finding that the public interest, convenience and necessity will be served by granting the subject application in light of the questions raised in the context of our competition analysis." Accordingly, the FCC assigned this matter for a hearing.
People and Appointments
9/18. Scott Taub was named Deputy Chief Accountant of the Securities and Exchange Commission (SEC). He previously worked in Andersen's Professional Standards Group in Chicago, Illinois. See, SEC release.
More News
9/18. The Treasury Department released its notice [39 pages in PDF] to be published in the Federal Register which contains and explains its final rule regarding information sharing among financial institutions and federal government law enforcement agencies. The USA PATRIOT Act, at Section 314, required the Treasury Department to promulgate regulations "to encourage further cooperation among financial institutions, their regulatory authorities, and law enforcement authorities, with the specific purpose of encouraging regulatory authorities and law enforcement authorities to share with financial institutions information regarding individuals, entities, and organizations engaged in or reasonably suspected based on credible evidence of engaging in terrorist acts or money laundering activities."
9/18. The Federal Communications Commission (FCC) released its Notice of Proposed Rulemaking and Memorandum Opinion and Order [50 pages in PDF] pertaining to telemarketing rules. The FCC announced, but did not release, this NPRM and MOO at its September 12 meeting.
9/18. Brown University's Taubman Center for Public Policy released a study [27 pages in PDF] of 1,265 state and federal websites. It ranked a select group of 59 federal web sites. The Federal Communications Commission's (FCC) web site was ranked first. The Commerce Department web site was rated eleventh. The White House was rated thirteenth. The Federal Trade Commission (FTC) was  nineteenth, and the Department of Justice (DOJ) was twentieth. The thirteen judicial branch web sites rated by the study received the thirteen lowest rankings. See, FCC release [PDF].
9/18. Research in Motion (RIM) filed a complaint in U.S. District Court (DDel) against Handspring alleging patent infringement. RIM makes wireless handheld communications products, including the Blackberry line. Handspring makes PDAs, including the Treo Organizers and Treo Communicators. RIM stated in a release that the complaint alleges that the Treo k180, Treo 270 and Treo 300 "infringe the claims of a patent associated with unique keyboard features implemented in RIM's" BlackBerry.
9/18. A grand jury of the U.S. District Court (NDOhio) returned a three count indictment against Steve Wisdom. The indictment includes two counts of criminal infringement of copyrighted computer software in violation of 18 U.S.C. § 2319(b)(1) and 17 U.S.C. § 506(a), and one count of trafficking in counterfeit labels affixed or designed to be affixed to unauthorized or counterfeit copies of copyrighted computer programs in violation of 18 U.S.C. § 2318(a). See, CCIPS release.
Senators Introduce Nanotechnology R&D Bill
9/17. Sen. Ron Wyden (D-OR), Sen. Joe Lieberman (D-CT) and Sen. George Allen (R-VA) introduced the 21st Century Nanotechnology Research and Development Act. See, joint release and Lieberman statement.
In addition, the Senate Commerce Committee's Subcommittee on Science, Technology, and Space held a hearing on nanotechnology. See, prepared testimony of witnesses in PDF: Richard Russell (Office of Science and Technology Policy), Mark Modzelewski (NanoBusiness Alliance), Stan Williams (Hewlett Packard), and Nathan Swami (Initiative for Nanotechnology, Commonwealth of Virginia).
The Commerce Committee is scheduled to mark up the bill on Thursday, September 19.
SEC Official Addresses Smart Routing Technologies
9/17. Lori Richards, Director of the Securities and Exchange Commission's (SEC) Office of Compliance Inspections and Examinations gave a speech titled "Key Issues in SEC Examinations of Broker Dealers". She discussed a wide range of issues, including sales practices, supervision, internal controls, money laundering, the IPO process, and analysts' conflicts of interest. She also touched on smart routing technologies, and identity theft.
She stated that "We are continuing to focus on execution practices of broker dealers and advisers. ... Now retail order routing firms have a new tool to measure and monitor execution quality -- all firms should be using the new market quality data required to be provided by market centers under Rule 11Ac1-5."
"Order routing decisions must be made based on the ability to get the best possible execution, not on order routing inducements," said Richards.
She continued that "Many firms are using ``smart routing technology´´ that allows them to instantaneously route individual customer orders to the market posting the best price or best size (or both), with algorithyms that also factor in past fill rates and price improvement rates. Certainly, ``smart routers´´ go a long way to ensuring that customers are getting the best possible price at any given moment during the trading day." (Parentheses in original.)
She also addressed identity theft. "Regulation S-P requires that firms have adequate safeguards to protect customer information from unauthorized access or use. As such, we are currently conducting a sweep of broker-dealers and investment company complexes to evaluate their policies and procedures for protecting customer records and information from people seeking to commit identity theft frauds."
Richards spoke to the Legal and Compliance Division of the Securities Industry Association at the Union League Club in New York, NY.
CEA CEO Criticizes Record and Movie Companies on Copyright
9/17. Consumer Electronics Association (CEA) P/CEO Gary Shapiro gave a speech titled "The Campaign to Have Copyright Interests Trump Technology and Consumer Rights" at the Optical Storage Symposium, in San Francisco, California. He bluntly criticized the copyright related actions and arguments of the movie and record companies, and their supporters in the Congress and Justice Department. See, full story.
Bush Campaigns on Judicial Appointments
9/17. President Bush gave a speech in Nashville, Tennessee, at a Lamar Alexander for Senate event. He repeated his argument that voters should elect Republican Senators so that his judicial nominees will get confirmed.
He stated that "I appreciate the fact that I'll be able to work with Lamar on making sure the good people who I nominate to our federal benches will not only get a fair hearing, but a speedy hearing, and will get approved. The country got to see what happens when the Senate gets so politicized that they won't give people a fair hearing when it comes to judicial nominees."
Bush continued: "I named a fabulous woman out of Texas, named Priscilla Owen to the 5th Court. And they distorted her record. She had the highest ranking from the ABA, and yet having listened to the rhetoric coming out of a highly politicized and polarized committee, you never would have realized how qualified she is. She was turned down for purely political purposes. For the sake of a federal judiciary that is strong and solid, we need United States senators like Lamar Alexander who will be fair and reasonable and realistic, and will not play politics with the President's judicial nominees."
CO Seeks Comment on Broadcasters' Motion for Stay of Rule
9/17. The Copyright Office (CO) published a notice in the Federal Register requesting public comments on the motion for stay filed by various broadcasters of the CO's final rule that provides that transmissions of a broadcast signal over a digital communications network are not exempt from copyright liability under 17 U.S.C. § 114(d)(1)(A).
The comment period is very short. The notice states that "Oppositions are due no later than Tuesday, September 24, 2002. Replies are due no later than Friday, September 27, 2002."
See, Federal Register, September 17, 2002, Vol. 67, No. 180, at Pages 58550 - 58551. See also, copy of the notice [3 pages in PDF] in the CO web site. This is the CO's Docket No. RM 2000-3C.
On December 11, 2000, the Copyright Office issued its final rule providing that the transmission of a sound recording as part of a retransmission of an AM/FM broadcast signal over a digital communications network, such as the Internet, is subject to the limited digital performance right provided by 17 U.S.C. § 106(6), and is not exempt under § 114(d)(1)(A) -- the provision that specifically exempts a nonsubscription broadcast transmission. See, notice in Federal Register, December 11, 2000, Vol. 65, at Pages 77292 - 77302.
On January 25, 2001, Bonneville International, Clear Channel Communications, Cox Radio, Emmis Communications, Entercom Communications, Susquehanna Radio, and the National Association of Broadcasters filed a complaint in U.S. District Court (EDPenn) against the Copyright Office seeking a declaration that the CO's final rule is inconsistent with 17 U.S.C. § 114(d)(1)(A). This case is also known as NAB v. Peters.
On August 1, 2001, the District Court issued its Memorandum and Order granting summary judgment to the Copyright Office. The broadcasters have filed an appeal in the U.S. Court of Appeals (3rdCir), which is pending. See, Appeal No. 01-3720.
Tech Crime
9/17. Lynn Booker plead guilty in U.S. District Court (EDCal) to checking kiting via ATMs and unauthorized computer transactions through computer home banking. Check kiting is a fraudulent scheme in which a bank customer utilizes the time it takes for checks to clear to create artificially high balances of nonexistent funds through a systematic exchange of checks among accounts.
The U.S. Attorneys Office described Booker's scheme in a release [PDF]: "One account belonged to her and the other belonged to another person for which she was originally a co-signer, but was subsequently removed from the account. Investigators learned that defendant BOOKER forged checks on the other person's  account and deposited the forged checks into her account. BOOKER then deposited checks drawn on her account to the other person's account to sustain the check ``kite´´. BOOKER used Co-Op ATMs which provided additional float time for the check ``kite,´´ since they were not proprietary ATMs of the original credit union. On a number of occasions, BOOKER also conducted unauthorized computer transactions through computer home banking, and transferred funds between the two accounts. At the time of the transactions, BOOKER had no authority to make these transactions on the other person's account."
People and Appointments
9/17. Hank Brown resigned as a Director of Qwest Communications. He had been a director of Qwest and its predecessor, U S WEST since 1998. He is also a former U.S. Senator and Representative from Colorado. See Qwest release.
More News
9/17. A grand jury of the U.S. District Court (NDCal) returned an indictment against Dennis Baker charging one count of criminal copyright infringement in violation of 17 U.S.C. § 506(a)(1) and 18 U.S.C.§ 2319(b)(1). The U.S. Attorneys Office (USAO) for the Northern District of California stated in a release that Baker "operated a website in 1996 through which he made pirated copies of business and game software available for sale ... that had a retail value of approximately $2.4 million." The USAO further stated that Baker fled to Malaysia after he learned of earlier charges against him. However, the FBI tracked him, the State Department revoked his passport, and Malaysia revoked his authorization to remain and put him on a plane back to the U.S. He is being held without bail.
9/17. California Gov. Gray Davis signed AB 2238, sponsored by Assemblymember Dick Dickerson (R-Redding). The provides, in part, that "No person shall knowingly post the home address or telephone number of any elected or appointed official, or of the official's residing spouse or child on the Internet knowing that person is an elected or appointed official and intending to cause imminent great bodily harm that is likely to occur or threatening to cause imminent great bodily harm to that individual."
9/17. AT&T stated in a release that "The waiting period under the Hart Scott Rodino Antitrust Improvements Act (the HSR Act) applicable to the combination of Comcast Corporation and AT&T Broadband has expired. At this time, the HSR Act no longer prohibits the parties from closing the proposed transaction." AT&T added that "The parties are still awaiting certain other regulatory approvals and consents and continue to expect that the transaction will close in the fourth quarter of 2002."
9/17. The U.S. Court of Appeals (DCCir) held an en banc hearing in Ruggiero v. FCC, No. 00-1100. On February 8, a three judge panel issued its split opinion holding unconstitutional the ban on issuance of low power FM radio broadcast licenses to anyone who has previously engaged in an unlicensed operation.
9th Circuit Applies Fair Use Exemption to News Video Footage
9/16. The U.S. Court of Appeals (9thCir) issued its opinion [PDF] in LANS v. CBS, a copyright infringement case involving news video footage in which the court examined evidentiary and fair use issues.
Background. The Los Angeles News Service (LANS) shot videos in 1992 of a riot in Los Angeles from its helicopter, including one of the beating of Reginald Denny. LANS registered copyrights with the Copyright Office. LANS alleges that a video news service that was then a part of Westinghouse Electric (a Viacom company, like CBS) distributed LANS's video footage, without license, to its subscribers, including television stations. LANS further alleges that Court TV was one of those subscribers who used copyrighted footage.
District Court. LANS filed a complaint in U.S. District Court (CDCal) against Westinghouse Electric and others alleging copyright infringement. The District Court granted summary judgment to defendants. The District Court's judgment for CBS was based upon its exclusion of all of LANS's evidence probative of distribution of the copyrighted video. The judgment for CourtTV was based upon fair use. LANS brought this appeal.
Appeals Court. The Appeals Court reversed the grant of summary judgment to CBS Broadcasting, and remanded. The Appeals Court affirmed the grant of summary judgment to CourtTV. Following a detailed analysis under the four prong fair use standard of 17 U.S.C § 107, it held that CourtTV's very short take from the video fell within the fair use exception.
Court Rules on Appointment of Lead Plaintiff in Class Action Securities Suit Against Tech Company
9/16. The U.S. Court of Appeals (9thCir) issued its opinion [30 pages in PDF] in In Re Cavanaugh, a case regarding the standard under the 1995 PSLRA for appointing the lead plaintiff in a class action securities fraud lawsuit.
Background. This case arising out of the decline in the stock price of Copper Mountain Networks, a supplier of digital subscriber line (DSL) products. The usual flood class action securities fraud lawsuits followed. One of the many law firms to file was Milberg Weiss, a firm that specializes in bringing class action securities fraud suits against high tech companies.
District Court. The District Court consolidated the actions, and appointed Quinn Barton, a self employed investor represented by the law firm of Beatie & Osborn, as lead plaintiff. However, the lead plaintiffs proposed by Milberg Weiss, which included David Cavanaugh, had the largest cumulative financial stake in the controversy. Milberg Weiss brought this petition for writ of mandamus.
Appeals Court. The Appeals Court outlined and applied the controlling provisions of Rule 23, Federal Rules of Civil Procedure, and the Private Securities Litigation Reform Act (PSLRA), 15 U.S.C. § 78u-4, pertaining to appointment of lead plaintiff in class action securities cases. It held that the District Court did not follow the statutory framework, and hence, granted the petition, and vacated the order appointing Barton lead counsel.
The Appeals Court wrote that the PSLRA provides that the presumptive lead plaintiff is the one who meets the requirements of Rule 23 and "has the largest financial interest in the relief sought by the class". However, the PSLRA also provides that the District Court may appoint another prospective lead plaintiff, if he can demonstrate "a reasonable basis for a finding that the presumptively most adequate plaintiff is incapable of adequately representing the class."
The District Court had found that the Cavanaugh group of plaintiffs were the presumptively "most adequate plaintiff" because it had the largest stake; however, it also found that Barton rebutted the presumption by showing "significant differences in potential attorney fees" that "cannot be rationally explained by intangible factors such as the well recognized brand name in securities litigation of" Milberg Weiss.
The Appeals Court wrote that the PSLRA instructs the District Court to select as lead plaintiff the one "most capable of adequately representing the interests of class members." The PSLRA, in turn, defines "most capable" as the one who "has the largest financial interest in the relief sought by the class" and "otherwise satisfies the requirements of Rule 23".
"In other words," the Appeals Court wrote, "the district court must compare the financial stakes of the various plaintiffs and determine which one has the most to gain from the lawsuit. It must then focus its attention on that plaintiff and determine, based on the information he has provided in his pleadings and declarations, whether he satisfies the requirements of Rule 23(a), in particular those of ``typicality´´ and ``adequacy.´´ If the plaintiff with the largest financial stake in the controversy provides information that satisfies these requirements, he becomes the presumptively most adequate plaintiff. If the plaintiff with the greatest financial stake does not satisfy the Rule 23(a) criteria, the court must repeat the inquiry, this time considering the plaintiff with the next largest financial stake, until it finds a plaintiff who is both willing to serve and satisfies the requirements of Rule 23." (Emphasis in original. Footnotes omitted.)
The Appeals Court continued that the District Court "started on the right foot by identifying the Cavanaugh group and each of its members as the plaintiffs with the largest financial stake in the litigation. The court quickly went off the statutory track, however, by failing to give effect to the presumption that the Cavanaugh group would be lead plaintiff unless it failed to satisfy Rule 23(a)'s typicality or adequacy requirement. ... The court discounted the significance of the statutory presumption based on its understanding that ``the presumption was an effort by Congress to encourage the involvement of institutional investors in securities class actions.´´"
Judge Kozinsky, who wrote the opinion of the Appeals Court, added that "This, of course, was error. Congress enacts statutes, not purposes, and courts may not depart from the statutory text because they believe some other arrangement would better serve the legislative goals."
Judge Wallace wrote a concurring opinion. He expressed his concerns arising out of the fact that this case was before the Court of Appeals on a petition for writ of mandamus, rather than as an appeal of an interlocutory order. He also addressed the implications of this for the Appeals Court's scope of review at this stage, and the affect upon review of final judgment.
Grassley and Baucus Organize Meeting on FSC/ETI Issue
9/16. Sen. Max Baucus (D-MT) and Sen. Charles Grassley (R-IA) wrote a letter [PDF] to Rep. Bill Thomas (R-CA), Rep. Charles Rangel (D-NY), USTR Robert Zoellick, and Assistant Treasury Secretary Kenneth Dam inviting them to a legislative executive working group meeting on September 24 on the Foreign Sales Corporation (FSC) and Extraterritorial Income Exclusion Act (ETI) issue.
Baucus and Grassley are the Chairman and ranking Republican on the Senate Finance Committee, which has jurisdiction of tax and certain trade matters. They wrote that "We firmly believe that resolution of this issue will require a long term collaborative effort, involving tax and trade policy makers in Congress and the Administration. At the September 24 meeting, we expect to give directions to our respective staffs to meet on a regular basis, with the goal of developing specific recommendations that can win support from the Congress and the Administration."
Rep. Thomas and Rep. Rangel are the Chairman and ranking Democrat on the House Ways and Means Committee, which has jurisdiction in the House on this issue.
The proposed meeting will be at 5:30 PM on September 24 in Room 211 of the Dirksen Building, but will be closed to the public.
The World Trade Organization (WTO) held that the FSC tax regime constitutes an illegal export subsidy. So, Congress passed replacement legislation, the ETI, which the WTO also held to constitute an illegal export subsidy. On August 30, the WTO issued a Decision of the Arbitrator [46 pages in PDF] which authorizes the EU to impose $4 Billion in countermeasures, or retaliatory tariffs.
Last Friday, September 13, the European Union published a document [14 pages in PDF] titled "Notice relating to the WTO Dispute Settlement proceeding concerning the United States tax treatment of Foreign Sales Corporations (FSC) -- Invitation for comments on the list of products that could be subject to countermeasures", which identified a list of products which could be subject to retaliatory tariffs. The list includes many electronics products.
The U.S. can avoid the imposition of EU retaliatory tariffs by repealing the ETI. Rep. Thomas introduced HR 5095, the American Competitiveness and Corporate Accountability Act of 2002, on July 11, 2002, to address the WTO's rulings regarding the FSC and ETI. See also, Rep. Thomas' summary of HR 5095. However, no action has been taken on the bill. There is no replacement legislation pending in the Senate.
Representatives Write Powell Re UNE Pricing
9/16. Rep. Billy Tauzin (R-LA), Rep. John Dingell (D-MI), and 102 other member of the House of Representatives signed a letter [8 pages in PDF] to Federal Communications Commission (FCC) Chairman Michael Powell regarding unbundled network element (UNE) pricing.
The letter states that "The current system of federal pricing and unbundling rules and state regulatory orders is eroding investment in telecommunications networks, threatening the development of innovative new services and retarding the development of full scale facilities based competition envisioned by the Act. At the heart of this regulatory regime is the requirement that Regional Bell Operating Companies provide elements of their network, particularly combinations of elements, to other telecommunications companies at prices far below their actual cost."
The letter argues that "While Congress prescribed the unbundled network element form of competition, in no way did it intend to establish, nor even foresee the possibility of establishing, a system that forces companies to provide network elements at prices far below their cost. Such a regime undermines the Act's goal of promoting facilities based competition by discouraging telecommunications companies competing with the Bells from investing in their own new networks. It simply makes no economic sense for these companies to spend the billions of dollars necessary to invest in their own networks if they can instead rent access to Bell company networks and resell their service at an enormous profit."
Moreover, "The current regulatory system has also caused dramatic reductions in capital spending by the Bell companies, who have neither the incentive nor the financial ability to make investments in their networks that end up subsidizing their direct competitors."
The letter concludes that "It is important for the FCC to address the wholesale pricing issue in a manner that restores the proper incentives for investment in the telecommunications sector."
Rep. Tauzin and Rep. Dingell are the Chairman and ranking Democrat on the House Commerce Committee, which oversees the FCC. The bipartisan list of signatories includes many other members of the Committee.
More News
9/16. Treasury Secretary Paul O'Neill gave a speech in Portland, Maine, regarding the economy. He said that "We've suffered through a bursting stock market bubble, terrorist attacks on New York and Washington, and discoveries of corporate fraud." However, "today it looks like we are on the road to recovery -- a bumpy road, but the right road nonetheless. The latest indicators look good." He cited, as an example, that "Capital spending on equipment and software rose in the second quarter for the first time in seven quarters and looks even better for the third quarter." He added that "the most recent major step forward for our nation's prosperity is passage of Trade Promotion Authority, which the President will use to open international markets to US exports, creating jobs here at home."
9/16. World Trade Organization (WTO) Director General Supachai Panitchpakdi gave a speech in Geneva, Switzerland, regarding the report by the UK Commission on Intellectual Property Rights titled "Integrating Intellectual Property Rights and Development Policy".

Go to News from September 11-15, 2002.