News from April 11-15, 2003

DHS Begins Rulemaking Proceeding on FOIA Exemption for Critical Infrastructure Information

4/15. The Department of Homeland Security (DHS) published a notice in the Federal Register regarding proposed rules for receiving and protecting critical infrastructure information (CII). The DHS is required by the Homeland Security Act to conduct this notice of proposed rulemaking (NPRM) to implement the provisions of the Act creating an exemption to the Freedom of Information Act (FOIA) for certain information about critical infrastructures, including cyber security, that is voluntarily shared with the government. See, full story.

FCC Approves Three Qwest Long Distance Applications

4/15. The Federal Communications Commission (FCC) issued an order [241 pages in PDF] approving Qwest's Section 271 applications to provide in region interLATA services in the states of New Mexico, South Dakota, and Oregon.

Perhaps the most notable part of this order is its Track A analysis. As in its April 14 order [PDF] regarding Nevada, and its order regarding Louisiana, this order states that wireless carrier's service can demonstrate competition under Track A.

The Order states that for the FCC to approve a § 271 application, "the BOC must first demonstrate that it satisfies the requirements of either section 271(c)(1)(A) (Track A) or section 271(c)(1)(B) (Track B). To meet the requirements of Track A, a BOC must have interconnection agreements with one or more competing providers of ``telephone exchange service ... to residential and business subscribers.´´ In addition, the Act states that ``such telephone exchange service may be offered ... either exclusively over [the competitor's] own telephone exchange service facilities or predominantly over [the competitor's] own telephone exchange service facilities in combination with the resale of the telecommunications services of another carrier.´´ The Commission has concluded that section 271(c)(1)(A) is satisfied if one or more competing providers collectively serve residential and business subscribers, and that unbundled network elements are a competing provider's ``own telephone exchange service facilities´´ for purposes of section 271(c)(1)(A). Furthermore, the Commission has held that a BOC must show that at least one ``competing provider´´ constitutes ``an actual commercial alternative to the BOC,´´ which a BOC can do by demonstrating that the provider serves ``more than a de minimis number´´ of subscribers." (Brackets and ... in original. Footnotes omitted.)

The order further states that "broadband PCS satisfies the statutory definition of ``telephone exchange service´´ for purposes of section 271(c)(1)(A), and that broadband PCS may form the basis of a Track A finding."

Commissioner Michael Copps concurred, but wrote a separate statement [PDF] in which he argued "I am troubled by the majority's conclusion that Qwest meets the statute's Track A requirement on the basis of wireless competition in New Mexico. This situation is analogous to the one faced by the Commission just yesterday in the Nevada section 271 Order. Based on limited survey evidence, the majority again finds that a particular wireless carrier's service is a commercial alternative to wireline service. It strikes me as premature to decide on the present record that wireline and wireless services are more than complementary."

Commissioner Jonathan Adelstein wrote a separate statement [PDF] in which he argued that "Track A requires that one or more competing providers collectively serve business and residential subscribers using their own telephone exchange service facilities. I am somewhat concerned about relying on the existence of broadband PCS competition in demonstrating the presence of competition under Track A"

See also, separate statement [PDF] of Commissioner Kevin Martin, FCC release [PDF] and Qwest release. This is WC Docket No. 03-11.

Microsoft Settles Florida Antitrust Class Action Litigation

4/15. The Circuit Court of the state of Florida gave preliminary approval to a settlement of class action lawsuits pending in the state courts of Florida involving allegations that Microsoft violated Florida's antitrust and unfair competition laws. Microsoft will provide $202 Million in vouchers for the purchase of computer equipment, any operating system, and any software. See, Order Granting Preliminary Approval of Class Action Settlement [3 page PDF scan].

Under the terms of the settlement, Microsoft will provide vouchers that may be used to buy any manufacturer's desktop, laptop or tablet computers running any operating system, or any software used with those computer products. The vouchers will be provided to consumers and businesses that purchased licenses for Microsoft operating systems, Office suite, spreadsheet or word processing software between November 16, 1995, and December 31, 2002, for use in Florida. In addition, one half of the unclaimed vouchers will go to Florida public schools. The settlement caps the voucher distribution at $202 Million.

The order is preliminary. Class members may still challenge the settlement on the grounds of "fairness, reasonableness or adequacy". The Court also scheduled a hearing for November 24, 2003 on whether the settlement should be finally approved.

The proceeding is titled "In Re Florida Microsoft Antitrust Litigation" and numbered 99 27340 CA 11. It is pending in the Circuit Court of the 11th Judicial Circuit, in and for Miami-Dade County, Florida. See also, Microsoft release.

Also on April 15, Microsoft announced that it had "revenue of $7.84 billion for the quarter ended March 31, 2003, an 8 percent increase over revenue of $7.25 billion for the same period in the prior year. Operating income for the third quarter grew 13 percent to $3.72 billion, compared to operating income of $3.30 billion reported in the prior year. Net income for the quarter was $2.79 billion, compared to $2.74 billion reported in the previous year. Diluted earnings per share for the March 2003 quarter were $0.26." See, Microsoft release.

People and Appointments

4/15. Sen. Peter Fitzgerald (R-IL) announced that he will not seek re-election in 2004.

4/15. The Securities and Exchange Commission (SEC) named William McDonough Chairman of the Public Company Accounting Oversight Board (PCAOB). McDonough has been President of the Federal Reserve Bank of New York since 1993. The five member PCAOB was created by the Sarbanes Oxley act. See, SEC release, statement by McDonough, and statement by SEC Chairman William Donaldson.

More News

4/15. The Treasury Department and the Internal Revenue Service (IRS) announced that "more than 2.4 million Americans (as of April 9, 2003) have prepared and filed their taxes on-line for free using the Free File website". (Parentheses in original.) See, release [PDF].

4/15. AOL announced that it filed five complaints in the U.S. District Court (EDVa) against entities that sent unsolicited commercial e-mail to its subscribers. AOL alleges violations of the Virginia Computer Crimes Act, the Federal Computer Fraud and Abuse Act, and the Washington Commercial Electronic Mail Act. See, AOL release.

4/15. The Federal Trade Commission (FTC) filed a civil complaint [7 pages in PDF] in U.S. District Court (NDIll) against Brian D. Westby alleging violation of the Federal Trade Commission Act in connection with his sending false and misleading bulk unsolicited e-mail to promote his pormography business. The complaint alleges that his e-mails contained misleading subject lines and false return addresses. The FTC seeks injunctive relief and disgorgement of ill gotten gains. The FTC also filed a motion for a temporary restraining order, and a memorandum in support [PDF].

4/15. Federal Trade Commission (FTC) and filed a complaint [9 pages in PDF] in the U.S. District Court (NDIll) against James D. Thompson and Susan B. Germek alleging internet auction fraud in violation of the Federal Trade Commission Act (FTCA).

Panel Addresses PATRIOT Act and Civil Liberties

4/14. The Cato Institute hosted a panel discussion titled "What's Up with the PATRIOT Act? Concerns about the Legislative Response to 9/11 and the Prospect of a PATRIOT II". The speakers were Susan Chamberlin (CATO), Tim Lynch (Cato), and Jim Dempsey (Center for Democracy and Technology).

Lynch praised President Bush's use of troops in the Middle East, but stated that "the President has been getting a lot of bad advice about how to face the terrorist threat at home." He argued that Americans should not let terrorists change the American way of life, especially in the area of civil liberties. "We need to alter their way of life, not our own".

Lynch also argued that the Federal Bureau of Investigation (FBI) and other government agencies should make better use of the tools that they already have, rather than obtain more powers that restrict civil liberties.

He added that if the Congress passes further anti terrorism legislation, it should not proceed as it did in passing the PATRIOT Act. First, the Congress should not pass one huge bill; legislation should be broken down into separate bills by topic. Second, all new provisions should contain sunset provisions; some provisions of the PATRIOT Act are subject to sunset provisions, and some are not.

Dempsey argued that civil liberties "are not what is wrong with our country", and that respect for civil liberties "help our counter terrorism effort".

James DempseyTLJ also spoke with Dempsey (at right) afterwards about the provisions of the PATRIOT Act that extended the pen register and trap and trace order provisions of Title 18 to include internet communications.

Pen registers and trap and trace (PR&TT) devices are telephone industry concepts. The former are used to obtain outgoing phone numbers. The latter are used to obtain incoming numbers. Before passage of the PATRIOT Act in late 2001, the relevant statute referenced "wire" communications.

The Act provides that the concept of a pen register is expanded from merely capturing phone numbers, to capturing routing and addressing information in any electronic communications, including internet communications. It similarly expands the concept of trap and trace devices. The Act also provides that a single order shall apply nationwide.

PR&TT orders do not authorize a law enforcement authority to obtain the content of communications. Court orders authorizing PR&TT devices do not require a showing of probable cause, as is the case for wiretaps, which enable law enforcement authorities to obtain the content of communications.

The Act provides the standard for PR&TT orders: "the court shall enter an ex parte order authorizing the installation and use of a pen register or trap and trace device anywhere within the United States, if the court finds that the attorney for the Government has certified to the court that the information likely to be obtained by such installation and use is relevant to an ongoing criminal investigation." Thus, issuance of the order is mandatory, and the standard -- mere relevance -- is low. Dempsey called this a "rubber stamp" standard.

Dempsey stated that "The government already had pen registers to telephones, and they probably did actually apply to the internet. And the cases that had come up before the PATRIOT Act, the courts held that they did apply to the internet. Debate was over how do you translate dialing information into the context of the internet. Does it include the IP addresses? The URLs? If it includes the URLs, how much?"

He also spoke about what he has heard from service providers on this issue. He stated that "they are very very mum. They very mum because they prefer to negotiate things out, rather than to litigate them. They prefer to cooperate when they can. And, they prefer that their customers not get the sense that there is a lot of surveillance going on, or that there is a lot of cooperation going on, because that may lead to embarrassment, or consumer distrust, user distrust. So, for all of those reasons -- and they are not necessarily bad reasons -- but for all of those reasons, they are reticent. And they are also reticent because, at some level, they can't talk about ongoing investigations. I mean, they are reluctant to screw things up for the government."

Dempsey also spoke about issues that may arise if Congress considers further legislation in this area. He said that "the remaining issue of concern for us is the question of what should the standard be. And if the standard is now one of these rubber stamp standards that say that the judge shall approve. And we think that that should be the judge may approve upon a finding of specifics facts giving reason to believe that the information is relevant to an ongoing criminal investigation, rather than the current rubber stamp. So, the standard is the issue."

See also, articles titled "Bush Signs Anti Terrorism Bill", "Pen Registers and Trap and Trace Devices", and "Key Tech Related Provisions of the Anti Terrorism Bill", in TLJ Daily E-Mail Alert No. 296, October 29, 2001.

FCC Commissioner Abernathy Addresses Media Ownership

4/14. Federal Communications Commission (FCC) Commissioner Kathleen Abernathy gave a speech [4 pages in PDF] at the Museum of TV and Radio in New York City in which she discussed the FCC's media ownership proceeding. She said, "I am not sure where all the pieces will land at the end of the day."

Kathleen Abernathy

She said that "Historically, the government has stepped in with regulatory oversight because broadcast media rely on scarce spectrum resources to deliver content to the public. FCC regulation has therefore concentrated on maximizing the value of the spectrum by promoting a competitive media marketplace that offers a diverse array of voices serving the needs of the local communities. At its core, FCC rules are designed to further the goals of competition, diversity and localism."

She reviewed the changes in the media market, the statutory mandate of the Telecom Act of 1996 that the FCC review its broadcast ownership rules every two years and determine if they are necessary to further the public interest, and the history of the Court of Appeals' decisions vacating FCC media ownership rules.

She continued that "One of my goals in the broadcast ownership proceeding is to ensure that if we eliminate or modify any of our current rules, we don't lose vibrant voices and diverse sources from our civic discourse. Another goal is to anticipate what effect our rules will have on the broadcast industry as they position themselves to compete with cable, DBS and other new competitors."

She added that "I want free over-the-air services to remain competitive and viable; I want the economics to justify quality programming alternatives for those that rely only on broadcast to receive news, information and entertainment. And finally, I don’t want the competitive environment to drive the migration of quality programming to cable, and deprive the public of free access to sports, movies and other entertainment. If we hold on too tightly to our current regulatory structure in an effort to preserve broadcasting, I am afraid that we just might ensure its demise."

She also addressed media consolidation. She said that "some increased consolidation will provide benefits to the public by making broadcasters more effective competitors ..." However, she also stated that "I also believe that too much consolidation can be harmful. Companies may very well push for scale and scope economies that threaten competition, diversity, and localism. That is why the FCC must remain vigilant."

District Court Issues Opinion On Class Certification in Microsoft Antitrust Proceeding

4/14. The U.S. District Court (DMd) issued an opinion [15 pages in PDF] regarding class certification in the proceeding titled "In Re Microsoft Crop. Antitrust Litigation".

Judge Frederick Motz wrote the opinion of the Court, which he summarized as follows (parentheses and emphasis in original):

"Presently pending is a motion for class certification filed by plaintiffs. The motion presents the following six questions (with my short answers stated in bold):

(1) May purchasers of licenses for operating system software be class representatives for purchasers of licenses for applications software? No.

(2) If not, is a newly added plaintiff (a sister-in-law of one of the plaintiffs' attorneys who purchased software at a deeply discounted price) an adequate class representative for purchasers of licenses for applications software? No.

(3) Are ``Select´´ and ``Enterprise´´ customers who purchased software licenses through ``Large Account Resellers´´ proper members of the requested class? No.

(4) Are Enterprise customers who purchased licenses for a large volume of software products directly from Microsoft proper members of a class represented by individuals who purchased single licenses for operating system software through a program known as No.

(5) Are the requirements of Rules 23(a) and (b)(3) met as to a monetary damages class composed of purchasers of licenses for operating system software through Yes.

(6) Should an injunctive relief class be certified? No."

Tom Ridge Addresses Privacy and Government Information

4/14. Tom Ridge, Secretary of Homeland Security, gave a speech in Washington DC to the American Association of Universities, in which he discussed, among other topics, privacy and government information. He stated that "Fear of government abuse of information, like fear of terrorism, is understandable, but we cannot let it stop us from doing what is right and responsible. The antidote to this fear, I might add, is an open, fair, and transparent process that guarantees the protection and privacy of that data."

Tom RidgeSecretary Ridge (at right) continued that "In addition to the federal privacy safeguards already on the books, the Department of Homeland Security will have its own privacy officer, whom we expect to name shortly. This individual will be involved from the very beginning with every policy initiative and every program initiative that we consider, to ensure that our strategy and our actions are consistent with the individual rights and civil liberties protected by the Constitution."

He concluded that "We'll work together to ensure that our new programs appropriately use information, protect it from misuse, and discard it when it is of no further use. It is, however, critical that information be accurate, comprehensive, and up-to-date."

WorldCom Files Plan of Reorganization with Bankruptcy Court

4/14. WorldCom filed a proposed plan of reorganization with the U.S. Bankruptcy Court (SDNY). See, WorldCom's summary. WorldCom also announced that it is changing its brand name to MCI.

MCI P/CEO Michael Capellas stated in a release that "Our company has demonstrated a new fast and focused attitude and a commitment to emerge from Chapter 11 later this year as a leaner, stronger competitor ... From this day forward, our focus will be on serving our customers, strengthening our core assets, executing on our three-year business plan, and solidifying our position as the industry's leading Internet Protocol communications provider."

Walter McCormick, P/CEO of the U.S. Telecom Association (USTA) stated in a release that "This is not a decision that sends the right message to corporate America, nor will it contribute to renewed stability in the telecom sector. After mismanaging their company and misleading investors, the path is now cleared for MCI/WorldCom to pass its bad debt off to companies that played no part in MCI/WorldCom’s self-inflicted implosion. Our member companies alone -- the companies that ensured service continued for MCI/WorldCom's customers -- must now absorb hundreds of millions of dollars in unpaid bills, all so MCI/WorldCom can emerge from its own misdeeds virtually debt-free."

FCC Approves SBC's Nevada Long Distance Application

4/14. The Federal Communications Commission (FCC) approved SBC's Section 271 application to provide in region interLATA services in the state of Nevada. See, FCC release and SBC release.

Commissioner Michael Copps concurred, but wrote a separate statement in which he argued that "There appears to be little, if any, facilities-based wireline competition for residential subscribers in Nevada. Nonetheless, the majority finds that SBC meets Track A's presence of a facilities-based competitor requirement on the basis of wireless competition. The majority goes even further when they suggest that a particular wireless carrier’s service is a substitute for local wireline service. I am troubled by this aspect of the decision."

Michael CoppsCopps (at right) added that "A determination that the services should be treated as commercial alternatives has large implications for both the wireless and wireline industries, and I am not yet ready to make the judgment that the majority makes herein."

Similarly, Commissioner Jonathan Adelstein wrote a separate statement [PDF] in which he argued that "Track A requires that one or more competing providers collectively serve business and residential subscribers using their own telephone exchange service facilities. I am somewhat concerned about relying on the existence of broadband PCS competition in demonstrating the presence of competition under Track A."

See also, separate statement [PDF] of Commissioner Kevin Martin.

People and Appointments

4/14. WorldCom, which is changing its name to MCI, announced Robert Blakely is its new Executive Vice President and Chief Financial Officer, as of April 14, 2003. Blakely has previously been VP and CFO of Tenneco, a Managing Director of Morgan Stanley, and a member of the Financial Accounting Standards Advisory Council, which advises the Financial Accounting Standards Board (FASB). See, MCI release.

Legislators Urge Bush Not to Delay US Chile FTA

4/11. Sen. Max Baucus (D-MT), the ranking Democrat on the Senate Finance Committee, and other pro-trade Democrats, wrote a letter [PDF] to President Bush in which they stated that the U.S. should not delay signing the free trade agreement (FTA) with Chile because of its stand on Iraq.

The letter states that "We are deeply troubled by recent reports that some in your Administration are seeking to delay presentation to Congress of the U.S.-Chile Free Trade Agreement due to Chile's failure to support the U.S. position on Iraq in the U.N. Security Council. In our view, this would be a tremendous mistake. ... To delay signing the agreement because of other foreign policy disagreements, no matter how important, would send terribly counterproductive messages -- that liberalized trade is neither a desirable end in itself nor a more effective means to strengthen our international alliances."

The letter was signed by three Senators -- Sen. Baucus, Sen. John Kerry (D-MA), and Sen. Ben Nelson (D-NE) -- and five Representatives -- Rep. William Jefferson (D-LA), Rep. Cal Dooley (D-CA), Rep. Brad Carson (D-OK), Rep. Jim Davis (D-FL), and Rep. Vic Snyder (D-AR). All of the signatories supported giving the President trade promotion authority. Only 21 out of 211 Democrats voted for passage of HR 3005, the Bipartisan Trade Promotion Authority Act of 2001, on December 6, 2001. The bill passed on a roll call vote of 215 to 214. See, Roll Call No. 481.

On January 30, 2003, President Bush formally notified the Congress of his intent to enter into a FTA with Chile. He wrote in his notice that "This is an agreement for the economy of the 21st century. Inventors, performers, authors, and creative enterprises in the United States and Chile will benefit from enhanced copyright, patent, trademark, trade secret, and other intellectual property rights protection. The Agreement also contains protections for digital products and electronic commerce". See also, the USTR's December 2002 summary [PDF] of the Chile FTA.

Sen. Baucus' letter only references Chile. However, the U.S. is also engaged in trade negotiations with other countries that opposed the liberation of Iraq. For example, the U.S. is also engaged in talks with the PR China on a variety of trade related issues pertaining to intellectual property, electronic commerce, telecommunications and other matters.

New Bills

4/11. Rep. Patrick Tiberi (R-OH) and Rep. Ken Lucas (D-KY) introduced HR 1766, a bill to make permanent the provisions of the Fair Credit Reporting Act (FCRA) and amend the Gramm Leach Bliley Act to establish a national uniform privacy standard for financial institutions. It was referred to the House Financial Services Committee.

4/11. Rep. Thaddeus McCotter (R-MI) introduced HR 1771, a bill to amend the Communications Act of 1934 to prohibit knowingly misinforming the relative of a member of the U.S. armed forces that such member is deceased, injured, or missing due to an event associated with their military service. It was referred to the House Commerce Committee.

4/11. Rep. Phil Crane (R-IL), and other Representatives, introduced HR 1769, a bill to amend the Internal Revenue Code to comply with rulings of the World Trade Organization (WTO) that the Foreign Sales Corporation (FSC) tax regime, and its replacement, the Extraterritorial Income (ETI) tax regime, constitute illegal export subsidies. The bill was referred to the House Ways and Means Committee. Rep. Crane is the Chairman of its Trade Subcommittee.

More News

4/11. The Copyright Office (CO) published a notice in the Federal Register announcing the initiation of and schedule for the 180 day arbitration period for the Phase I distribution of royalties collected under the cable statutory license of the Copyright Act for the 1998 and 1999 calendar years. For more information, contact David Carson or Susan Grimes at 202 707-8380. See, Federal Register, April 11, 2003, Vol. 68, No. 70, at Pages 17838 - 17839.

4/11. The Office of the U.S. Trade Representative (USTR) issued a release in which it stated that USTR Robert Zoellick met with Abdallah Saif of the nation of Bahrain. It states that "Zoellick and Saif discussed Bahrain's progress at economic reform and trade liberalization ... Such progress by Bahrain includes ensuring that policies regarding biotechnology do not serve as impediments to trade, active participation by Bahrain in the World Trade Organization services negotiations, beginning the process for Bahrain to accede to the World Intellectual Property Organization internet treaties, and ensuring an open trade environment for e-commerce."

4/11. The Cato Institute published a book titled What's Yours Is Mine: Open Access and the Rise of Infrastructure Socialism, by Adam Thierer and Wayne Crews. It is a criticism of government policies mandating "open access". Cato's summary of the 132 page book states that "Telephone and cable companies, wireless carriers, electric utilities, AOL's Instant Messenger service, the Visa/Mastercard network, Microsoft's Windows operating system -- all these and more have been targets of demands for forced access. Although supporters claim that open access is pro-competitive, the opposite is true. Forced access policies inevitably mean price and quality controls, stagnation, increased litigation, and a crippling of innovation." The price is $12.95 (Cato) or $10.36 (Amazon).

4/11. The U.S. Court of Appeals (DCCir) issued an amended opinion [15 pages in PDF] in Sprint v. FCC. This revises its original opinion of January 21, 2003. This case is a petition for review of a Federal Communications Commission (FCC) rule governing the means by which payphone service providers are compensated for certain calls made from their payphones. The original opinion granted the petition, and remanded, because the FCC failed to follow notice and comment requirements of the Administrative Procedure Act (APA). The amended opinion adds that the rule is vacated.

Go to News from April 6-10, 2003.