News from June 1-5, 2003

Bush Issues Spectrum Policy Memorandum

6/5. President Bush issued a memorandum titled "Memorandum for the Heads of Executive Departments and Agencies" regarding "Spectrum Policy for the 21st Century". The White House press office also released a document titled "Fact Sheet".

The memorandum does not announce a spectrum policy, or make any legislative or regulatory proposals. Rather, it creates "Federal Government Spectrum Task Force" that is tasked to "focus on improving spectrum management policies and procedures".

The memorandum is not clear regarding who will actually make the recommendations -- the Task Force, or its chairman, the Secretary of Commerce. The Memorandum states both that "The functions of the Task Force ... shall include ... producing a detailed set of recommendations for improving spectrum management policies and procedures" and "The Department of Commerce shall prepare legislative and other recommendations ..."

Composition of the Task Force. The Task Force is to be made up of the heads of 13 executive branch entities, including the Departments of Commerce, State, Defense, Homeland Security, Energy, and others.

The membership of the Task Force will not include any representatives from service providers, equipment manufacturers, industry groups, standard setting organizations, or consumer groups. Nor, will the President appoint any engineers, technologists, or economists to the Task Force.

Nor will the membership include any representatives of state and local law enforcement entities, fire departments, or other first responders.

The Task Force will be made up of the heads of federal government agencies that are major users of spectrum. Their interests are frequently different from those of the companies and consumers who would like to see  spectrum used for new communications technologies.

Moreover, the Memorandum's list of Task Force members leaves out several key federal entities. For example, the Federal Communications Commission (FCC) is not on the list. Not only does it possess considerable expertise on spectrum related technologies, but, as the entity tasked by statute with managing spectrum used by the private sector, it is most familiar with the interests and plans of the private sector for innovative uses of spectrum.

The President's Memorandum states merely that "The Federal Communications Commission is also encouraged to participate in these activities and to provide input to the National Telecommunications and Information Administration". The NTIA is a component of the Department of Commerce. It has authority for managing spectrum used by federal entities, such as the Department of Defense.

Similarly, the Office of the U.S. Trade Representative (USTR), which is increasingly negotiating trade agreements with other countries that address communications and technology issues, and works closely with industry, is not on the list of Task Force members.

However, the Secretaries of Agriculture and the Interior are on the list.

Delay. The Memorandum provides for a set of recommendations to be written, in one year. These recommendations will be released in June of 2004, just before the national political conventions, the beginning of the 2004 Presidential election season, and the 2004 Congressional elections. The 108th Congress is highly unlikely to pass any major spectrum reform legislation that is introduced in or after June of 2004.

Then, there will be a long recess between the 108th and 109th Congresses, followed by the inauguration of the President, and the formation of the 109th Congress. If President Bush is re-elected, the earliest that the Congress would be likely to consider his spectrum reform recommendations would be the Spring of 2005. If a Democrat is elected, the delay would be longer. Moreover, the announcement contained in the Memorandum is likely to diminish the likelihood that spectrum reform proposals offered by others will be taken up during the time that the Bush administration is studying the issue.

Hence, one major consequence of the President's announcement is the likely delay of consideration of any major spectrum reform proposals for several years.

Broadband. While wireless technologies may be used to provide broadband internet access to portable devices, and broadband last mile connections to homes and small businesses, the President's Memorandum does not discuss broadband issues or broadband deployment. The word "broadband" does not appear in the Memorandum. It is used in the "Fact Sheet", but only in connection with ultrawideband (UWB) technology.

President Bush's most definitive statement on broadband remains his August 13, 2002 speech in Waco, Texas. He said that "In order to make sure the economy grows, we must bring the promise of broadband technology to millions of Americans. My administration is promoting investment in broadband. We will continue to work to prevent new access taxes on broadband technology. If you want something to be used more, you don't tax it. And broadband technology is going to be incredibly important for us to stay on the cutting edge of innovation here in America. The Federal Communications Commission is focusing on policies to encourage high-speed Internet service for every home and every business in America. The private sector will deploy broadband. But government at all levels should remove hurdles that slow the pace of deployment." See, transcript.

Unlicensed Use and Spectrum Markets. The preamble language of Memorandum contains several statements that various advocates of spectrum reform may find encouraging. Proponents of greater use of unlicensed spectrum may note the Memorandum's statement that "increasingly, businesses and consumers are installing systems that use unlicensed spectrum to allow wireless data, called Wireless Fidelity (WiFi), on their premises".

The Memorandum also recites that "The existing legal and policy framework for spectrum management has not kept pace with the dramatic changes in technology and spectrum use. Under the existing framework, the Government generally reviews every change in spectrum use, a process that is often slow and inflexible, and can discourage the introduction of new technology."

On the other hand, the language in the Memorandum that provides instructions to the Task Force references "spectrum management". For example, it states that "The Department of Commerce shall prepare legislative and other recommendations to: (a) facilitate a modernized and improved spectrum management system".

Some advocates of spectrum reform, including the FCC's Spectrum Policy Task Force (SPTF), have argued for moving towards a system that allows for the sale and leasing of some spectrum. Other advocates go further and argue for a system of property rights in spectrum, and a free market in which spectrum rights can be freely exchanged.

The Memorandum's references to maintaining the "spectrum management system" and "spectrum management process" imply continued government command and control of who uses what spectrum for what purpose. These references are antithetical to notions of market based mechanisms.

Furthermore, nothing in the memorandum addresses the creation of property rights or a markets for spectrum rights. None of the words "rights", "property", "ownership", "market", "sale" or "sell" appear in the President's Memorandum. (The Memorandum does state that "This memorandum ... is not intended to, and does not, create any right ...")

The FCC, as demonstrated by the report of its SPTF, and the May 15, 2003, announcement of its Report and Order and Notice of Proposed Rulemaking (NPRM) allowing certain FCC spectrum licensees to enter into leasing arrangements with third parties, is gradually moving towards greater use of market based mechanisms, as opposed to government management. See, TLJ story titled " FCC Adopts Order Allowing Some Secondary Leasing of Spectrum", also published in TLJ Daily E-Mail Alert No. 663, May 16, 2003.

However, the FCC faces a statutory obstacle. Section 310(d) of the Communications Act, codified at 47 U.S.C. § 310, provides: "No construction permit or station license, or any rights thereunder, shall be transferred, assigned, or disposed of in any manner, voluntarily or involuntarily, directly or indirectly, or by transfer of control of any corporation holding such permit or license, to any person except upon application to the Commission and upon finding by the Commission that the public interest, convenience, and necessity will be served thereby. Any such application shall be disposed of as if the proposed transferee or assignee were making application under section 308 of this title for the permit or license in question; but in acting thereon the Commission may not consider whether the public interest, convenience, and necessity might be served by the transfer, assignment, or disposal of the permit or license to a person other than the proposed transferee or assignee."

FCC Commissioner Michael Copps, who dissented from the FCC adoption of the NPRM on secondary leasing, elaborated on this issue. He wrote in his dissenting statement [3 pages in PDF] that "I keep running into the same problem and I cannot make it go away. I do not see how the law allows us to effectuate these policies. I must therefore respectfully dissent. Congress enacted Section 310(d) of the Communications Act and we must abide by it. That section makes it clear that no ``station license or any rights thereunder shall be transferred, assigned or disposed of in any manner ... except upon application to the Commission and upon finding by the Commission that the public interest, convenience, and necessity will be served thereby.´´ But today we allow licensees to transfer a significant right -- the right to control the spectrum on a day-to-day basis -- without applying to the Commission and without the requirement of any Commission public interest finding. How can this be legal under Section 310(d)?" (Emphasis in original.)

Copps also said that "From a policy perspective, I could support many of the ideas in today's Order." See also, story titled "Copps Disputes FCC's Authority to Allow Secondary Leasing of Spectrum" in TLJ Daily E-Mail Alert No. 663, May 16, 2003.

The President's Memorandum likely puts off for several years any legislation that would address the limitations of Section 310(d). Also, the Memorandum's references to continuing "spectrum management", taken literally, would preclude revision of Section 310 to facilitate market based mechanisms.

Reaction to the President's Spectrum Memorandum

6/5. Several persons praised President Bush's Memorandum on spectrum policy. For example, Federal Communications Commission (FCC) Chairman Michael Powell released a statement [PDF] in which he wrote that "The radio spectrum is a key driver of economic growth, and supports an array of devices, applications and services Americans have come to depend upon -- from radars used in our national defense to tele-medicine, from mobile phones to the public safety radios used by our first responders".

Powell added that "President Bush's Executive Memorandum recognizes the importance of spectrum as an economic engine and underscores his commitment to putting spectrum to its highest and best use for the American people. I congratulate Commerce Secretary Don Evans, Deputy Secretary Sam Bodman and Assistant Secretary Nancy Victory on their vision and leadership in championing this groundbreaking initiative to reassess the federal government’s spectrum policy approach. I look forward to continuing to work with the Commerce Department and the rest of the Administration on these important issues".

Donald EvansSecretary of Commerce Donald Evans (at right) stated in a release that "The President’s Spectrum Initiative announced today establishes a Federal Government Spectrum Task Force charged with providing detailed recommendations for spectrum policies. These policies include modernizing and improving spectrum management, ensuring that spectrum is more efficiently used, and making spectrum available for innovative products and services while ensuring that the needs of public safety and national security are met. The radio frequency spectrum is a vital and limited natural resource and is crucial to our economic growth and national defense. I am honored the President has called on me to direct the work of this Initiative." See also, NTIA release.

Rep. Fred Upton (R-MI), Chairman of the House Commerce Committee's Subcommittee on Telecommunications and the Internet, stated in a release that "President Bush's spectrum initiative is the exactly the right prescription at the right time for our nation. Modernizing our spectrum policies is good for the economy, good for homeland security, good for public safety, good for our defense capabilities, and good for the development of new technologies -- all of which is great for the American people. Secretary Evans is the perfect person to lead the President’s team on this."

He added that "Having worked with hand-in-glove with the Administration on spectrum management reform in the form of my spectrum trust fund legislation, I look forward to continuing our work together as the Telecommunication and Internet Subcommittee continues its work on spectrum management modernization."

Tom Wheeler, P/CEO of the Cellular Telecommunications and Internet Association (CTIA), stated in a release "We welcome the President's continued leadership in this important area ... The tools we have for formulating spectrum policy are broken, and we look forward to working with the task force under Secretary Evans' leadership to ensure this national resource is fully utilized as a national safety and economic growth asset."

The CTIA release further states that "The task force will not revisit the granting of 90 MHz of spectrum to the wireless industry, for which service rules are currently being developed by the FCC." Although, the President's Memorandum does not address this point, and the "Fact Sheet" merely states that "In July 2002, the Department of Commerce released a plan in concert with the Federal Communications Commission (FCC) and the Department of Defense to make 90 MHz of spectrum available in the future for 3G wireless services while accommodating critically important spectrum requirements for national security."

3rd Circuit Revises Opinion in Omnipoint v. Easttown Following Rehearing

6/5. The U.S. Court of Appeals (3rdCir) issued its revised opinion [30 pages in PDF] in Omnipoint v. Easttown, a cell tower siting case. The original opinion was issued on February 12, 2003, and reported at 319 F.3d 627. Following consideration of a petition for rehearing filed by Easttown, the same three judge panel vacated its original opinion, and issued the present opinion. Judge Rosenn, who wrote the original opinion, dissented from the revised opinion, arguing that it will impede the development of new digital wireless technologies.

Background. Omnipoint is a wireless telecommunications provider that provides service in Easttown Township, Pennsylvania. It sought a variance from the Zoning Hearing Board of Easttown to locate a tower in a residential district. It argued that there is a gap in wireless telecommunications. Easttown denied the request. This protracted litigation followed. It is essentially about what constitutes a gap.

Statute. The relevant statute is 47 U.S.C. § 332(c)(7)(B)(i) does not address gaps. It merely states that state and local governments cannot discriminate among wireless providers, or prohibit personal wireless services.

Section 332 pertains to "Mobile Services". Subsection (c) pertains to "Regulatory treatment of mobile services". In turn, 332(c)(7) pertains to "Preservation of local zoning authority".

Subsection 332(c)(7)(B)(i) provides the following limitation: "The regulation of the placement, construction, and modification of personal wireless service facilities by any State or local government or instrumentality thereof -- (I) shall not unreasonably discriminate among providers of functionally equivalent services; and (II) shall not prohibit or have the effect of prohibiting the provision of personal wireless services."

District Court. Omnipoint filed a complaint in U.S. District Court (EDPenn) against Easttown alleging violation of Section 332(c)(7)(B)(i) and Pennsylvania law. This is the second time this case has been to the Court of Appeals. See also, Omnipoint v. Easttown, 248 F.3d 101 (3d Cir. 2001), which remanded the case to the District Court. On remand, the District Court rejected Omnipoint's claims on the basis that it failed to establish a significant gap or unreasonable discrimination under the Communications Act, or unconstitutional exclusion under Pennsylvania law.

Appeals Court. In the February 12, 2003 opinion, the Appeals Court vacated the District Court's holding that there is no significant gap, but affirmed the rest of the District Court's holding. It remanded with instructions to recalculate the call failure rate in the area at issue to determine whether there is a significant gap in telecommunications service in Easttown.

Easttown filed a petition for rehearing. Following a rehearing, the Appeals Court vacated its February 12 opinion, and affirmed the decision of the District Court (that there is no gap).

The Appeals Court held that the relevant consideration is not whether the service provider seeking the variance has a gap in its service. Rather, the District Court must consider whether there are other service providers, and what territory their service covers.

Dissent. Judge Rosenn, who wrote the February 12 opinion, dissented from the June 5 opinion. He wrote that "The majority approach today threatens Congress' goal of promoting the rapid acceleration of private sector deployment of advanced telecommunication and information technologies to all Americans. The existence of older, less functional cellular networks should not be permitted to impede the development of new, digital technologies like PCS and undermine competition in the telecommunications industry. The majority opinion will effectively impede the development of new digital technologies that have a more limited range but superior capabilities."

Senators Introduce Bill to Relax Student Loan Requirements for Online Education

6/5. Sen. Mike Enzi (R-WY), Sen. Jeff Bingaman (D-NM), and Sen. Ben Campbell (R-CO) introduced S 1203, the "Distance Education and Online Learning Act of 2003", a bill to amend the Higher Education Act of 1965 regarding distance education. The bill was referred to the Senate Health, Education, Labor and Pensions Committee.

Sen. Mike EnziSen. Enzi (at right) stated that "the Internet has made it possible for prospective students in rural communities, far removed from the university campus, to attend college online."

He continued that "the most significant barriers that distance learners and online education programs must face are those that were created by the Higher Education Act. Under current law, students attending institutions that enroll more than half of their students in distance programs are ineligible for Federal student financial assistance. As a result, many of the communities that this assistance is designed to reach have been excluded from sharing in its benefits, including students from rural communities, single mothers, working professionals, and a range of others who are interested in attending college but who cannot afford to do so."

"The legislation that I introduce today corrects this problem by creating an avenue for online and distance educators to reach out to rural communities and non-traditional students by making them eligible for federal student assistance. It creates an eligibility standard for these institutions that helps to ensure they will provide high quality education programs, while it also protects Federal funding from fraud and abuse", said Sen. Enzi. See, Congressional Record, June 5, 2003, at page S7495.

20 U.S.C. § 1091 pertains to "student eligibility" for government loans, grants and work assistance. The bill would tweak the requirements contained in this section to allow more internet based instruction to qualify for assistance under the Higher Education Act.

For example, subsection (l) (this is the lower case of the letter L), subparagraph (A), currently provided that "A student enrolled in a course of instruction at an institution of higher education that is offered in whole or in part through telecommunications and leads to a recognized certificate for a program of study of 1 year or longer, or a recognized associate, baccalaureate, or graduate degree, conferred by such institution, shall not be considered to be enrolled in correspondence courses unless the total amount of telecommunications and correspondence courses at such institution equals or exceeds 50 percent of the total amount of all courses at the institution."

This would be revised. The removed language is crossed out. The added language is in red. "A student enrolled in a course of instruction at an institution of higher education that is offered in whole or in part predominantly through telecommunications and leads to a recognized certificate for a program of study of 1 year or longer, or a recognized associate, baccalaureate, or graduate degree, conferred by such institution, shall not be considered to be enrolled in correspondence courses unless the total amount of telecommunications and correspondence courses at such institution equals or exceeds 50 percent of the total amount of all courses at the institution.

The bill would also replace subparagraph (B), which requires, among other things, that "An institution of higher education referred to in subparagraph (A) is an institution of higher education .. for which at least 50 percent of the programs of study offered by the institution lead to the award of a recognized associate, baccalaureate, or graduate degree." It would replace subparagraph (B) with the following: "An institution of higher education referred to in subparagraph (A) is an institution of higher education that is not an institution or school described in section 3(3)(C) of the Carl D. Perkins Vocational and Technical Education Act of 1998."

9th Circuit Rules on Misappropriation of Trade Secrets, and Application of Antitrust Law to Patents

6/5. The U.S. Court of Appeals (9thCir) issued its opinion [20 pages in PDF] in Bourns v. Raychem, pair of consolidated cases involving misappropriation of trade secrets, and antitrust law. The Court held that in an antitrust action based upon threats to enforce invalid patents, the plaintiff must show that it was an actual competitor, not merely a bystander, in order to prove antitrust injury.

Raychem Corporation developed and produced polymeric positive temperature coefficient (PPTC) devices. These devices, which are used in computers, consumer electronics, telecommunications instruments, and other applications, controll power surges. Basically, these devices consist of two layers of conductive foil surrounding a mixture of a nonconductive polymer and conductive carbon black. When current in the device becomes excessive, its lattice bonds break and stops the current. On cooling, the lattice reforms and current automatically resumes.

Raychem obtained patents on its PPTC inventions. It also required employees to sign a contract in which they agreed to keep in confidence any proprietary information received from the Raychem. Steven Hogge was one such employee.

Hogge left Raychem, and took with him proprietary documents. Hogge worked with Bourns Inc. to produce and market PPTC devices based upon proprietary information obtained from Raychem. Hogge and Bourns also hired employees who had previously worked for Raychem.

Raychem filed a complaint in state court in California against Bourns and Hogge alleging misappropriation of trade secrets. Defendants removed the case to U.S. District Court (CDCal). The jury returned a verdict in favor of Raychem for compensatory damages against both Bourns and Hogge, and for punitive damages against Bourns. The Court reduced the size of the awards, and Raychem accepted the remittitur.

Bourns appealed. He argued that the District Court erred in the instructions to the jury on misappropriation of trade secrets. The Appeals Court affirmed.

In a separate action, Bourns filed a complaint in U.S. District Court (CDCal) against Raychem alleging violation of Sections 1 and 2 of the Sherman Act and Section 7 of the Clayton Act. At issue on appeal is Bourns' claim that Raychem prevented Bourns from competing in the PPTC business by threatening to enforce invalid patents. The jury returned a verdict for Bourns. The Court denied Raychem's motion for judgment as a matter of law. Raychem argued that there was no antitrust injury.

The Court of Appeals reversed, holding that there was no antitrust injury. It relied on the Supreme Court decision in Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172 (1965). The Appeals Court wrote that "the Supreme Court held that possession and use of a fraudulently-acquired patent was not a per se violation of the Sherman Act but could be treated as an offense under the antitrust laws if the patent was employed to produce monopoly power in a specified market. Bourns' successful attack on the Raychem patents and its establishment of the lithium batteries market as affected by the patents was not the end of Bourns' case. Bourns had to show that, at the time Raychem threatened it with patent litigation, it was more than a hopeful bystander. Bourns had to show that Raychem's fraudulent bluffing had inflicted antitrust injury on it."

"Only an actual competitor or one ready to be a competitor can suffer antitrust injury", wrote the Appeals Court. "The threats that Bourns showed were made by Raychem to enforce its patents were made in May 1994 and September 1994. They were threats to a bystander who was pawing the ground: don't get into our turf. They were not threats to a competitor or to a business prepared to be a competitor. They did constitute an abuse of Raychem’s invalid patents. They did not constitute antitrust injury for the threats were not addressed to a business in the market or to a business that was prepared to enter the market."

Judge John Noonan wrote the opinion of the Appeals Court, in which Judge Wallace Tashima joined. Judge Harry Pregerson joined as to the trade secrets action, but dissented as to the antitrust action.

FTC Opposes Class Action Settlement Involving Coupons

6/5. The Federal Trade Commission (FTC) filed an amicus curiae brief [PDF] with the District Court of Cleberg County, Texas, in Haese v. H&R Block, a class action regarding tax preparation services. The plaintiffs' lawyers and H&R Block have proposed a settlement under which the plaintiffs' lawyers will get $49 Million as attorneys fees, and the class members will get coupons from H&R Block for tax preparation and planning software, a book containing tax preparation and planning advice, and a rebate on tax preparation services.

The FTC wrote that "Courts and commentators alike have come to view class action coupon settlements with skepticism, and with good reason. Past experience shows some defendants promise to pay high attorneys' fees in exchange for counsel's willingness to accept a settlement consisting of coupons of dubious value that many, if not most, class members are unlikely to redeem. ... The coupon settlement proposed by H&R and class counsel in this consumer class action has some of the indicia that commentators cite as evidence of a collusive deal." See also, FTC release.

Also, the House is scheduled to consider HR 1115, the "Class Action Fairness Act of 2003", on Wednesday, June 11, or Thursday, June 12. See, Republican Whip Notice. One of the findings of the bill is that "Class members have been harmed by a number of actions taken by plaintiffs' lawyers, which provide little or no benefit to class members as a whole, including (A) plaintiffs' lawyers receiving large fees, while class members are left with coupons or other awards of little or no value".

The bill would provide a number of protections against abusive class actions. For example, it provides that "The court may approve a proposed settlement under which the class members would receive noncash benefits or would otherwise be required to expend funds in order to obtain part or all of the proposed benefits only after a hearing to determine whether, and making a written finding that, the settlement is fair, reasonable, and adequate for class members".

Sen. Baucus Asks for GAO Report on Lack of Transparency in the FTA Process

6/5. Sen. Max Baucus (D-MT) and Rep. Cal Dooley (D-CA) wrote a letter to the General Accounting Office (GAO) requesting that it conduct an investigation into how the Bush administration makes decisions regarding the selection of free trade agreement (FTA) negotiating partners and the allocation of negotiating resources.

Sen. Max BaucusSen. Baucus (at right) is the ranking Democrat on the Senate Finance Committee, which has jurisdiction over most trade issues. He and Rep. Dooley were active supporters of legislation passed in the last Congress that gave the President trade promotion authority.

Sen. Baucus stated in a release [PDF] that "I am increasingly concerned about the lack of an organized and transparent process for selecting future FTA partners. Our negotiating resources are finite, and I want to be sure we are putting them to the best possible use."

Rep. Dooley added that "Senator Baucus and I are also working to incorporate the input of numerous trade stakeholders in deciding how to best pursue new FTAs."

SEC Files Civil Fraud Complaint Against Former Xerox Officers

6/5. The Securities and Exchange Commission (SEC) filed a civil complaint in U.S. District Court (SDNY) against six former officers of Xerox alleging fraud. The defendants include former CEOs Paul Allaire and Richard Thoman, and former CFO Barry Romeril.

The complaint alleges that defendants "misled investors about Xerox's earnings to polish its reputation on Wall Street and to boost the company's stock price. These results also benefited the defendants with higher compensation and higher prices for personal sales of stock. This complaint alleges that the defendants' fraudulent conduct is responsible for accelerating the recognition of equipment revenues by approximately $3 billion and increasing pre-tax earnings by approximately $1.4 billion in Xerox's 1997-2000 financial results."

The complaint alleges violation of Section 10(b) and Rule 10b-5 of the Exchange Act; violations of Section 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-1; aiding and abetting violations of Section 13(a) of the Exchange Act and Exchange Act Rules 13a-1, 13a-13, and 12b-20; and aiding and abetting violations of Section 13(b) of the Exchange Act. In addition to injunctive relief, the complaint seeks disgorgement of unjust enrichment and civil fines.

See also, SEC litigation release. The SEC also stated in a second release that the defendants "have agreed to pay over $22 million in penalties, disgorgement and interest without admitting or denying the SEC's allegations."

People and Appointments

6/5. The Senate confirmed Peter Keisler to be an Assistant Attorney General in charge of the Civil Division. Keisler is formerly a telecom lawyer at the law firm of Sidley Austin.

6/5. Rambus elected Harold Hughes to its Board of Directors. Hughes worked for Intel from 1974 through 1997. He was then Ch/CEO of Pandesic, an Intel and SAP joint venture. See, Rambus release.

6/5. Microsoft named Marshall Phelps to be its new Corporate Vice President and Deputy General Counsel for intellectual property. Previously, Phelps worked for IBM for 28 years. See, Microsoft release.

6/5. The Cellular Telecommunications & Internet Association (CTIA) announced the election of officers for 2003-2004: Scott Ford of ALLTEL (Chairman), Terry Addington of First Cellular of Southern Illinois (Vice Chairman), Len Lauer of Sprint PCS (Secretary), and Michael Kalogris of Triton PCS (Treasurer). See, CTIA release.

More News

6/5. The House Judiciary Committee held a hearing on the Department of Justice (DOJ). See, prepared testimony of Attorney General John Ashcroft.

6/5. The U.S. Patent and Trademark Office (USPTO) and the World Intellectual Property Organization (WIPO) will host a three day event titled "Worldwide Symposium on Geographical Indications" on July 9-11, 2003, in San Francisco, California. See, USPTO release and WIPO agenda and registration pages.

Court of Appeals Denies Stay in RIAA v. Verizon

6/4. The U.S. Court of Appeals (DCCir) denied Verizon's request for a stay of a District Court order that Verizon provide subscriber information, pursuant to a subpoena, to the Recording Industry Association of America (RIAA).

The District Court previously held that copyright holders can obtain subpoenas pursuant to 17 U.S.C. § 512(h) that require Internet Service Providers (ISPs) to reveal the identities of their customers who infringe copyrights on peer to peer filing sharing systems. Verizon had argued in the District Court, unsuccessfully, that Section 512(h) subpoenas are only available with respect to infringers who stored infringing content on the servers of the ISP, and that the issuance of such subpoenas would violate either the First Amendment of the Constitution, or the justiciability requirements of Article III.

Cary Sherman, President of the RIAA, stated in a release that "The Court of Appeals decision confirms our long-held position that music pirates must be held accountable for their actions, and not be allowed to hide behind the company that provides their Internet service. The courts have repeatedly affirmed that the DMCA subpoena authority is constitutional, and does not threaten anyone's free speech or privacy rights. Given that an epidemic of illegal downloading is threatening the livelihoods of artists, songwriters and tens of thousands of other recording industry workers who bring music to the public, we look forward to Verizon's speedy compliance with this ruling."

See also, stories titled "RIAA Seeks to Enforce Subpoena to Identify Anonymous Infringer" in TLJ Daily E-Mail Alert No. 499, August 27, 2002; "Verizon and Privacy Groups Oppose RIAA Subpoena" in TLJ Daily E-Mail Alert No. 501, September 4, 2002; "District Court Rules DMCA Subpoenas Available for P2P Infringers" in TLJ Daily E-Mail Alert No. 588, January 22, 2003; "Law Professor Submits Apocalyptic Declaration in RIAA v. Verizon" in TLJ Daily E-Mail Alert No. 596, February 3, 2003; "DOJ Files Brief in Support of RIAA in Verizon Subpoena Matter" in TLJ Daily E-Mail Alert No. 646, April 22, 2002; and "District Court Rules That A DMCA § 512(h) Subpoena for the Identity of an P2P Infringer Does not Violate the Constitution" in TLJ Daily E-Mail Alert No. 649, April 25, 2003.

Rep. Langevin Complains About FCC Delay in Releasing Triennial Review Order

6/4. Rep. James Langevin (D-RI) spoke in the House regarding the Federal Communications Commission's (FCC) triennial review order, which it announced in February, but has yet to release.

He stated that "The next revolution is broadband. We will be able to do so much and do it more efficiently. But we can only do it if we have the infrastructure to do it with. The FCC ruled in February that DSL, telephone company-provided broadband connections, should not be subject to certain rules imposed on local voice telephone networks. This is a good beginning and it should start some companies on the road to more broadband deployment. Verizon, the largest phone company in my State, plans to make broadband available to 10 million more residences and small businesses nationwide in 2003 alone."

He added that "The problem is that the FCC has not issued its February order. That order will detail the new rules that companies know how broadband will be regulated and guides investment decisions. Until it is released, however, these companies cannot move forward. I urge the FCC to issue its order as quickly as possible so that millions of Americans can begin to experience the new opportunities that broadband will provide." See, Congressional Record, June 4, 2003, at page H4880.

See also, stories titled "Representatives Address FCC's Failure to Produce Triennial Review Order" in TLJ Daily E-Mail Alert No. 668, May 23, 2003, and "Rep. Upton Criticizes FCC for Failure to Release Triennial Review Order" in TLJ Daily E-Mail Alert No. 666, May 21, 2003.

Senators Introduce Global Internet Freedom Act

6/4. Sen. Jon Kyl (R-AZ) and Sen. Ron Wyden (D-OR) introduced S 1183, the "Global Internet Freedom Act of 2003". This bill is similar to S 3093 (107th), introduced in the previous Congress by Senators Kyl and Wyden, as well as HR 48 (108th) and HR 5524 (107th), introduced by Rep. Chris Cox (R-CA), Rep. Tom Lantos (D-CA), and others.

The bill states in its findings that "The governments of Burma, Cuba, Laos, North Korea, the People's Republic of China, Saudi Arabia, Syria, and Vietnam, among others, are taking active measures to keep their citizens from freely accessing the Internet and obtaining international political, religious, and economic news and information."

It also states that "Intergovernmental, nongovernmental, and media organizations have reported the widespread and increasing pattern by authoritarian governments to block, jam, and monitor Internet access and content using methods that include", including "firewalls", "surveillance of e-mail messages and message boards", and "the denial of access to the Internet".

The bill would create an "International Broadcasting Bureau the Office of Global Internet Freedom" to be "headed by a Director who shall develop and implement a comprehensive global strategy to combat state-sponsored and state-directed jamming of the Internet and persecution of those who use the Internet." The bill would also authorize the appropriation of $30 Million for each of the fiscal years 2004 and 2005.

The bill also states that "It is the sense of Congress that the United States should ... publicly, prominently, and consistently denounce governments that restrict, censor, ban, and block access to information on the Internet".

Finally, the bill states that it is the sense of Congress that the U.S. should "deploy, at the earliest practicable date, technologies aimed at defeating state-directed Internet censorship and the persecution of those who use the Internet."

The Republican House Policy Committee, which is chaired by Rep. Cox, released a policy statement titled "Tear Down This Firewall" on September 19, 2002. It states that "Increasingly, non-democratic regimes around the world are denying their peoples unrestricted access to the Internet. Cuba, Laos, North Korea, the People’s Republic of China, Saudi Arabia, Syria, Tunisia, and Vietnam are the most notorious violators of Internet freedom. These governments, according to the U.S. State Department and such organizations as Human Rights Watch and Reporters Without Borders, are using methods of control that include denying their citizens access to the Internet, censoring content, banning private ownership of computers, and even making e-mail accounts so expensive that ordinary people cannot use them. These countries use firewalls, filters, and other devices to block and censor the Internet."

Also, last year, the American Enterprise Institute (AEI) hosted a panel discussion on internet censorship by the People's Republic of China. See, story titled "AEI Panel Advocates ``Freeing the Chinese Internet´´", in TLJ Daily E-Mail Alert No. 416, April 23, 2002.

The Bush administration announced a similarly named initiative in March of this year. However, the administration's "Digital Freedom Initiative" involves foreign aid for developing countries to develop information and communication technology (ICT), the training by Peace Corps volunteers in ICT, and the involvement by U.S. technology companies, such as Cisco and HP. It does not involve any efforts to stop government censorship or control of internet speech or use. See, story titled "Bush Administration Announces Digital Freedom Initiative" in TLJ Daily E-Mail Alert No. 617, March 5, 2003.

Microsoft Praises Singapore and Chile FTAs

6/4. Microsoft published in its website an essay on the importance of free trade agreements (FTAs) that addresses intellectual property and e-commerce. It wrote that "American creativity and innovation, especially in technology, flow around the world in trade that supports millions of good jobs here at home. This year, Congress will have two important opportunities to strengthen America's global leadership in the knowledge economy."

The U.S. Trade Representative (USTR) negotiated free trade agreements with Singapore and Chile. Both still require Congressional approval. The essay urges Congressional approval of these two FTAs.

Microsoft wrote that "Consistent with the U.S. Digital Millennium Copyright Act, these accords clarify the protection of online content and prohibit circumvention of technologies that protect digital works. The agreements also help preserve open markets for electronic commerce. They are the first treaties to recognize trade in ``digital products,´´ and to guarantee that their e-commerce will be duty-free. U.S. trade agreements with Singapore and Chile will bring significant market opportunities to the technology industries of all three nations in the years ahead."

See also, stories titled "Bush and Goh Sign US Singapore FTA" in TLJ Daily E-Mail Alert No. 656, May 7, 2003; "Legislators Urge Bush Not to Delay US Chile FTA" in TLJ Daily E-Mail Alert No. 643, April 14, 2003, "USTR Releases US Chile FTA" in TLJ Daily E-Mail Alert No. 637, April 4, 2003; and "USTR Releases US Singapore FTA" in TLJ Daily E-Mail Alert No. 619, March 10, 2003.

FCC Releases NPRM Regarding Increasing Amount of Unlicensed Spectrum

6/4. The Federal Communications Commission (FCC) released its Notice of Proposed Rulemaking (NPRM) [28 pages in PDF] that proposes to increase the amount of unlicensed spectrum by 255 megahertz. The FCC announced this NPRM on May 15, 2003, but did not release it until June 4, 2003.

This is a NPRM in the proceeding titled "In the Matter of Revision of Parts 2 and 15 of the Commission's Rules to Permit Unlicensed National Information Infrastructure (U-NII) devices in the 5 GHz band". This is ET Docket No. 03-122. As of June 5, the FCC had not set deadlines for public comments. That will come when the FCC publishes a notice of this NPRM in the Federal Register.

Currently, there is a total of 300 megahertz of spectrum allocated for U-NII devices, in the 5.150-5.250 GHz, 5.250-5.350 GHz and 5.725-5.825 GHz bands. Many of the devices that use this spectrum are Wi-Fi, or 802.11, devices.

The NPRM states at the outset that "We believe that the increased available capacity gained from access to an additional 255 megahertz of spectrum, coupled with the ease of deployment and operational flexibility provided by our U-NII rules, will foster the development of a wide range of new and innovative unlicensed devices and lead to increased wireless broadband access and investment."

The NPRM further states that "such networks offer the possibility of increased competition with other providers of broadband service, including cable and digital subscriber line (DSL) broadband services. We also note that unlicensed wireless devices and networks may provide an available option for broadband service in areas that are unserved by other broadband providers."

However, while the NPRM states that allocating more spectrum would promote broadband service, the NPRM does not propose to limit use of this spectrum to broadband devices.

The NPRM also states that "the spectrum currently available for U-NII devices is insufficient to support long-term growth for unlicensed wireless broadband devices and networks. Ample evidence exists of the enormous growth in the demand for such devices and services."

The NPRM follows a petition for a rulemaking submitted by the Wireless Ethernet Compatibility Alliance (WECA), which is also known as the Wi-Fi Alliance. Many companies submitted comments in support of the petition, including Motorola, Nokia, Intel, Agere, Atheros, and Compaq.

Also, members of Congress introduced bills that would have required the FCC to conduct this rulemaking proceeding. On January 14, 2003, Sen. Barbara Boxer (D-CA) and Sen. George Allen (R-VA) introduced S 159, the "Jumpstart Broadband Act". See, story titled "Sen. Boxer and Sen. Allen Introduce WiFi Spectrum Bill", in TLJ Daily E-Mail Alert No. 586, January 20, 2003. See also, TLJ copy of bill as introduced. On January 27, 2003, Rep. Darrell Issa (R-CA) introduced HR 340, also titled the "Jumpstart Broadband Act". Also, on January 27, Rep. Mike Honda (D-CA) introduced HR 363, also titled the "Jumpstart Broadband Act".

The NPRM also relies on the findings of a paper [67 pages in PDF] titled "Unlicensed and Unshackled: A Joint OSP-OET White Paper on Unlicensed Devices and Their Regulatory Issues", and authored by staff of the FCC's Office of Strategic Planning and Policy Analysis (OSP) and Office of Engineering and Technology (OET).

See also, stories titled "FCC Adopts NPRM to Increase Unlicensed Spectrum" and "FCC Unlicensed Spectrum NPRM and the Jumpstart Broadband Act" in TLJ Daily E-Mail Alert No. 663, May 16, 2003.

Capitol Hill News

6/4. The House Commerce Committee's Subcommittee on Telecommunications and the Internet held a hearing titled "Wireless E-911 Implementation: Progress and Remaining Hurdles". See, prepared statement of Rep. John Dingell (D-MI), ranking Democrat on the full Committee. See also, prepared testimony of witnesses: Dale Hatfield (University of Colorado at Boulder), John Muleta (Chief of the FCC's Wireless Telecommunications Bureau), John Melcher (National Emergency Number Association), Karl Korsmo (AT&T Wireless Services), James Callahan (MobileTel), Michael O'Connor (Verizon), and Michael Amarosa (TruePosition).

6/4. The Senate Commerce Committee held an oversight hearing on the Federal Communications Commission (FCC), focusing on the FCC's announcement on June 2, 2003 that it is relaxing its media ownership rules. See, prepared statement of Sen. John McCain (R-AZ), the Chairman of the Committee, and prepared statement of Sen. Ernest Hollings (D-SC), the ranking Democrat on the Committee. See also, prepared testimony of FCC Chairman Michael Powell, prepared testimony of Commissioner Kathleen Abernathy, prepared testimony of Commissioner Kevin Martin, prepared testimony of Commissioner Michael Copps, and prepared testimony of Commissioner Jonathan Adelstein.

6/4. The House Small Business Committee held a hearing titled "The Visa Approval Backlog and its Impact on American Small Business". Rep. Donald Manzullo (R-IL), the Chairman of the Committee, stated that "It has been difficult for our government to balance our national security interests with our economic needs. Massive backlogs of business visas have cost our corporations overseas contracts and hampered our country’s economic recovery ... The State Department and the FBI have taken major steps to ease the backlog. Hopefully, this progress will continue so we can again say, ‘The United States is open for business.’" Gary Shapiro, P/CEO of the Consumer Electronics Association (CEA), testified on behalf of the CEA and the International Association for Exhibition Management (IAEM). He stated that "I urge you to carefully consider how onerous visa requirements impact our nation's ability to attract foreign buyers to do business with tens of thousands of entrepreneurial American companies participating in U.S. trade shows." See, CEA release. See also, Small Business Committee agenda and release.

More News

6/4. The House delayed its consideration of HR 2143, the "Unlawful Internet Gambling Funding Prohibition Act". The House Rules Committee will meet on Monday, June 9, at 5:00 PM to adopt a rule for its consideration.

6/4. Rep. Joseph Pitts (R-PA) spoke in the House regarding HR 2143, the "Unlawful Internet Gambling Funding Prohibition Act". He stated that "the offshore casino industry would like us to think that Internet gambling is a harmless activity that can be tamed by Federal regulation. The problem is, it cannot happen." He added that "Internet gambling is illegal according to the Department of Justice and the FBI. However, there is no effective way to regulate it. The only way to stop it is to cut off the financial flow through the legal Internet casino industry, and that is what H.R. 2143 does." See, Congressional Record, June 4, 2003, at page H4880.

6/4. The Boards of Directors of Palm and Handspring announced a definitive agreement for Palm to acquire Handspring. The Board of Directors of Palm also voted to spin-off operating system subsidiary as PalmSource, Inc. Palm stated in a release that "Palm, Inc. consists of two businesses -- PalmSource, a subsidiary responsible for developing and licensing the Palm OS operating system, and the Palm Solutions Group, a business unit responsible for designing, making and marketing the world's leading handheld devices. Immediately following the completion of the spin-off, Handspring will be merged with Palm, and the merged company will be renamed later in the year." See also, Handspring release. The transaction is conditioned upon the expiration or termination of the waiting period under the Hart Scott Rodino Act.

Eighth Circuit Holds Ban on Sales of Violent Video Games to Minors Violates First Amendment

6/3. The U.S. Court of Appeals (8thCir) issued its opinion [9 pages in PDF] in Interactive Digital Software Association v. St. Louis County, a constitutional challenge to a local ordinance banning the sale of violent interactive video games to minors. The District Court upheld the ordinance. The Appeals Court reversed. It held that the ordinance is an impermissible prior restraint of protected speech.

St. Louis County passed an ordinance that makes it unlawful for any person knowingly to sell, rent, or make available graphically violent video games to minors, or to "permit the free play of" graphically violent video games by minors, without a parent or guardian’s consent.

The Interactive Digital Software Association and others filed a complaint in U.S. District Court (EDMo) against St. Louis County seeking declaratory judgment that the ordinance is unconstitutional under the free speech clause of the First Amendment. The District Court upheld the ordinance and dismissed the case. See, Interactive Digital Software Ass'n v. St. Louis County, 200 F. Supp. 2d 1126 (E.D. Mo. 2002). It concluded that video games are not a protected form of speech.

The Court of Appeals reversed. It first concluded that violent video games are speech. It wrote that "If the first amendment is versatile enough to ``shield [the] painting of Jackson Pollock, music of Arnold Schoenberg, or Jabberwocky verse of Lewis Carroll,´´ Hurley, 515 U.S. at 569, we see no reason why the pictures, graphic design, concept art, sounds, music, stories, and narrative present in video games are not entitled to a similar protection. The mere fact that they appear in a novel medium is of no legal consequence. Our review of the record convinces us that these ``violent´´ video games contain stories, imagery, ``ageold themes of literature,´´ and messages, ``even an ‘ideology,’ just as books and movies do.´´ See American Amusement Mach. Ass'n v. Kendrick, 244 F.3d 572, 577-78 (7th Cir. 2001), cert. denied, 534 U.S. 994 (2001). Indeed, we find it telling that the County seeks to restrict access to these video games precisely because their content purportedly affects the thought or behavior of those who play them."

The Court added that "The fact that modern technology has increased viewer control does not render movies unprotected by the first amendment ..."

Next, the Court reasoned that since the ordinance affects video games on the basis of whether or not they are violent, it is a content based regulation, and therefore, must be subjected to the strict scrutiny test. That is, to be permissible, it must be shown that ordinance is "necessary to serve a compelling state interest and that it is narrowly tailored to achieve that end."

The County argued that protecting children from psychological harm is a compelling state interest. The Court rejected this argument. It wrote that while "We do not question that the County's interest in safeguarding the psychological well-being of minors is compelling in the abstract", it must "demonstrate that the recited harms are real, not merely conjectural, and that the regulation will in fact alleviate these harms in a direct and material way." The Court cited Turner Broadcasting v. FCC, 512 U.S. 622 (1994) on this point.

While the County had presented studies and expert testimony in the District Court in support of its arguments, the Appeals Court characterized this evidence as "conjecture", "vague generality", and "conclusory comments". The Appeals Court added that it requires "empirical support for its belief that ``violent´´ video games cause psychological harm to minors."

9th Circuit Rules That An Accrued Cause of Action for Copyright Infringement May Be Assigned

6/3. The U.S. Court of Appeals (9thCir) issued its opinion [9 pages in PDF] in Silvers v. Sony Pictures, a copyright infringement case. The Appeals Court affirmed a District Court ruling that an accrued cause of action for copyright infringement may be assigned to a third party, thereby granting the assignee the right to sue for the infringement violation.

Nancey Silvers authored a script for a TV movie. She did this as a work for hire for Frank and Bob Films II, Von Zerneck/Sertner Films, which owns the copyright to the movie.

CBS made a movie based upon the script. Sony Pictures Entertainment later made a movie which Silvers asserts infringed the copyright. The copyright holder then executed an "Assignment of Claims and Causes of Action" selling, transferring and assigning to Silvers "all right, title and interest in and to any claims and causes of action against Sony ..."

Silvers filed a complaint in U.S. District Court (CDCal) against Sony alleging copyright infringement. Sony moved to dismiss on the grounds that Silvers lacked standing to bring the action. The District Court denied the motion. Sony then brought this interlocutory appeal.

The Court of Appeals affirmed. The Court reviewed the Copyright Act (which does not provide for or preclude this assignment), the scant judicial precedent, and Nimmer on Copyright (which support Silvers). It held that an accrued cause of action for copyright infringement may be assigned to a third party, without any other copyright rights accompanying the assignment.

The opinion does not address assignment of unaccrued causes of action for copyright infringement.

The Court touched on public policy considerations, but only to note that there is no public policy reason for not allowing such assignments. The Court did not discuss why Silvers, or any other person, might seek such an assignment.

Authors may have interests in enforcing copyrights that are separate from the financial interests of the producers or publishers that own the copyright. Authors may seek to protect their reputations, as in the situation of plagiarism, or the quality or integrity of their work, as in the case of derivative works that degrade the original work of authorship.

Except for the limited Visual Artists Rights Act (VARA) of 1990, the Congress has not implemented the moral rights of authors article of the Berne Convention. The present holding of the 9th Circuit contains nothing regarding Article 6 of the Berne Convention. However, this opinion affirms the availability of a procedure that, in a small way, may assist some authors in protecting some of the interests that Article 6 also seeks to protect.

Commissioner Abernathy Addresses FCC Spectrum Policy

6/3. Federal Communications Commission (FCC) Commissioner Kathleen Abernathy gave a speech [12 pages in PDF] in Washington DC titled "If You Build It, They Will Come", in which she addressed FCC regulatory policies pertaining to use of spectrum.

Kathleen Abernathy

Abernathy (at right) stated that "I happen to agree strongly with the voice in the movie, ``Field of Dreams´´ that said, ``if you build it, they will come´´. Except in this case, it is not baseball players and fields that are issue, but the ability of the FCC to adopt regulations that are market-based and provide sufficient flexibility to service providers to respond to market needs. If the FCC can craft this type of playing field, I believe that industry will have the ability and incentive to provide innovative technologies and services to consumers. You will build it and consumers will come."

She stated that there are "four areas in the wireless arena where I believe that the FCC has worked to craft a regulatory environment that permits this type of innovation to occur: 1) the adoption of regulations to facilitate the deployment of new technologies; 2) the creation of secondary markets for spectrum-based services; 3) the allocation of additional spectrum for unlicensed uses; and 4) the provision of additional flexibility in our rules for licensees."

Spectrum Markets. She spoke in detail about the FCC's recent Order allowing some secondary leasing of spectrum. On May 15, the FCC adopted a Report and Order (R&O) and a Further Notice of Proposed Rulemaking (FNPRM) which allows certain FCC spectrum licensees to enter into leasing arrangements with third parties. The FCC issued a press release [4 pages in PDF] announcing the R&O and FNPRM. It states that this item "(1) authorizes spectrum leasing in a broad array of wireless radio services, (2) adopts streamlined processing for certain categories of license transfer and assignment applications, and (3) seeks comment on additional steps to improve the functioning of secondary markets." See, TLJ story titled "FCC Adopts Order Allowing Some Secondary Leasing of Spectrum" May 15, 2003.

Abernathy stated that "I believe that this order will lead to increased efficiency in the use of the spectrum. For example, a general wireless service licensee who may not need all of its spectrum in a certain geographic area may lease the spectrum to a third party who needs access to that spectrum. Once that lease is either notified or approved by the FCC, as required under our rules, that lessee will now be in a position to actually build facilities and provide service in that spectrum. In such a case, spectrum that may have been wasted is now being utilized. This approach also provides opportunities for lessees to gain access to spectrum to provide new and innovative services, again, as long as such use is consistent with the terms of the license."

She added that "Over the long term, I believe that our creation of a secondary spectrum markets will dramatically increase the efficiency of the use of the spectrum and lead to the creation of new technologies and services."

Unlicensed Spectrum. She also spoke about unlicensed spectrum. On May 15, 2003, the FCC adopted a Notice of Proposed Rulemaking (NPRM) proposing to make available an additional 255 MHz of spectrum for unlicensed use. The proposal, which would nearly double the amount of spectrum for unlicensed use, would not be for any exclusive use. However, the main use will likely be 802.11 (Wi-Fi) and Bluetooth devices.

See also, stories titled "FCC Adopts NPRM to Increase Unlicensed Spectrum" and "FCC Unlicensed Spectrum NPRM and the Jumpstart Broadband Act" in TLJ Daily E-Mail Alert No. 663, May 16, 2003; see also, "FCC Releases NPRM Regarding Increasing Amount of Unlicensed Spectrum" in TLJ Daily E-Mail Alert No. 674, June 5, 2003.

Abernathy stated that "with the development of wi-fi, blue tooth, ultra-wideband and other technologies, there has been a dramatic increase in demand for the availability of and access to unlicensed spectrum."

She continued that "The success of the unlicensed approach to spectrum regulation has been due in large part to the Commission's willingness and ability to clearly define the rules that govern the common use of the resource, while resisting the urge to impose heavy-handed regulation. Our unlicensed bands, unlike our licensed bands, do not create property rights, but rather focus on communal use. Accordingly, like drivers on the highway, access to the unlicensed bands is available to all users, but these users must comprehend and obey the rules of the road and the FCC, as the regulator, must ensure its rules are clear. The benefit is that entrepreneurs can introduce new products to the market without the initial upfront costs associated with a spectrum auction."

She added that "The FCC is continuing to examine its current spectrum allocations to see if additional spectrum can be made available for unlicensed use. Just last month, the FCC adopted an item that proposes to allow access to an additional 255 MHz of unlicensed spectrum in the 5 GHz band. This was done in anticipation of the upcoming ITU global conference on spectrum allocation."

She concluded that "the increased capacity gained from access to this added spectrum, on a global basis, coupled with the ease of deployment and operational flexibility provided by our rules, will foster the development of a wide range of new and innovative unlicensed devices and lead to further wireless broadband access and investment."

Senators Introduce Bill to Regulate Internet Cigarette Sales

6/3. Sen. Orrin Hatch (R-UT) and Sen. Herb Kohl (D-WI) introduced S 1177, the "Prevent All Cigarette Trafficking (PACT) Act of 2003. The bill would amend the Jenkins Act of 1949, 15 U.S.C. §§ 375-378, to, among other things, expand the reporting requirements of the Act to cover internet sales of cigarettes.

The Jenkins Act requires that any person who sells and ships cigarettes across a state line to a buyer, other than a licensed distributor, to report the sale to the buyer's state tobacco tax administrator. The rule is significant, because some states impose vastly higher taxes on the sales of cigarettes than others. The Jenkins Act helps states enforce their cigarette tax laws.

Currently, many Internet based cigarette sellers are not reporting sales to state tax administrators. On August 13, 2002, the General Accounting Office (GAO) released a report [60 pages in PDF] titled "Internet Cigarette Sales: Giving ATF Investigative Authority May Improve Reporting and Enforcement". This GAO report identified 147 web site addresses for Internet cigarette vendors based in the U.S. It also concluded that most do not comply with the Jenkins Act reporting requirements. See also, story titled "GAO Reports on Internet Cigarette Sales" in TLJ Daily E-Mail Alert No. 491, August 14, 2002.

The PACT Act would require internet sellers to comply with the reporting requirements of the Jenkins Act. Specifically, the PACT Act would add that "The term 'delivery sale' means any sale of cigarettes to a consumer if ... the consumer submits the order for such sale by means of a telephone or other method of voice transmission, the mails, or the Internet or other online service ..."

Sen. Orrin HatchSen. Hatch (at right) stated in the Senate that "In its current form, the Jenkins Act requires tobacco vendors to register with each State tax administrator in which they sell cigarettes, as well as file a monthly report that provides shipment information within each State. Failure to do so is a misdemeanor. Compliance with this statute enables States to collect cigarette excise, sales and use taxes from consumers."

He added that his bill "strengthens the Act by increasing the reporting requirements first established under Jenkins, expressly including cigarette orders placed through the Internet, lowering the threshold for cigarettes to be treated as contraband from 60,000 to 10,000, increasing the criminal penalty for violating the Act to a felony and creating a substantial civil penalty."

He also discussed the GAO report. He stated that "According to a GAO report from last year on Internet cigarette sales, online cigarette sellers simply do not comply with the Jenkins Act requirements -- in fact most of them defiantly state that they do not comply with the Jenkins Act. Many State attorneys general realize that this practice is unfair not only to their individual States, but also to the brick and mortar retailers located in their state, placing these businesses at an unfair commercial disadvantage. Providing these state attorneys general with the ability to bring actions against these out-of-state Internet vendors for lost revenue is crucial in leveling the playing field and collecting the rightful revenue for states like Washington, California, New York, Wisconsin, Michigan and Rhode Island."

The Hatch Kohl PACT Act is not directed solely towards internet sales. It also contains provisions intended to help states catch and prosecute criminal gangs that transport cigarettes in bulk across state lines, and forge tax stamps. He stated that one such criminal gang was "using their illegal profits to aid Hezbollah". The Department of State's Foreign Terrorist Organizations list includes Hezbollah, or Hizballah.

See also, Sen. Hatch's release and text of floor statement.

This is not the first time that legislation has been introduced regarding internet cigarette sales. Rep. Marty Meehan (D-MA) sponsored legislation in the 106th Congress to regulate internet tobacco sales.

HR 3007 (106th) would have provided that "It shall be unlawful for any manufacturer, importer, or retailer of cigarettes to sell or advertise cigarettes through the Internet unless the cigarette packages of the cigarettes so sold and the image used on the Internet in the sale or advertising of the cigarettes contain the warning labels required by section 4(a)(1) of the Federal Cigarette Labeling and Advertising Act (15 U.S.C. 1333(a)(1))." However, it did not become law. See also, TLJ story titled "Rep. Meehan Introduces Bill to Ban Internet Sales of Tobacco to Minors", September 27, 1999.

People and Appointments

6/3. President Bush announced his intent to nominate Daniel Bryant to be Assistant Attorney General in charge of the Office of Legal Policy. If confirmed by the Senate, he will replace Viet Dinh. Bryant is currently Counsel and Senior Advisor to Attorney General John Ashcroft. Before that, he was as Assistant Attorney General for Legislative Affairs. From July 1999 to February 2001, he was Majority Chief Counsel of the House Judiciary Committee's Crime Subcommittee. See, White House release.

More News

6/3. The U.S. Court of Appeals (DCCir) issued its opinion [13 pages in PDF] in Thomas v. National Science Foundation. This is an ancient case, filed in the District Court in 1997, involving the National Science Foundation's and Network Solutions, Inc.'s system for the collection and use of fees for registering internet domain names. In 1998, the Congress passed legislation terminating the system in dispute. However, this case lingers, as a dispute over the award of attorneys fees. Before the Congress passed its bill, William Thomas, and other plaintiffs, had obtained a preliminary injunction that the fees collected constituted an unconstitutional tax. This injunction was mooted by the passage of legislation, and no final judgment was rendered. The plaintiffs then sought attorneys fees as the prevailing party, which the District Court awarded to them. The Appeals Court reversed, holding that they were not prevailing parties, because of the intervening legislation.

6/3. The Association for Communications Enterprises (ASCENT) and the Competitive Telecommunications Association (CompTel) announced that they have "voted to explore the possibility of merging the two associations". See, CompTel release.

6/3. The House Financial Services Committee's Capital Markets Subcommittee held a hearing titled "Accounting Treatment of Employee Stock Options". See, HR 1372, the "Broad-Based Stock Option Plan Transparency Act", and the prepared testimony [PDF] of Rep. David Dreier (R-CA) and prepared testimony [PDF] of Rep. Anna Eshoo (D-CA), the sponsors of the bill. See also, prepared testimony in PDF of other witnesses: Deborah Nightingale (Sun Microsystems), Robert Herz (Chairman of the Financial Accounting Standards Board), Paul Volcker (former Chairman of the Federal Reserve Board), Craig Barrett (CEO of Intel), Roderick Hills (former Chairman of the SEC), and James Glassman (American Enterprise Institute).

6/3. Rep. John Shimkus (R-IL), Rep. Ed Markey (D-MA), Rep. Billy Tauzin (R-LA), Rep. John Dingell (D-MI), and Rep. Fred Upton (R-MI) introduced HR 2312, a bill to amend the Communications Satellite of 1962 to provide for the dilution of the ownership interest in Inmarsat by former signatories to the Inmarsat Operating Agreement. The bill was referred to the House Commerce Committee.

6/3. The Business Software Alliance (BSA) released a study that found that "The global piracy rate for commercial software has decreased 10 points over the last eight years, supported by piracy declines in all regions of the world." See, BSA release.

Court Hears Arguments on Bar Associations' Challenges to FTC's Financial Privacy Rules

6/2. The U.S. District Court (DC) heard oral argument in both New York State Bar Association v. FTC and ABA v. FTC. These suits challenge to the application of the financial privacy provisions of the Gramm Leach Bliley Act to practicing attorneys. The hearing was on the Federal Trade Commission's (FTC) motions to dismiss the complaints. The Court took the matter under advisement, but only after asking numerous questions to counsel for the government that reflect a skepticism about the merits of the government's position. See, full story.

4th Circuit Addresses Jurisdiction and Applicable Law in Cyber Squatting Case Involving Foreign Trademarks

6/2. The U.S. Court of Appeals (4thCir) issued its opinion [18 pages in PDF]  in, Inc. v. Barcelona, a case brought under the reverse hijacking provision of the Anticybersquatting Consumer Protection Act, involving the domain name The Appeals Court analyzed the jurisdiction of the U.S. Courts and whether the applicable trademark law is that of the U.S. or Spain. The City of Barcelona prevailed before the UDRP panel, and in the District Court. The Appeals Court reversed the District Court, and remanded, in part, on the basis that the District Court had applied Spanish law.

Background. The Excelentisimo Ayuntamiento de Barcelona (City of Barcelona), which is located in Spain, owns about 150 trademarks that include the word Barcelona. It does not, however, own a trademark in the word Barcelona.

In 1996, Joan Nogueras Cobo (Nogueras), a Spanish citizen, registered the domain name in the name of his wife, also a Spanish citizen, with the domain registrar, Network Solutions. Network Solutions is located in Herndon, in the state of Virginia, which lies in the federal judiciary's Eastern District of Virginia. Nogeras and another person later formed a corporation,, Inc., in the state of Delaware.

Nogeras made little use of the domain name. He subsequently offered to sell the domain name to the City of Barcelona. In 2000, the City of Barcelona demanded that Nogeras transfer the domain name to the City. Nogeras did not. Rather, he transferred the domain name from his wife to his corporation,, Inc.

UDRP Proceeding. The City filed a complaint with the World Intellectual Property Organization (WIPO), an Internet Corporation for Assigned Names and Numbers (ICANN) authorized dispute resolution provider, invoking the Uniform Domain Name Dispute Resolution Policy (UDRP) promulgated by the ICANN.

In this UDRP proceeding, the City relied on Spanish law in asserting that, Inc. had no rights to the domain name while the City had numerous Spanish trademarks that contained the word Barcelona.

The WIPO panel concluded in its August 4, 2000, decision that the domain name was confusingly similar to the City's Spanish trademarks, that the corporation had no legitimate interest in the domain name, and that the corporation's registration and use of the domain name was in bad faith. The WIPO panel ordered the transfer of the domain name to the City.

District Court., Inc. then filed a complaint in U.S. District Court (EDVa) against the City of Barcelona seeking declaratory judgment and injunctive relief, pursuant to Section 1114(2)(D)(v) of the Anticybersquatting Consumer Protection Act (ACPA) that its use of the domain name does not infringe any trademark of the City of Barcelona. (There were other claims, but these were voluntarily dismissed, and are not at issue on appeal.)

The City raised, as an affirmative defense, that the District Court "lacks jurisdiction over Defendant regarding any cause of action other than Plaintiff’s challenge to the arbitrator's Order issued in the UDRP domain name arbitration proceeding." The City filed no counterclaim.

The District Court denied Inc.'s request for declaratory judgment, and ordered it to transfer the domain name to the City. In determining the City's trademark rights, the District Court applied Spanish, not U.S., law. See, February 22, 2002, Order and Memorandum Opinion [18 pages in PDF] of the District Court., Inc. then filed this appeal.

Statute. 15 U.S.C. § 1114(2)(D)(v) is the "reverse hijacking" provision of the ACPA. It provides that "A domain name registrant whose domain name has been suspended, disabled, or transferred under a policy described under clause (ii)(II) may, upon notice to the mark owner, file a civil action to establish that the registration or use of the domain name by such registrant is not unlawful under this chapter. The court may grant injunctive relief to the domain name registrant, including the reactivation of the domain name or transfer of the domain name to the domain name registrant."

Appeals Court. The Court of Appeals reversed. In so doing, it addressed four issues. First, it examined whether the U.S. Courts have jurisdiction. In a lengthy analysis, it concluded that there is jurisdiction. Second, it addressed which law is applicable in determining the City's trademark rights, Spanish or U.S. It concluded that U.S. laws governs. Third, it applied U.S. law to the case, and concluded that the domain name registration was not unlawful. Fourth, the Court addressed whether the City had properly plead for the relief that it obtained from the District Court. Technically, the City did not file a counterclaim, so the Appeals Court vacated the relief provided to the City.

Jurisdiction. The Court addressed jurisdiction at length. The Court wrote that there is subject matter jurisdiction because the case was brought under the Lanham Act, thereby creating federal question jurisdiction. The Court also wrote that there is personal jurisdiction over the City because when the City filed its UDRP complaint if signed a stipulation that "the City Council agreed to be subject to the jurisdiction of ‘the Courts of Virginia (United States), only with respect to any challenge that may be made by the Respondent to a decision by the Administrative Panel to transfer or cancel the domain names that are [the] subject of this complaint.’"

The City of Barcelona also argued that the U.S. Court lack jurisdiction over the City "regarding any cause of action other than Plaintiff’s challenge to the arbitrator's Order issued in the UDRP domain name arbitration proceeding." The Appeals Court concluded that there is no jurisdictional issue here.

It reasoned that "domain names are issued pursuant to contractual arrangements under which the registrant agrees to a dispute resolution process, the UDRP, which is designed to resolve a large number of disputes involving domain names, but this process is not intended to interfere with or modify any "independent resolution" by a court of competent jurisdiction. Moreover, the UDRP makes no effort at unifying the law of trademarks among the nations served by the Internet. Rather, it forms part of a contractual policy developed by ICANN for use by registrars in administering the issuance and transfer of domain names. Indeed, it explicitly anticipates that judicial proceedings will continue under various nations’ laws applicable to the parties."

The Court continued that "The ACPA recognizes the UDRP only insofar as it constitutes a part of a policy followed by registrars in administering domain names, and the UDRP is relevant to actions brought under the ACPA in two contexts. First, the ACPA limits the liability of a registrar in respect to registering, transferring, disabling, or cancelling a domain name if it is done in the ``implementation of a reasonable policy>´´(including the UDRP) that prohibits registration of a domain name ``identical to, confusingly similar to, or dilutive of another’s mark.´´ 15 U.S.C. § 1114(2)(D)(ii)(II) (emphasis added). Second, the ACPA authorizes a suit by a domain name registrant whose domain name has been suspended, disabled or transferred under that reasonable policy (including the UDRP) to seek a declaration that the registrant’s registration and use of the domain name involves no violation of the Lanham Act as well as an injunction returning the domain name."

Hence, the Court concluded that "while a decision by an ICANN-recognized panel might be a condition of, indeed the reason for, bringing an action under 15 U.S.C. § 1114(2)(D)(v), its recognition vel non is not jurisdictional. Jurisdiction to hear trademark matters is conferred on federal courts by 28 U.S.C. §§ 1331 and 1338, and a claim brought under the ACPA, which amended the Lanham Act, is a trademark matter over which federal courts have subject matter jurisdiction."

It added that "In sum, we conclude that we have jurisdiction over this dispute brought under the ACPA and the Lanham Act. Moreover, we give the decision of the WIPO panelist no deference in deciding this action under § 1114(2)(D)(v)."

Applicable Law. The Appeals Court next held that U.S. trademark law controls in this case. The Court began by reviewing the elements of Inc.'s claim for reverse hijacking under the ACPA. It noted that one of the elements, which is in dispute, is whether "the registration or use of the domain name by such registrant is not unlawful under this chapter." Whether or not the registration of the domain name was unlawful requires the District Court to apply the trademark law of some nation to determine whether it is unlawful.

The Appeals Court concluded that the District Court had applied Spanish trademark law, when it should have applied U.S. trademark law. It wrote that "It requires little discussion to demonstrate that this use of Spanish law by the district court was erroneous under the plain terms of the statute. The text of the ACPA explicitly requires application of the Lanham Act, not foreign law, to resolve an action brought under 15 U.S.C. § 1114(2)(D)(v). Specifically, it authorizes an aggrieved domain name registrant to ``file a civil action to establish that the registration or use of the domain name by such registrant is not unlawful under this chapter.´´ 15 U.S.C. § 1114(2)(D)(v) (emphasis added)."

Geographical Designations and the Lanham Act. Moreover, the Appeals Court did not stop at ruling on which law is applicable. It went on to apply U.S. trademark law to the facts of this case. It concluded that under U.S. law, Inc.'s registration of the domain name was not unlawful, because, under the Lanham Act, "the City Council could not obtain a trademark interest in a purely descriptive geographical designation that refers only to the City of Barcelona".

Phantom Counterclaim. Finally, the Appeals Court addressed the matter of pleading formalities. The District Court granted relief to the City for which it had not formally plead by way of counterclaim. The District Court referred to the City's "counterclaim in its Memorandum Opinion. However, the Appeals Court wrote that the City "never filed a counterclaim. The issues presented by the district court’s rulings on this ``counterclaim´´ are not before us on appeal because they were not properly before the district court ab initio. Accordingly, we vacate the district court’s rulings on all issues arising out of this phantom counterclaim."

The law firm of Oblon Spivak represents the City of Barcelona.

Federal Circuit Affirms in Pioneer v. Micro Linear

6/2. The U.S. Court of Appeals (FedCir) issued its opinion [MS Word] in Pioneer Magnetics v. Micro Linear Corporation, a patent infringement case. The Court of Appeals affirmed the judgment of the District Court.

Pioneer Magnetics owns U.S. Patent No. 4,677,366 titled "Unity power factor power supply". It describes circuitry designed to receive variant levels of input voltage and to emit a constant output voltage, thereby providing a steady electrical current source to another circuit. In 1995, Pioneer filed a complaint in U.S. District Court (CDCal) against Micro Linear alleging infringement of the '366 patent. The District Court entered judgment of non-infringement. Pioneer appealed.

The Appeals Court issued its first opinion on January 23, 2001, affirming the District Court. On June 3, 2002, the Supreme Court granted certiorari in this, and several other cases. However, the Supreme Court merely vacated and remanded to the Federal Circuit in light of its opinion [PDF] in Festo v. Shoketsu Kinzoku Kogyo Kabushiki, 535 U.S. 722 (2002), the landmark case regarding the doctrine of equivalents and the rule of prosecution history estoppel.

In the present opinion, the Appeals Court held that "Because there was a narrowing amendment and the equivalent at issue was foreseeable at the time of filing, we affirm the district court's judgment."

Supreme Court Reverses in Dastar v. Fox

6/2. The Supreme Court issued its opinion [18 pages in PDF] in Dastar v. Twentieth Century Fox, reversing the opinion of the U.S. Court of Appeals (9thCir), which had upheld a District Court judgment of violation of the Lanham Act.

Technically, this is a Lanham Act, reverse passing off, case. "Passing off" occurs when a producer misrepresents his own goods or services as someone else's. "Reverse passing off" occurs when a producer misrepresents someone else's goods or services as his own. Both can be actionable under the Lanham Act, which makes actionable not only the misleading use of marks, but also the false designation of origin of goods.

In another sense, this is a case in which a plaintiff/producer is passing off a copyright claim as a Lanham Act claim. The plaintiff alleged that its work of authorship was copied (which can be actionable under the Copyright Act), but instead proceeded on the legal theory of violation of the Lanham Act's false designation of origin provision.

The defendant copied a work whose copyright had expired, and failed to attribute its origin. The lower courts ruled for the producer. The Supreme Court reversed, 8-0. It held that this is not the purpose of the Lanham Act. Moreover, allowing this sort of use of the Lanham Act would have the impermissible effect of creating perpetual quasi patents and copyrights. See, full story.

Supreme Court Denies Cert in Case Involving R&D Tax Credit for Software Development

6/2. The Supreme Court denied certiorari, without opinion, in Tax & Accounting Software v. U.S., a case regarding when expenses of a software company may qualify for the research and development tax credit. See, Order List [8 pages in PDF], at page 2.

The Tax and Accounting Software Corporation (TAASC) develops and markets software for use by tax and accounting professionals. It claimed research and development expenses for the development of these software products, pursuant to 26 U.S.C. § 41. The Internal Revenue Service (IRS) disallowed these tax credits. The U.S. District Court (NDOkla) granted summary judgment in favor of the software developer. The U.S. Court of Appeals (10thCir) issued its opinion reversing the District Court's summary judgment, on the grounds that its expenses were not for "qualified research". The Supreme Court's action lets stands the opinion of the Tenth Circuit.

See, TLJ story titled "10th Circuit Disallows R&D Tax Credit for Software Development Costs", August 20, 2002. This is S.C. No. 02-1291, A.C. No. No. 00-5196, and D.C. No. 98-CV-363.

Juster Addresses Barriers to High Tech Development in India

6/2. Kenneth Juster, head of the Department of Commerce's (DOC) Bureau of Industry and Security (BIS), gave a speech in New York City titled "Stimulating High-Technology Cooperation with India". He argued that the way to increase U.S. India high tech trade is not by having the U.S. reduce export controls, but rather, by having India reduce its own internal barriers to development of its high tech sector. He cited India's lack of enforcement of intellectual property rights protections, absence of transparent government procurement processes, and excessive taxes.

Juster noted that "India's strong interest in high-technology trade has focused in large part on one particular element of that trade -- items known as ``dual-use´´ goods and technologies. ``Dual-use´´ items are those that have both a legitimate commercial use and a military use in the development or production of advanced conventional weapons or weapons of mass destruction. For example, inertial navigation equipment can be used in civilian aircraft, but it also can be used in guidance systems for cruise missiles. Or high performance computers can be used for meteorological modeling, but they also can be used to model explosions to test nuclear weapons."

Kenneth JusterJuster (at right) explained that "Trade in dual-use items is referred to as ``strategic trade.´´ One of the core activities of my Bureau at the Commerce Department -- the Bureau of Industry and Security -- is to administer and enforce U.S. controls on the export of sensitive dual-use goods and technologies. Our mission is to do this in a way that promotes U.S. economic interests, while at the same time protecting U.S. national security."

He added that "Some have suggested that U.S. dual-use export controls are impeding the U.S.-India high-technology trade relationship, and that lessening -- or removing -- such controls is a key to unleashing high-tech trade. In short, they argue that, if we liberalize controls on strategic trade, then high-tech trade overall will flourish."

He argued that "the facts do not support this argument. In analyzing the data, as well as ways to increase high-technology trade between our two countries, it is clear that export controls are not a major factor impeding increased high-technology trade."

He made two points in support of this argument. First, very little of the high tech trade between the U.S. and India is subject to export controls. Second, the U.S. has more stringent export controls in place for trade with China, yet U.S. trade with China, including high tech trade, has thrived.

Juster then suggested that the real problem is policies in India that operate as barriers to economic development and trade. He stated that export control "liberalization alone is not sufficient to advance the bilateral high-technology trade relationship. That is why we are focusing as well on the economic component of high-technology trade -- and that means identifying the specific laws, policies, practices, and procedures that are obstacles or deterrents to bilateral high-technology trade and investment."

He elaborated that "These include high tariffs, lack of adequate infrastructure, lack of enforcement of intellectual property rights protections, absence of transparent government procurement processes, complex customs policies and procedures, and excessive taxes as major obstacles to a more robust bilateral economic relationship."

Juster's analysis resembles that of former Treasury Secretary Paul O'Neill. He gave a speech in New Delhi, India, on November 22, 2002, in which he stated that "the private sector is unable to attract the investment it needs to fund new ideas", and that "entrepreneurs and investors are intimidated by excessive regulation and corruption". See, story titled "O'Neill Says India's Tech Sector Needs Less Regulation" in TLJ Daily E-Mail Alert No. 556, November 25, 2002.

GAO Report Finds That Computer Weaknesses At IRS Put Taxpayer Data At Risk

6/2. The General Accounting Office (GAO) released a report [40 pages in PDF] titled "Information Security: Progress Made, but Weaknesses at the Internal Revenue Service Continue to Pose Risks".

The report found that at the Internal Revenue Service (IRS) "computer control weaknesses continued to threaten the confidentiality, integrity, and availability of sensitive systems and taxpayer data. IRS's inconsistent implementation of logical access controls at its facilities did not effectively prevent, limit, or detect access to computing resources. In addition, weaknesses in other information system controls (including physical security, segregation of duties, software change controls, and service continuity) reduced IRS's effectiveness in protecting and controlling physical access to assets, minimizing the risk of errors or fraud, mitigating the risk of unauthorized or inappropriate software programs, and ensuring the continuity of data processing operations when unexpected interruptions occur. Further, access to key computer applications was not always limited to authorized persons for authorized purposes. These weaknesses increased the vulnerability of data processed by IRS's information systems and continued to expose IRS's tax processing operations to disruption." (Parentheses in original.)

The report further found that an underlying cause is that the "IRS had not yet fully implemented certain elements of its agency wide information security program. As a result, the agency was not adequately (1) identifying and assessing risks to determine needed security measures; (2) establishing and implementing policies and controls to meet those needs; (3) promoting awareness and providing security related training so that employees understand the risks and the policies and controls that mitigate them; or (4) monitoring and evaluating established policies and controls, and mitigating known security vulnerabilities."

It concludes that "Until IRS can fully implement an effective program and adequately mitigate these weaknesses, it will remain at heightened risk of access to critical hardware and software by unauthorized individuals, who could intentionally or inadvertently add, alter, or delete sensitive data or computer programs. Such individuals could possibly obtain personal taxpayer information and use it to commit financial crimes in the taxpayer’s name (identity fraud), such as establishing credit and incurring debt."

The report was prepared for Rep. Adam Putnam (R-FL) and Rep. William Clay (D-MO), the Chairman and ranking Democrat on the House Government Reform Committee's Subcommittee on Technology, Information Policy, Intergovernmental Relations, and the Census.

The GAO has previously reported on security weaknesses at the IRS. For example, on March 31, 2001, the GAO released a report report [31 pages in PDF] titled "Information Security: IRS Electronic Filing Systems" which found that that "During last year's 2000 tax filing season, IRS did not implement adequate computer controls to ensure the security of its electronic filing systems and electronically transmitted taxpayer data." See, story titled "IRS Data Vulnerable" in TLJ Daily E-Mail Alert No. 145, March 16, 2001.

See also, story titled "IRS Loses More Computers, Jeopardizes Taxpayer Info" in TLJ Daily E-Mail Alert No. 493, August 16, 2002. See also, letter of January 7, 2002, from Sen. Charles Grassley (R-IA) to Mitch Daniels, and story titled "Sen. Grassley Condemns IRS for 2,300 Missing Computers" in TLJ Daily E-Mail Alert No. 342, January 9, 2002.

FCC Announces Revisions to Media Ownership Rules

6/2. The Federal Communications Commission (FCC) announced, but did not release, a Report and Order revising its media ownership rules. The vote was 3-2, with the three Republicans (Powell, Martin and Abernathy) supporting the Report and Order, and the two Democrats (Copps and Adelstein) opposing it. The FCC issued a press release [10 pages in PDF] and an attachment [1 page in PDF] describing and commenting upon the Report and Order.

The announced changes maintain, but relax, several rules. The FCC raised the national TV ownership cap from 35% to 45%. The FCC eased both the local TV multiple ownership limits, and radio multiple ownership limits. The FCC also eased the limits on cross ownership of TV stations, radio stations, and daily newspapers.

However, the FCC maintained the dual network ownership prohibition.

The FCC also announced, but did not release, a Notice of Proposed Rulemaking (NPRM) on defining non-Arbitron radio markets.

Dual Network Ownership Prohibition. The FCC release states that the FCC "retained its ban on mergers among any of the top four national broadcast networks." It elaborated that "The FCC determined that its existing dual network prohibition continues to be necessary to promote competition in the national television advertising and program acquisition markets. The rule also promotes localism by preserving the balance of negotiating power between networks and affiliates. If the rule was eliminated and two of the top four networks were to merge, affiliates of those two networks would have fewer networks to turn to for affiliation."

Local TV Multiple Ownership Limit. The FCC release states that "In markets with five or more TV stations, a company may own two stations, but only one of these stations can be among the top four in ratings. In markets with 18 or more TV stations, a company can own three TV stations, but only one of these stations can be among the top four in ratings. In deciding how many stations are in the market, both commercial and non-commercial TV stations are counted."

The release also states that "The FCC adopted a waiver process for markets with 11 or fewer TV stations in which two top-four stations seek to merge. The FCC will evaluate on a case-by-case basis whether such stations would better serve their local communities together rather than separately."

National TV Ownership. The FCC release states that the "FCC incrementally increased the 35% limit to a 45% limit on national ownership." The FCC elaborated that "A company can own TV stations reaching no more than a 45% share of U.S. TV households." It added that "The share of U.S. TV households is calculated by adding the number of TV households in each market that the company owns a station. Regardless of the station's ratings, it is counted for all of the potential viewers in the market. Therefore, a 45% share of U.S. TV households is not equal to a 45% share of TV stations in the U.S."

Local Radio Ownership Limit. The FCC release states that the "FCC found that the current limits on local radio ownership continue to be necessary in the public interest, but that the previous methodology for defining a radio market did not serve the public interest. The radio caps remain at the following levels:
• In markets with 45 or more radio stations, a company may own 8 stations, only 5 of which may be in one class, AM or FM.
• In markets with 30-44 radio stations, a company may own 7 stations, only 4 of which may be in one class, AM or FM.
• In markets with 15-29 radio stations, a company may own 6 stations, only 4 of which may be in one class, AM or FM.
• In markets with 14 or fewer radio stations, a company may own 5 stations, only 3 of which may be in one class, AM or FM."

Cross Ownership Limits. The FCC release states that "In markets with three or fewer TV stations, no cross-ownership is permitted among TV, radio and newspapers. A company may obtain a waiver of that ban if it can show that the television station does not serve the area served by the cross-owned property (i.e. the radio station or the newspaper)." (Parentheses in original.)

For "markets with between 4 and 8 TV stations, combinations are limited to one of the following:
(A) A daily newspaper; one TV station; and up to half of the radio station limit for that market (i.e. if the radio limit in the market is 6, the company can only own 3) OR
(B) A daily newspaper; and up to the radio station limit for that market; (i.e. no TV stations) OR
(C) Two TV stations (if permissible under local TV ownership rule); up to the radio station limit for that market (i.e. no daily newspapers)." (Parentheses in original.)

Finally, "In markets with nine or more TV stations, the FCC eliminated the newspaper-broadcast cross ownership ban and the television-radio cross-ownership ban."

Grandfather Rights. The FCC release also states that "The FCC's new TV and radio ownership rules may result in a number of situations where current ownership arrangements exceed ownership limits. The FCC grand-fathered owners of those clusters, but generally prohibited the sale of such above-cap clusters. The FCC made a limited exception to permit sales of grand-fathered combinations to small businesses as defined in the Order."

The five members of the FCC spoke at the June 2 meeting, and released written statements.

FCC Chairman Michael Powell wrote in a separate statement [2 pages in PDF] that "Today, we complete the most exhaustive and comprehensive review of our broadcast ownership rules ever undertaken. We have done so, obligated by our statutory duty to review the rules biennially and prove those rules are ``necessary in the public interest.´´"

Michael PowellPowell (at right) added that "Keeping the rules exactly as they are, as some so stridently suggest, was not a viable option. Without today’s surgery, the rules would assuredly meet a swift death. As the only member of this Commission here during the last biennial review, I watched first hand as we bent to political pressure and left many rules unchanged. Nearly all were rejected by the court because of our failure to apply the statute faithfully. I have been committed to not repeating that error ..."

See also, separate statement [PDF] Commissioner Kathleen Abernathy and release [3 pages in PDF] of Commissioner Kevin Martin, who joined with Powell to form the majority in support of the Report and Order. Martin wrote that "the media marketplace has changed significantly since our media ownership rules were first adopted." He cited the proliferation of broadcast channels, cable channels, and "thousands of sites on the Internet."

The FCC's two Democrats dissented. Commissioner Michael Copps wrote in a separate statement [23 pages in PDF] that "I dissent because today the Federal Communications Commission empowers America's new Media Elite with unacceptable levels of influence over the media on which our society and our democracy so heavily depend."

Michael CoppsCopps (at right) wrote that "This morning we are at a crossroads -- for the Federal Communications Commission, for television, radio, and newspapers, and for the American people. The decision we five make today will recast our entire media landscape for years to come. At issue is whether a few corporations will be ceded gatekeeper control over the civil dialogue of our country; content control over our music, entertainment and information; and veto power over the majority of what we and our families watch, hear and read."

See also, separate statement [10 pages in PDF] of Commissioner Jonathan Adelstein. He wrote that "This is a sad day for me, and I think for the country. I'm afraid a dark storm cloud is now looming over the future of the American media. This is the most sweeping and destructive rollback of consumer protection rules in the history of American broadcasting."

Reaction to the FCC's Media Ownership Announcement

6/2. The Federal Communications Commission's (FCC) announcement of its Report and Order revising its media ownership rules was accompanied by a outpouring of praise, criticism and commentary on Capitol Hill, and elsewhere in Washington DC. Much of reaction broke down along party lines, with Republicans expressing support for the FCC's revisions, and Democrats expressing opposition.

Rep. Billy Tauzin (R-LA), the Chairman of the House Commerce Committee, which has jurisdiction over telecommunications, stated in a release that "the FCC has finally done what both Congress and the courts have asked it to do, and our free speech society needs it to do. It has adopted new broadcast ownership rules that are enforceable, based on empirical evidence and reflective of today’s 21st century marketplace. The FCC, in affect, has taken a big step toward removing the regulatory muzzle from American broadcasters."

Rep. Billy TauzinRep. Tauzin (at right) continued that "The new suite of rules recognize and reflect the explosive growth in the number and variety of media outlets in the market, as well as the significant efficiencies and public interest benefits that can be obtained from common ownership. At the same time, the rules correctly reflect the continuing goals of ensuring diversity and localism and guarding against undue concentration in the marketplace."

Sen. John McCain (R-AZ), the Chairman of the Senate Commerce Committee, stated in a release that "Congress and the federal courts have required the FCC to conduct a biennial review of its media ownership rules. These rules have a critical impact on our society -- we must ensure that they serve the public interest. The Commerce Committee, therefore, will immediately begin its oversight of this decision by hearing from the five FCC Commissioners this Wednesday."

Sen. Ernest Hollings (D-SC), the ranking Democrat on the Senate Commerce Committee, stated at a press conference that "This concentration is absolutely in opposition to the interests of the public itself. And there's no ground for it, there's no reason for it other than greed."

Sen. Ernest HollingsSen. Hollings (at right) is also the ranking Democrat on the House Appropriations Committee's Subcommittee on Commerce, Justice, State and the Judiciary. This Subcommittee has jurisdiction over the FCC's annual appropriation. Sen. Hollings has a history of using the appropriations process to obtain oversight goals.

This may be a more viable option for him, in the Senate, because Sen. Ted Stevens (R-AK), the Chairman of the full Appropriations Committee, shares some of Sen. Hollings' view on media ownership. For example, Sen. Stevens is the sponsor of S 1046, the "Preservation of Localism, Program Diversity, and Competition in Television Broadcast Service Act of 2003". Sen. Hollings is a cosponsor.

Sen. Hollings stated that "And I'm convinced, just noodling around, that we can get a majority vote and report that bill out and get some action on the floor of the Senate. Otherwise, we do have an appropriations bill. We never like to put those communications riders on, but this is such a disastrous proceeding and finding and rule by the commission itself this morning that I'm convinced that we've got to weigh-in in the Congress." See also, Hollings release.

Similarly, Rep. John Dingell (D-MI), the ranking Democrat on the House Commerce Committee, stated in a release that "With today's decision, the FCC's regulatory arrogance has delivered a body blow to democracy. The weakening of the FCC media ownership rules will hurt localism, will reduce diversity, and will allow media monopolies to flourish. Moreover, the FCC avoided open debate, ignored decades of judicial precedent and arbitrarily rejected the views of hundreds of thousands of concerned citizens."

He added that "The battle for a reasoned approach to ownership will now return to the courts, which hopefully will reject this arbitrary action, and to the Congress where a bipartisan coalition has already formed and is prepared to move forward. I look forward to working with my colleagues on both sides of the aisle to enact a national policy that will restore diversity and competition to the media marketplace."

Rep. Ed Markey (D-MA), the ranking Democrat on the House Commerce Committee's Subcommittee on Telecommunications and the Internet, also condemned the FCC's announcement. He stated in a release [PDF] that it is "unwarranted".

Sen. Mike DeWine (R-OH) and Sen. Herb Kohl (D-WI), the Chairman and ranking Democrat of the Senate Judiciary Committee's Subcommittee on Antitrust, stated in a joint release that "We have serious reservations with the FCC's decision today to substantially lift media ownership limits, and will be shortly conducting a hearing at the Antitrust Subcommittee to examine its implications for competition. We continue to believe that only diversity of ownership can preserve the diversity of news, information and entertainment sources essential to our democracy. A wide range of voices must be maintained in order to ensure a thriving and vibrant marketplace of ideas. Accordingly, we will be scrutinizing future media mergers at the Antitrust Subcommittee to examine their impact on the marketplace of ideas."

The two Senators, who typically act together on antitrust matters, added that "Now that the FCC has significantly relaxed its media ownership limits, many expect a renewed wave of mergers and acquisitions throughout the media sector. The antitrust agencies must enforce the antitrust laws vigorously to protect against excessive media concentration. We will expect the Justice Department and FTC to scrutinize media mergers and acquisitions closely. We urge both agencies to stand guard to prevent deals which will substantially injure competition in these industries that are so vital in providing the news and information relied upon by millions of Americans."

Secretary of Commerce Don Evans stated in a release that "I commend the FCC for its action on media ownership today. The FCC has answered the call of Congress and the Courts to modernize its rules."

Adam Thierer, of the libertarian Cato Institute, stated in a release that the FCC's rule changes represent only "a modest tweaking of existing regulations and standards." He added that "The real question now is whether the courts will accept these changes or strike down these archaic media ownership rules as regulatory relics. In revising such rules before, the courts have recognized that the changes in the media marketplace have given citizens a diversity of news, information, and entertainment options that undercuts the rationale behind many of the current regulations. Considering the dismal state of media competition and diversity just 20 to 30 years ago, today's world is characterized by information abundance, not scarcity."

"Moreover, as courts have found, the First Amendment remains of paramount importance when considering such restrictions of media. Limiting the size of the soapbox that media owners hope to build to speak to the American people is offensive to the free speech rights we hold sacred in this country."

Theier added that "Information and entertainment cannot be monopolized, especially in an age of breakneck technological change."

Randolph May, of the Progress and Freedom Foundation, a free market oriented group that focuses, in part, on communications and information technology issues, stated in a release that "Today the FCC took long overdue steps to relax its outdated media ownership restrictions. There are now vastly more media outlets and sources of news and information than there were when the rules were adopted 30 or 40 years ago. These rules were put in place before 85 percent of the American households subscribed to 300-channel cable and satellite television systems and before the Internet revolutionized information dissemination. At the time the rules were put in place, ‘channel surfing’ had not entered our lexicon, and ‘surfing the web’ was not even a dream."

In contrast, Andrew Schwartzman, of the Media Access Project, stated in a release [PDF] that "The bad news is that the FCC has acted with disdainful regard for hundreds of thousands of Americans who don’t want more media concentration. The good news is those hundreds of thousands of Americans have learned that FCC Chairman Michael Powell doesn’t care about what they think, and they will be angry."

Similarly, Gene Kimmelman of the Consumers Union stated in a release that "In one sweeping move, three FCC political appointees are dramatically worsening the nation's media landscape for decades to come. Like the wolf in sheep's clothing fable, these three Commissioners are saying their "modest" changes to media ownership rules are necessary to reflect today's abundant new media choices. But in reality their action is masking a much more cynical and dangerous plan."

People and Appointments

6/2. President Bush nominated Josette Shiner to be a Deputy U.S. Trade Representative (aka, duster). See, White House release. Bush announced his intent to nominate Shiner back on March 31, 2003. See, White House release.

6/2. Richard Crandall, founder of Comshare, and Wayne Mackie, formerly with Arthur Andersen, were named to Novell's board of directors, effective June 2, 2003. See, Novell release.

6/2. Broadcom elected Robert Switz to its Board of Directors. He is EVP and CFO of ADC Telecommunications. See, Broadcom release.

More News

6/2. After releasing several opinions, the Supreme Court announced that it will take a recess until Monday, June 9, 2003. See, Order List [8 pages in PDF], at page 8.

Go to News from May 26-30, 2003.