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News from December 11-15, 2002

4th Circuit Rules in Internet Jurisdiction Case

12/13. The U.S. Court of Appeals (4thCir) issued its opinion [12 pages in PDF] in Young v. New Haven Advocate, holding that a court in Virginia does not have jurisdiction over two small newspapers, and their editors and reporters, located in Connecticut, who wrote allegedly defamatory stories about a Virginia prison warden and published them on the Internet. The Court held that the web publication did not establish minimum contacts because the newspapers are not directed at a Virginia audience. See, full story.

7th Circuit Rules R&D Tax Credit Does Not Apply to Software Development

12/13. The U.S. Court of Appeals (7thCir) issued its opinion [PDF] in Nicholas Eustace v. IRS, holding that the research and development tax credit set forth in Section 41 of the Internal Revenue Code is not available for expenses incurred in software development.

Background. The six page opinion of the Appeals Court is brief on the facts. The sixteen page opinion [PDF] of the U.S. Tax Court provides more details. Nicholas Eustace and other members of the Eustace family are shareholders of Applied Systems, a Subchapter S corporation formed in 1980 to develop software that independent insurance agencies use to manage their businesses.

Applied Systems improved its software in the early 1990s, and its investors claimed a tax credit under 26 U.S.C. § 41 based on the amount by which Applied Systems increased its research and development (R&D) expenses during these years. The Tax Court did not allow the tax credit. The Eustaces appealed.

Statute. Basically, under the current scheme, corporations receive a 20% tax credit for qualified research and development expenditures (QREs) in excess of a calculated base amount. The subsection of the R&D tax credit provision of the Internal Revenue Code that is at issue, 26 U.S.C. § 41(d), provides as follows:
"Qualified research defined
For purposes of this section --
(1) In general
The term ''qualified research'' means research --
(A) with respect to which expenditures may be treated as expenses under section 174,
(B) which is undertaken for the purpose of discovering information (i) which is technological in nature, and (ii) the application of which is intended to be useful in the development of a new or improved business component of the taxpayer, and
(C) substantially all of the activities of which constitute elements of a process of experimentation for a purpose described in paragraph (3)."

Appeals Court. Judge Frank Easterbrook wrote the opinion for the Appeals Court. He wrote that "Taxpayers who have sought a credit under §41 for commercial software development have been uniformly unsuccessful. See, e.g., Tax & Accounting Software Corp. v. United States, 301 F.3d 1254 (10th Cir. 2002); Wicor, Inc. v. United States, 263 F.3d 659 (7th Cir. 2001); United Stationers, Inc. v. United States, 163 F.3d 440 (7th Cir. 1998); Norwest Corp. v. CIR, 110 T.C. 454 (1998). The only exception -- on which the taxpayers in this case principally rely -- is the district court’s decision in Tax & Accounting, 111 F. Supp. 2d 1153 (N.D. Okla. 2000), which the tenth circuit reversed after they filed their brief."

(See also, TLJ story titled "10th Circuit Disallows R&D Tax Credit for Software Development Costs", August 30, 2002. It covers the opinion in Tax & Accounting Software.)

Easterbrook noted that the IRS found that Applied Systems met all but two of the § 41 requirements: "that the research be ``undertaken for the purpose of discovering information which is technological in nature´´ (§41(d)(1) (B)(i)), and that the activities ``constitute elements of a process of experimentation´´ (§41(d)(1)(C))." He added that "The Tax Court concluded that Applied Systems flunked both tests -- the former because it did not produce an ``innovation in underlying principle´´ and the latter because the research in question was not designed to dispel uncertainty about the technological possibility of developing software of this kind." The Appeals Court affirmed.

Easterbrook reasoned that "Although the word ``experiment´´ has many shadings in common speech, we held that as used in §41 it has the scientific sense of forming and testing hypotheses rather than the lay (or even engineering) sense of trial and error. Galileo engaged in experiments about acceleration when he rolled balls down an inclined plane. An auto manufacturer trying different nozzles from those on hand to find the one that applies the smoothest coat of paint is not engaged in ``experimentation´´ under this view, nor is a software developer trying different methods to implement a feature accompanied by maximum execution speed and minimum demand on system resources such as RAM."

"Tinkering differs from experimentation in the vocabulary of research -- and §41 is about research, and thus about use of the scientific method", opined Easterbrook.

He continued that "Authors and movie makers playing with sentences and scenes to find what most impresses the public are not doing scientific research using ``experimentation´´. Just so with software. Developers are authors too; that they write lines of code readable by machines rather than lines of words readable by people does not fundamentally change the nature of the task and make one form of writing ``experimentation´´ when the other is not. Experimentation is a subset of all steps taken to resolve uncertainty; otherwise searching for a place to park a car would be a ``process of experimentation´´."

IRS Rulemaking Proceeding. The Appeals Court also noted that the IRS is in the process of promulgating regulations implementing § 41. The Court rejected that argument that it should apply the draft language. The Court wrote that "In the long run, neither our view nor the tenth circuit’s has staying power."

Section 41, adopted in 1986, provides that the IRS is to promulgate implementing regulations. The IRS has not yet done so. However, it is in the process of doing so. The IRS published a notice of a proposed rulemaking in the Federal Register (December 26, 2001, Vol. 66, No. 247, at Pages 66362 - 66375).

This notice states that "This document contains proposed regulations relating to the computation of the research credit under section 41(c) and the definition of qualified research under section 41(d). In addition, this document contains proposed regulations describing when computer software that is developed by (or for the benefit of) a taxpayer primarily for the taxpayer's internal use is excepted from the internal-use software exclusion contained in section 41(d)(4)(E)."

Congress. The R&D tax credit is also a perennial issue in Congress. The credit was first enacted in 1981 as a temporary measure, and has been extended temporarily on many occasions since then. The Congress passed, and President Clinton signed, a bill which extends the R&D tax credit for another five years at the end of 1999. However, efforts to make the credit permanent continue.

5th Circuit Rules in Online Gambling Case

12/13. The U.S. Court of Appeals (5thCir) issued its revised opinion [PDF] in Thompson v. Mastercard, a case upholding the dismissal of class action lawsuits against Mastercard, Visa and banks seeking damages under the RICO in connection with the financing of Internet gambling.

Larry Thompson and Lawrence Bradley gambled at online. They lost lots of money. They then filed complaints in the U.S. District Court (EDLa) against Mastercard, Visa, and banks that issue Mastercard and Visa credit cards, alleging violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968, in connection with the plaintiffs' use of Mastercard and Visa credit cards to gamble online. Plaintiffs sought class action status. They sought damages under the RICO, and a declaratory judgment that their gambling debts are unenforceable because they are illegal.

The District Court dismissed the actions. The Appeals Court affirmed. The Appeals Court wrote that "Thompson and Bradley simply are not victims under the facts of these cases. Rather, as the district court wrote, ``they are independent actors who made a knowing and voluntary choice to engage in a course of conduct.´´ In engaging in this conduct, they got exactly what they bargained for -- gambling ``chips´´ with which they could place wagers. They cannot use RICO to avoid meeting obligations they voluntarily took on."

Defense Department Releases Report on Information Privacy

12/13. Defense Department's (DOD) ISAT Study Group on Security with Privacy wrote a report [23 page PDF scan] titled "Security with Privacy". It states that "Privacy of personal data is an absolutely essential element of any information system that carriers information about American citizens. But the challenge of privacy sharply increases as the use of information aggregation systems continue to grow -- both in commercial and governmental spheres. This study examines specific technological agendas for increasing privacy."

The report addresses the Defense Advanced Research Projects Agency's (DARPA) Information Awareness Office. It also urges the DARPA to pursue research in this area.

However, the report adds that "Some media sources have indirectly referred to this study as a review of DARPA Total Information Awareness program. These reports are not accurate. The ISAT study group did not attempt to review TIA or any other DARPA program. While these recommendations may help inform TIA (and other programs), the recommendations both go beyond the scope of TIA (for example, in considering commercial aggregation of data) and also do not address significant portions of TIA (for example, we do not consider data mining.)"

The Electronic Privacy Information Center (EPIC) published this report in its web site a. It was provided to EPIC by the DOD in connection with a Freedom of Information Act (FOIA) request for records, and associated lawsuit for enforcement of the FOIA. See, complaint [PDF].

People and Appointments

12/13. The White House press office announced that Catherine Martin has been named Assistant to the Vice President for Public Affairs, where she will work for Dick Cheney. See, White House release. Martin is married to Kevin Martin, who is a Commissioner of the Federal Communications Commission (FCC). He previously worked for the Bush Cheney campaign, and then for the Bush Cheney Transition Team. He serves at the FCC with Chairman Michael Powell, son of Colin Powell, President Bush's Secretary of State. The elder Powell was also Chairman of the Joint Chiefs of Staff when Dick Cheney was Secretary of Defense, and the elder George Bush was President. Kevin Martin also previously worked as a Legal Advisor to former FCC Commissioner Harold Furchtgott Roth, who then became a scholar at the American Enterprise Institute (AEI), where he became a colleague of Lynn Cheney, wife of Dick Cheney. Meanwhile, Diana Furchtgott Roth used to work at the AEI, before leaving to become Chief of Staff for President Bush's Council of Economic Advisors (CEA). CEA Chairman Glenn Hubbard is a former AEI scholar. But, getting back to Catherine Martin; she was also previously Policy Director to former Texas Attorney General John Cornyn, who was the AG when George Bush was the Governor. Cornyn is a Republican who was elected last month to fill the Senate seat vacated by the retirement of Sen. Phil Gramm (R-TX). Catherine Martin has also worked for the law firm of Steptoe & Johnson, which practices in many areas, including telecommunications and technology law. Its clients include EchoStar. Martin replaces veteran Republican political strategist Mary Matlin, who is married to James Carville, who has never worked for Dick Cheney.

12/13. Michele Davis, Assistant Secretary of the Treasury for Public Affairs, will leave at the end of the year. See, Treasury release. Rob Nichols will become the Acting Assistant Secretary. See, Treasury release.

More News

12/13. The U.S. Court of Appeals (DCCir) issued its opinion in Commonwealth Communications v. NLRB, a petition for review of an order of the National Labor Relations Board (NLRB) finding that Commonwealth Communications violated the National Labor Relations Act. The case involves construction a collective bargaining agreement between the International Brotherhood of Electrical Workers (IBEW) and Commonwealth Communications. The Appeals Court granted the petition for review.

12/13. Federal Reserve Board (FRB) Governor Mark Olson gave a speech in Santiago, Chile titled "The Importance of Market Structure". He commented on, among other things, local banking. He stated that "On the demand side, studies in the United States indicate that both households and small businesses procure key components of their banking services overwhelmingly from suppliers located within a few miles of themselves. It is still not common for these consumers to deal with institutions that can be reached only by telephone or the Internet."

12/13. The U.S. International Trade Commission (USITC) made a determination that there is a reasonable indication that a U.S. industry is materially injured by reason of imports of dynamic random access memory semiconductors (DRAMs) and DRAM modules from Korea that are allegedly subsidized. Micron Technology filed the petition which resulted in this investigation. This is Investigation No. 701-TA-431. See, USITC release.

12/13. President Bush issued a Memorandum regarding the order of succession at the Office of Science and Technology Policy (OSTP) in the event of the death, resignation or other incapacity of the Director (who is currently John Marburger). Next in line is the Associate Director for Technology (who is currently Richard Russell). After him comes the Associate Director for Science (who is currently Kathie Olsen), followed by the Chief of Staff and the General Counsel. Russell handles technology, telecommunications, information technology, and space and aeronautics issues for the OSTP. Floyd Kvamme, who Co-Chairs the President's Council of Advisors on Science and Technology, serves in an advisory capacity, and is not in the line of succession.

USTR Reports to Congress on PR China's WTO Compliance

12/12. The Office of the U.S. Trade Representative (USTR) released a report [55 pages in PDF] titled "2002 Report to Congress on China's WTO Compliance". China joined the World Trade Organization (WTO) one year ago. The report found that "Overall, during the first year of its WTO membership, China made significant progress in implementing its WTO commitments, although much is left to do."

However, the report also identified several "significant problems", including lack of enforcement of intellectual property rights (IPR). The report also addresses lack of transparency, and China's failure to establish an independent regulator in the telecommunications sector.

The report states that "While the efforts of China’s leadership to implement China’s WTO commitments should be recognized, the Administration also found a number of causes for serious concern during China’s first year of WTO membership."

Lack of Transparency. The report found that "One area of cross cutting concern involved transparency. In particular, China implemented its commitment to greater transparency in the adoption and operation of new laws and regulations unevenly at best. While some ministries and agencies did take steps to improve opportunities for public comment on draft laws and regulations, and to provide appropriate WTO enquiry points, the Administration found China's overall effort to be plagued by uncertainty and a lack of uniformity. The Administration is committed to seeking improvements in China’s efforts in this area."

Telecommunications. The report states that "In its accession agreement, China agreed to important commitments in the area of telecommunications services. It committed to permit foreign suppliers to provide a broad range of services through joint ventures with Chinese companies, including domestic and international wired services, mobile voice and data services, value-added services, such as electronic mail, voice mail and on-line information and database retrieval, and paging services. The foreign stake permitted in the joint ventures is to increase over time, reaching a maximum of 49 percent for most types of services. In addition, all geographical restrictions are to be eliminated within two to six years after China’s WTO accession, depending on the particular services sector."

The report continues that "Importantly, China also accepted key principles from the WTO Agreement on Basic Telecommunications Services. As a result, China became obligated to separate the regulatory and operating functions of MII (which has been both the telecommunications regulatory agency in China and the operator of China Telecom) upon its accession. China also became obligated to adopt pro-competitive regulatory principles, such as cost-based pricing and the right of interconnection, which are necessary for foreign-invested joint ventures to compete with China Telecom."

The report notes that the State Council has issued regulations that implement China's commitments by providing for the establishment of foreign invested joint ventures.

However, the report finds that "China has not yet made any progress toward establishing an independent regulator in the telecommunications sector. The current regulator, MII, is not structurally or financially separate from all telecommunications operators and providers." Moreover, the report finds that "China has also used regulatory authority to disadvantage foreign firms during 2002. For example, MII arbitrarily raised settlement rates for international calls terminating in China, which had the effect of artificially boosting the revenues of Chinese telecommunications operators at the expense of foreign firms. At times, MII also changed applicable rules without notice and without transparency."

Intellectual Property. China has accepted the Agreement on Trade Related Aspects of Intellectual Property Rights (aka TRIPS) [33 pages in PDF], which requires minimum rules and enforcement of IPR of foreign companies, including protection for copyrights and neighboring rights, trademarks, geographical indications, industrial designs, patents, integrated circuit layout designs and undisclosed information. The report finds that China has amended its patent, trademark and copyright laws and regulations, and that this constitutes "major improvements that generally move China generally in line with international norms in most key areas."

However, the report finds problems with enforcement of IP laws. It states that "IPR enforcement is hampered by lack of coordination among Chinese government ministries and agencies, local protectionism and corruption, high thresholds for criminal prosecution, lack of training and weak punishments."

The report also states that new laws and regulations in China "address copyrights issues related to the Internet. U.S. companies, however, would still like to see China accede to the World Intellectual Property Organization (WIPO) internet treaties and harmonize its laws and regulations fully with WIPO internet treaty requirements. Some observers view China’s offer to host the annual WIPO Conference in April 2003 as a step in the right direction."

The report also notes that "A new regulation on copyright protection for computer software products delineates the protected interests for computer software development, circulation and application. According to the regulation, an individual software developer may keep his or her copyright for life, and it will continue in the individual’s name for 50 years after death."

SEC Amends Rule for Internet Investment Advisers

12/12. The Securities and Exchange Commission (SEC) adopted a final rule providing relief for Internet investment advisers. The rule exempts certain investment advisers who provide advisory services through the Internet from the prohibition on SEC registration. The rule change permits advisers whose businesses are not connected to any state to register with the SEC instead of with state securities authorities.

Outgoing SEC Chairman Harvey Pitt said in a prepared statement on December 12 that "Our second item is a recommendation from the Division of Investment Management that we adopt a new rule to permit so-called Internet investment advisers to register with the Commission rather than the states."

He continued that "Today one third of Americans invest in the markets through 401(k) plans, IRAs and similar self-directed retirement plans. Most experts agree that investors need help making the right decisions for themselves and their families. Some of these investors have turned to seeking advice from investment advisers accessed through the Internet. Technology available through the Internet has the promise to deliver investment advice to those who need but otherwise might not be able to afford investment advice."

Pitt concluded that "The new rule would permit Internet investment advisers to register in one place -- at the Commission. By reducing the cost and complexity of their registration process, without diminishing investor protections, this forward-looking rule should make Internet adviser services more readily available to the huge number of Americans who will approach retirement in the next 20 years."

The action taken on December 12 changes Rule 203A-2(f). The change takes effect on January 20, 2003. For more information, contact Marilyn Barker at 202 942-0523.

Martin Offers Proposal for Resolution of Pending FCC Broadband Proceedings

12/12. Federal Communications Commission (FCC) Commissioner Kevin Martin gave a speech [13 pages in PDF] in which he offered his proposals for resolving broadband regulatory classification and unbundling proceedings now pending at the FCC. See, full story.

So, Just What Are All of These FCC Broadband Proceedings About Anyway?

12/12. Historically, the FCC regulated industries have been easily compartmentalized. These industry sectors have included TV and radio broadcasters, phone companies that provided plain old fashioned telephone service (POTS), wireless phone companies that provided voice service with cell phones, and cable companies that piped in programming. Also, there was one category, information services, that remained unregulated.

Today, however, with new technologies, convergence of technologies, and companies providing more diversified services, there is frequently an issue as to how to classify and regulate a particular service. The service provider often seeks a regulatory classification that is advantageous to it. Its competitors often seek a classification is less advantageous to it. This article reviews four proceedings of this nature: Dominant Non-dominant NPRM, Wireline Broadband NRPM, Cable Modem Service NPRM, and the Triennial Review. See, full story.

Treasury Official Addresses International Tax Policy

12/12. Assistant Secretary of the Treasury for Tax Policy Pam Olson gave a speech in Washington DC titled "Globalization and International Tax Rules". She said that U.S. tax rules are out of date for companies competing in a global economy, and cited as one example the U.S.'s problems with the World Trade Organization (WTO) ruling that the U.S. foreign sales corporation (FSC) and extraterritorial income (ETI) tax regimes constitute prohibited export subsidies. She called for reform, but offered no legislative proposals.

She stated that "our tax rules appear outmoded, at best, and punitive of U.S. economic interests, at worst. Most other developed countries of the world are concerned with setting a competitiveness policy that permits their workers to benefit from globalization." She added that "our international tax policy seems to have been based on the principle that if we have a competitive advantage, we should tax it!"

She said that "Technology is a key driving force behind globalization. Advances in communications, information technology, and transport have slashed the cost and time taken to move goods, capital, people, and information.  Firms in this global marketplace differentiate themselves by being smarter: applying more cost efficient technologies or innovating faster than their competitors. The returns to being smarter are much higher than they once were as the benefits can be marketed worldwide."

She concluded that "It is time for us to review our rules based on the world in which we live today and the world we imagine for the future. We must design rules that equip us to compete in the global economy -- not fearfully, but hopefully."

EPIC Files FOIA Complaint Re DOT Database

12/12. The Electronic Privacy Information Center (EPIC) announced that it filed a complaint [PDF] in U.S. District Court (DC) against the Department of Transportation (DOT) alleging violation of the Freedom of Information Act (FOIA) in connection with the DOT's failure to respond to EPIC's request for "records concerning the development of an identification system for transportation system workers and its possible expansion to include all users of the transportation system."

The complaint sites an article by Robert O'Harrow in the Washington Post titled "Intricate Screening Of Fliers In Works: Database Raises Privacy Concerns" as authority for the proposition that the DOT system would "establish a computer network linking every reservation system in the United State to private and government databases."

See also, the EPIC's web page titled "Air Travel Privacy".

People and Appointments

12/12. President Bush named Stephen Friedman Assistant to the President for Economic Policy and Director of the National Economic Council. He replaces Larry Lindsey. See, White House release and transcript of statements by President Bush and Friedman at a White House event.

DOJ Official Comments on EchoStar DirecTV Merger

12/11. The Department of Justice's (DOJ) Hewitt Pate praised the decision of EchoStar Communications and Hughes Electronics to abandon their proposed merger. See, DOJ release.

EchoStar and Hughes both provide direct broadcast satellite (DBS) service via their Dish Network and DirecTV.  The two companies reached this decision, in part, because the Antitrust Division took action to block the merger.

Hewitt PatePate (at right), has been the Acting Assistant Attorney General in charge of the DOJ's Antitrust Division since the departure of Charles James.

Pate stated that "We welcome this decision to abandon the transaction. Had this merger gone forward, it would have eliminated competition between the nation's two most significant direct broadcast satellite services, Hughes's DIRECTV and EchoStar's DISH Network. It would have created a monopoly in those areas where cable television is not available, primarily rural areas, and would have reduced competitive choices from three to two for the tens of millions of households for whom DIRECTV, DISH Network, and cable now compete. Because the merger is being abandoned, America's consumers will continue to reap the benefits of competition in the multichannel video programming distribution business."

The Federal Communications Commission (FCC) declined to approve the transfer of FCC licenses associated with the merger based upon its own antitrust analysis.

US and Chile Negotiate FTA

12/11. The Office of the U.S. Trade Representative (USTR) announced that the U.S. and Chile have reached an agreement to enter into a Free Trade Agreement (FTA).

USTR Robert Zoellick (at right) stated in a release that "It's a win-win state of the art FTA for the modern economy -- it not only slashes tariffs, it reduces barriers for services, protects leading edge intellectual property, keeps pace with new technologies, ensures regulatory transparency and provides effective labor and environmental enforcement".

The USTR has not yet published the draft FTA in its web site. It did state, however, that the FTA "offers new access for ... telecommunications companies", and lower tariffs for "computers and other information technology products". It also released a fact sheet that states that the FTA contains "State of the art protections for digital products such as U.S. software, music, text, and videos. Protection for U.S. patents and trade secrets exceeds past trade agreements."

The Recording Industry Association of America (RIAA) is pleased. RIAA EVP Neil Turkewitz stated in a release that "it would appear that US negotiators have added an important new element in the global legal system for the protection of intellectual property."

Pursuant to the statute enacted earlier this year granting the President trade promotion authority, the USTR must give the Congress 90 notice of a FTA before signing the agreement. Then, the Congress can either accept or reject that FTA, but not amend it.

FCC Announces Notice of Inquiry Re More Spectrum for Unlicensed Use

12/11. The Federal Communications Commission (FCC) announced, but did not release, a Notice of Inquiry (NOI) regarding "Additional Spectrum for Unlicensed Devices Below 900 MHz and in the 3 GHz Band". Unlicensed devices would include, among other things, 802.11.

The FCC did release a short press release [MS Word]. In it the FCC stated that the NOI "seeks comments on whether unlicensed operations should be permitted in additional frequency bands. Specifically, it seeks comments on the feasibility of allowing unlicensed devices to operate in the TV broadcast spectrum and locations and times when spectrum is not being used.  It also seeks comment on the feasibility of permitting unlicensed devices to operate in other bands, such as the 3650-3700 MHz band, at power levels higher than other unlicensed transmitters with only the minimal technical requirements necessary to prevent interference to licensed services."

FCC Chairman Michael Powell said in a separate statement [MS Word] that "Technological advances now allow “smart” low power devices to communicate in spectral open spaces that were previously closed to development.  These technological advances are great news for the American people. Our goal in today’s item is to allow for the more efficient and comprehensive use of the spectrum resource while not interfering with existing services."

FCC Commission Michael Copps said in a statement [MS Word] that "we must find a way to balance the need to provide spectrum resources for innovators, entrepreneurs, and new technologies with the equally important need to avoid unacceptable levels of interference to incumbent users and consumers."

FCC Commissioner Kevin Martin wrote a more detailed statement [MS Word]. He wrote, on the one hand, that "I strongly support making more spectrum available for unlicensed devices. Unlicensed devices have been a huge success story, from cordless phones to wireless broadband connections, such as 802.11b and Bluetooth. I am hopeful that unlicensed operations will, as some have suggested, eventually provide a last-mile application to connect people’s homes to the Internet, offering a real alternative to telephone wires, cable, and satellite connections. I thus believe the Commission should consider a range of additional allocations for unlicensed devices."

Kevin MartinOn the other hand, Martin (at right) dissented in part. He wrote that "While I support making more spectrum available for unlicensed use, I am concerned that opening this inquiry into the TV broadcast bands at this time may create additional uncertainty and potentially delay the digital transition."

Martin also suggested that the timing of this NOI is premature. He stated that "This item is based around several recommendations of the Commission's Spectrum Policy Task Force Report. We only recently put that Report out for comment, with comments not even due until January 9, 2003, and reply comments not due until February 10, 2003. It seems odd to me to initiate this proceeding before we even receive any comments on the Task Force’s recommendations."

See also, statement [MS Word] of Commissioner Kathleen Abernathy. For more information, contact Hugh Van Tuyl in the FCC's Office of Engineering & Technology at or 202 418-7506. This is OET Docket No. 02-380.

Sen. Enzi Plans to Reintroduce Export Administration Act in 108th Congress

12/11. Sen. Mike Enzi (R-WY) announced in a release that he plans to introduce a revised version of the Export Administration Act when the 108th Congress convenes next year.

He sponsored S 149, the Export Administration Act of 2001, in the 107th Congress. The Senate passed the bill by a vote of 85-14, just prior to the terrorist attacks of September 11, 2001. The bill was also supported by the Bush administration.

Rep. David Dreier (R-CA) introduced HR 2568, an administration backed bill, in the House, on July 19, 2001. However, it did not pass in the House. Instead, HR 2581, sponsored by Rep. Benjamin Gilman (R-NY), which is a much different export bill that is not supported by the administration or Rep. Dreier, passed the House International Relations Committee on August 1, 2001. The House then took no further action on any export control bill.

S 149 would have modernized export control laws. It would have eased restraints on most dual use products, such as computers and software, but increased penalties for violations. It also would have eliminated the use of MTOPS based limits to control the export of high performance computers.

Sen. Enzi (at right) stated on December 11 that "S 149 was a good bill that would have put into place an effective framework for controlling exports and would have substantially increased penalties to deter illegal exports ... However, there are areas of the old bill that can be enhanced to create a new and improved EAA."

Enzi said the creation of the new Department of Homeland Security may have an affect on the final product, and that one area he would like to review is foreign availability and mass market status.

He also stated that "Investigating ways to incorporate foreign availability and mass market status as criteria for controlling goods on the Commerce Control List may help streamline the licensing process and save time and money".

Sen. Enzi won re-election in November. In contrast, Sen. Fred Thompson (R-TN), one of the leading critics of liberalization of export controls, retired from the Senate. Also, Sen. Phil Gramm (R-TX), who was the ranking Republican on the Senate Banking Committee, which has jurisdiction over the bill, retired. He had backed S 149. Also, Sen. Richard Shelby (R-AL), another critic of the bill, and a member of the Committee, remains in the Senate.

The current statutory basis for export controls is the Export Administration Act. It expired in 1990. Since then, Presidents have used a series of temporary emergency powers to continue the export control regime.

Tenhula Named Director of FCC Spectrum Policy Task Force

12/11. The Federal Communications Commission (FCC) announced several changes in the leadership of its Spectrum Policy Task Force (SPTF). Peter Tenhula (at right), who is currently the Co-Director, will take over as Director. He will replace Paul Kolodzy, who will leave the FCC to become Director of the Center for Wireless Network Security at the Stevens Institute of Technology in Hoboken, New Jersey.

Fred Thomas, Chief of the Spectrum Coordination Branch in the Office of Engineering and Technology, will become a Deputy Director of the Task Force. He will retain his existing responsibilities in OET, including his role as FCC liaison to the Interdepartment Radio Advisory Committee (IRAC).

Lauren Van Wazer, who has been Deputy Director of the SPTF, will return to her duties as Special Counsel to the Chief of the Office of Engineering and Technology. Mary McManus, Senior Counsel in the Office of General Counsel, will be Special Counsel on the SPTF. See, FCC release [MS Word].

People and Appointments

12/11. Federal Communications Commission (FCC) Commissioner Kathleen Abernathy named Jennifer Manner to be Senior Counsel for wireless and international issues. She will begin on January 13, 2003. Abernathy had previously announced her intention to hire Carolyn Groves, a partner at the law firm of Wilkinson Barker Knauer. However, Groves withdrew due to recusal issues. Manner has worked for WorldCom since 1996. Before that, she was an associate with the law firm of Akin Gump. And before that, she worked in the FCC's Common Carrier Bureau. See, FCC release [MS Word].

FCC Postpones Meeting Because of Weather

12/11. The Federal Communications Commission's (FCC) meeting scheduled for 9:30 AM on Wednesday, December 11, has been postponed to 1:30 PM. The FCC stated that this is "in anticipation of the bad weather during the morning commute."

The meeting agenda indicates that the FCC will likely adopt several spectrum related notices of inquiry. The FCC's Spectrum Policy Task Force (SPTF) released its Report [73 pages in PDF] on November 15. Several items on the agenda relate to issues addressed in the report.

One item is a NOI regarding "the effectiveness of current regulatory tools in facilitating the delivery of spectrum based services to rural areas and the extent to which rural telephone companies and other entities seeking to serve rural areas have opportunities to provide spectrum based services."

Another item is a NOI "concerning the possibility of permitting unlicensed transmitters to operate in additional frequency bands". The agenda further specifies that this would be spectrum bands "Below 900 MHz and in the 3 GHz Band".

Another item is a NOI "seeking information that can be used to analyze the status of competition in the CMRS industry for purpose of its Eighth Report and Analysis of Competitive Market Conditions with Respect to Commercial Mobile Services."

There are two other items. The FCC will consider a Further Notice of Proposed Rulemaking concerning "access to emergency services from services and devices that may not be currently within the scope of the Commission’s E911 rules", and the FCC's Wireless Telecommunications Bureau will report on "the status of unintentional wireless 911 calls".

The meeting will be held in the Commission Meeting Room, TW-C305, at the FCC offices at 445 12th Street, SW. It is open to the public, and web cast.

Tech Crime Report

12/11. The U.S. District Court (NDCal) sentenced Gary Jones to 46 months in prison for wire fraud in violation of 18 U.S.C. § 1343. Jones worked as a regional sales representatives in the Fairfax, Virginia office of Sagent Technology, a Mountain View, California company that makes business intelligence software. Jones received approximately $428,383 in commission and bonus payments to which he was not entitled by reporting sales to government agencies that did not take place. See, USAO release.

More News

12/11. AOL announced that its subsidiary, Tegic Communications, and Zi Corporation settled their pending patent infringement litigation. No details of the settlement were released. See AOL release. Tegic makes T9 Text Input, alphabet based and Chinese and Japanese character based text input software. Zi filed a complaint in U.S. District Court (WDWash) against Tegic on March 10, 1999 alleging that Tegic's T9 infringed a patent held by Zi. The District Court granted summary judgment to Tegic. On October 24, 2000 the U.S. Court of Appeals (FedCir) vacated and remanded in an opinion not citable as precedent.

12/11. Secretary of Commerce Don Evans and Chinese Minister of Science and Technology Xu Guanhua signed a Protocol Agreement. The Department of Commerce (DOC) announced in a release that the agreement is "focused on strengthening technology based economic relations between China and the United States. The agreement will create new opportunities for technology based entities by facilitating technology partnerships between the United States and China." The DOC further stated that "This agreement will further encourage experts to come together to share best practices on technology policy issues such as transparency and technology neutral standards making processes and effective intellectual property rights protection. Scientists and innovators from both countries will also be able to explore ways to apply new technologies to solve social and economic problems."

Go to News from December 6-10, 2002.

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