News from July 6-10, 2003

House Passes Labor, HHS and Education Appropriations Bill With CIPA Language

7/10. The House passed HR 2660 the "Departments of Labor, Health and Human Services, and Education, and Related Agencies Appropriations Act, 2004" by a vote of 215-208. See, Roll Call No. 353.

The bill contains language implementing the Children's Internet Protection Act (CIPA) [20 pages in PDF]. On June 23, 2003, the Supreme Court issued its opinion [56 pages in PDF] in US v. American Library Association, upholding the constitutionality of the CIPA, which provides that for libraries to receive federal subsidies or grants, they must use internet filtering technologies. See, story titled "Supreme Court Upholds Children's Internet Protection Act" in TLJ Daily E-Mail Alert No. 686, June 24, 2003

Section 516 of the bill provides that "None of the funds made available by this Act to carry out the Library Services and Technology Act may be made available to any library covered by paragraph (1) of section 224(f) of such Act (20 U.S.C. 9134(f)), as amended by the Children's Internet Protections Act, unless such library has made the certifications required by paragraph (4) of such section."

Section 517 of the bill provides that "None of the funds made available by this Act to carry out part D of title II of the Elementary and Secondary Education Act of 1965 may be made available to any elementary or secondary school covered by paragraph (1) of section 2441(a) of such Act (20 U.S.C. 6777(a)), as amended by the Children's Internet Protections Act and the No Child Left Behind Act, unless the local educational agency with responsibility for such covered school has made the certifications required by paragraph (2) of such section."

FCC Meeting Addresses WRC-03

7/10. The Federal Communications Commission (FCC) heard a brief oral report at its July 10 meeting on the World Radio Conference 2003, which took place in Geneva, Switzerland from June 9 through July 4. Don Abelson, Chief of the FCC's International Bureau, and Alexander Roytblat, the FCC's WRC Director, who where part of the U.S. delegation, spoke. See also, FCC release.

FCC Commissioner Kathleen Abernathy, who was also a member of the delegation, made a statement [PDF]. She praised the WRC for reaching consensus on "A set of global allocations of 455 MHz for wireless local area network (WLAN) systems in the 5 GHz spectrum band" and "A secondary allocation for aeronautical mobile satellite services in the 14-14.5 GHz band to provide for the provision of internet and other data services on airplanes."

Commissioner Michael Copps also made a statement [PDF]. He said that "I know we are still assessing the results of the conference, but it appears that we attained several of our most important objectives and made notable progress across just about the whole gamut of policy concerns that we took to Geneva. The 5 GHz Radio Local Area Network item was surely one of the most important to be taken up and, from what I understand, we got a livable compromise and then some for a mobile service allocation here. We had a win on a global secondary allocation for aeronautical mobile satellite service, so in-flight broadband service takes a giant stride toward becoming reality."

Finally, FCC Chairman Michael Powell gave Janice Obuchowski, who was the head of the U.S. delegation, an award plaque.

Ways and Means Committee Holds Hearing on Abuse of SSNs

7/10. The House Ways and Means Committee's Subcommittee on Social Security held a hearing on use and misuse of social security numbers.

Barbara Bovbjerg of the General Accounting Office (GAO) submitted prepared testimony of the GAO titled "Social Security Numbers: Ensuring the Integrity of the SSN". The GAO wrote that "Because SSNs are unique identifiers and do not change, the numbers provide a convenient and efficient means of managing records. They are also particularly useful for data sharing and data matching because agencies can use them to check or compare their information quickly and accurately with that from other agencies."

In addition, "some private sector entities also rely extensively on the SSN. Businesses often request an individual’s SSN in exchange for goods or services. For example, some businesses use the SSN as a key identifier to assess credit risk, track patient care among multiple providers, locate bankruptcy assets, and provide background checks on new employees. In some cases, businesses require individuals to submit their SSNs to comply with federal laws such as the tax code. Currently, there is no law that prohibits businesses from requiring a person’s SSN as a condition of providing goods and services."

The GAO continued that "The extensive public and private sector uses of SSNs and availability of public records and other information, especially via the Internet, has allowed individuals' personal information to be aggregated into multiple databases or centralized locations. In the course of our work, we have identified numerous examples where public and private databases have been compromised and personal data, including SSNs, has been stolen."

Also, "Because SSNs are often the identifier of choice among individuals seeking to create false identities, to the extent that personal information is aggregated in public and private sector databases it becomes vulnerable to misuse."

The GAO concluded that "The use of SSNs by both public and sector entities is likely to continue given that it is used as the key identifier by most of these entities and there is currently no other widely accepted alternative. To help control such use, certain laws have helped to safeguard such personal information, including SSNs, by limiting disclosure of such information to specific purposes. To the extent that personal information is aggregated in public and private sector databases, it becomes vulnerable to misuse. In addition, to the extent that public record information becomes more available in an electronic format, it becomes more vulnerable to misuse. The ease of access the Internet affords could encourage individuals to engage in information gathering from public records on a broader scale than they could before when they had to visit a physical location and request or search for information on a case-by-case basis."

Chris Hoofnagle of the Electronic Privacy Information Center (EPIC) wrote in his prepared testimony that "Without a framework of restrictions on the collection and use of the SSN and other personal identifiers, identity theft will continue to increase, endangering individuals' privacy and perhaps the security of the nation. The best legislative strategy is one that discourages the collection and dissemination of the SSN and that encourages organizations to develop alternative systems of record identification and verification. It is particularly important that such legislation not force consumers to make unfair or unreasonable choices that essentially require trading the privacy interest in the SSN for some benefit or opportunity."

See also, prepared testimony of James Huse (Inspector General of the Social Security Administration), prepared testimony of Steve Edwards (Georgia Bureau of Investigations), and prepared testimony of Theodore Wern (Identity Theft Resource Center).

House and Senate Committees Hold Hearings on Singapore and Chile FTAs

7/10. The House Ways and Means Committee and the Senate Finance Committee both met to consider legislation implementing the U.S Chile Free Trade Agreement (FTA), which was signed on June 6, 2003, and the U.S. Singapore FTA, which was signed on May 6, 2003.

Both FTAs contain provisions regarding electronic commerce, protection of intellectual property rights, and telecommunications. See, stories titled "US and Chile Sign FTA" in TLJ Daily E-Mail Alert No. 676, June 9, 2003, and "Bush and Goh Sign US Singapore FTA" in TLJ Daily E-Mail Alert No. 656, May 7, 2003.

Pursuant to legislation passed in the 107th Congress giving the President trade promotion authority, the Congress can either approve or reject, but not amend, these FTAs. These two committees have primary jurisdiction over these FTAs.

Both committees approved the parts of the draft bills over which they have jurisdiction, without amendment, by voice vote. See, draft of HR __, the "United States Singapore Free Trade Agreement Implementation Act" and draft of HR __, the "United States Chile Free Trade Agreement Implementation Act".

Sen. Max Baucus (D-MT), the ranking Democrat on the Senate Finance Committee said in his prepared statement [2 pages in PDF] that "By and large, I think the two agreements stack up fairly well against the negotiating objectives set out by Congress. They set a new standard in many areas."

Sen. Charles Grassley (R-IA), the Chairman of the Committee, said in his opening statement [PDF] that "At the heart of TPA procedures is consultation. Here I think President Bush and Ambassador Zoellick have done an admirable job. The Congress was closely consulted throughout the negotiating process on both agreements. The result is two solid trade agreements which the vast majority of the Congress should be able to support on a bipartisan basis."

Sen. Grassley also stated that "It is our objective to complete consideration of both of these bills prior to the August recess."

The House and Senate Judiciary Committees have jurisdiction over the visa provisions of these FTAs. The House Judiciary Committee held a long mark up meeting on Wednesday, June 9 at which it approved the visa provisions of these two FTAs.

NAB Withdraws Support for Bill to Set National TV Ownership Cap at 35%

7/10. The National Association of Broadcasters (NAB) stated in a release that "Through amendments in recent weeks, the Senate Commerce Committee has modified S. 1046 in numerous ways that are unacceptable to the broadcast industry. We have previously announced our opposition to that legislation. We would prefer a clean bill that would codify the national television ownership cap at 35%."

The NAB continued that "However, in evaluating the current legislative climate, we have concluded that is politically and legislatively infeasible. Therefore, NAB is withdrawing its support for legislation in the House and Senate. We remain grateful to Congressmen Burr and Dingell and Senators Stevens and Hollings and other Members of Congress for their longstanding support of free, local over-the-air broadcasters."

Sen. Ernest HollingsSen. Ernest Hollings (D-SC) (at right) responded in a release that "The NAB's recent about-face is regrettable, but this battle is being fought for the American people and diversity of expression, not the NAB. Americans from widely differing perspectives have made it quite clear that they want the FCC's ruling reversed. We will continue to move forward on our bill and work to ensure that the public airwaves serve the public interest and not the economic interest of a few big media conglomerates."

On June 19, 2003, the Senate Commerce Committee amended and passed S 1046, the "Preservation of Localism, Program Diversity, and Competition in Television Broadcast Service Act of 2003". The bill, as amended, would roll back some of the changes to the Federal Communications Commission's (FCC) media ownership rules that the FCC announced at its June 2, 2003 meeting. See, TLJ story titled "Senate Commerce Committee Passes Media Ownership Bill", June 19, 2003.

On June 2, the FCC announced rules changes that raise the national TV ownership cap from 35% to 45%. That is, one company can own TV stations reaching no more than a 45% share of U.S. TV households. See, stories titled "FCC Announces Revisions to Media Ownership Rules" and "Reaction to the FCC's Media Ownership Announcement" in TLJ Daily E-Mail Alert No. 672, June 3, 2003, and story titled "FCC Releases Media Ownership Order and NPRM" in TLJ Daily E-Mail Alert No. 692, July 7, 2003. See also, FCC press release [10 pages in PDF] of June 2, 2003, and Report and Order and Notice of Proposed Rulemaking [257 pages in PDF] released on June 2, 2003.

S 1046, which is sponsored by Sen. Ted Stevens (R-AK), Sen. Hollings, and others, would establish by statute a national broadcast television multiple ownership cap of 35%. Specifically, the bill provides that the FCC "shall not permit any license for a commercial television broadcast station to be granted, transferred, or assigned to any party (including all parties under common control) if the grant, transfer, or assignment of such license would result in such party or any of its stockholders, partners, or members, officers, or directors, directly or indirectly, owning, operating or controlling, or having a cognizable interest in television stations which have an aggregate national audience reach exceeding 35 percent." (Parentheses in original.)

People and Appointments

7/10. Joseph Simons resigned as Director of the Federal Trade Commission's (FTC) Bureau of Competition (BOC), effective August 1, 2003. The BOC handles antitrust matters. Susan Creighton, who is currently Deputy Director of the FTC's BOC, will become the Director. Before joining the FTC in August of 2001, Creighton was a partner in the law firm of Wilson Sonsini Goodrich & Rosati where she focused on intellectual property and antitrust matters. She co-authored with Gary Reback a white paper regarding antitrust matters relating to Microsoft that preceded action by the Antitrust Division of the Department of Justice against Microsoft. Barry Nigro will become the Deputy Director of the FTC's BOC. He is currently a partner with the law firm of Fried Frank Harris Shriver & Jacobson. See, FTC release.

7/10. The Senate Judiciary Committee approved the nomination of Allyson Duncan to be a Judge of the U.S. Court of Appeals for the 4th Circuit. The nomination still requires approval by the full Senate.

7/10. Julie Veach was named Assistant Chief of the Federal Communications Commission's (FCC) Wireline Competition Bureau's (WCB) Competition Policy Division. She has worked at the FCC since January of 2001. Before that she worked for the law firm of Wilmer Cutler & Pickering. But, she will be on parental leave. So, Jeremy Miller was named Acting Assistant Chief of the Competition Policy Division. Before joining the FCC in 2001 he worked for the law firm of Hogan & Hartson. See, FCC release [PDF].

7/10. David Svanda will step down as President of the National Association of Regulatory Utility Commissioners (NARUC), effective August 4, 2003. NARUC First Vice President Stan Wise will then assume the presidency. See, NARUC release [PDF].

More News

7/10. The Federal Communications Commission (FCC) announced, but did not release, an order creating an Office of Homeland Security within the Enforcement Bureau. James Dailey was named Director of the office. See, FCC release.

7/10. The Federal Communications Commission (FCC) announced, but did not release, a Report and Order requiring wireless manufacturers and service providers to make digital wireless phones accessible to people who use hearing aids. See, FCC release [PDF].

House Commerce Committee Holds Hearing on Spam

7/9. The House Commerce Committee's Subcommittees on Commerce, Trade and Consumer Protection and on Telecommunications and the Internet held a hearing titled "Legislative Efforts to Combat Spam". It focused on HR 2214, sponsored by Rep. Richard Burr (R-NC), and HR 2515, sponsored by Rep. Heather Wilson (R-NM). See, full story.

House Science Committee Holds Hearing on MSI Tech Grant Bill

7/9. The House Science Committee's Subcommittee on Research held a hearing on HR 2183, the "Minority Serving Institution Digital and Wireless Technology Opportunity Act".

The bill would create a new office at the National Science Foundation (NSF) named the Office of Digital and Wireless Network Technology (ODWNT). The bill would also authorize the appropriation of $250,000,000 for each of the fiscal years 2004 through 2008 for grants to be administered by this new office.

The institutions eligible for grants would include "a historically Black college or university", "a Hispanic-serving institution", and "a tribally controlled college or university".

Grants could be used "to acquire the equipment, instrumentation, networking capability, hardware and software, digital network technology, wireless technology, and infrastructure". Grants could also be used "to develop and provide educational services, including faculty development, to prepare students or faculty ...". Grants could also be used to provide teacher training, and to "implement joint projects and consortia to provide education regarding technology".

HR 2183 is the companion bill to S 196, which was introduced by Sen. George Allen (R-VA) on January 17, 2003. The Senate passed S 196 on April 30, 2003 by a vote of 97-0.

There is also a related bill, HR 2272, sponsored by Rep. Edolphus Towns (D-NY). Both Sen. Allen and Rep. Towns spoke at the hearing.

Rep. Towns stated that "While I support the efforts of Senator Allen and my colleague, Congressman Forbes, I would like to briefly comment on the one difference between our two bills. It is on the issue of peer review. Peer review is the manner by which members of the MSI community would be able to advise the National Science Foundation on which schools should receive this grant money, as opposed to reviewers from large research universities who do not have any familiarity with the MSI community."

He added that "I know that some have argued that this program may be better suited for placement in the Department of Commerce rather than NSF. ... I do believe that MSIs would reap greater benefits from a program that was not limited to solely funding academic enhancements for ``science, research and development´´ which would be the case if the program became part of the NSF."

Rep. Nick Smith (R-MI), the Chairman of the Subcommittee, presided. He wrote in his opening statement that "I believe that the Digital Divide is a challenge that, if the federal government is to be involved, should be addressed on the basis of a school's financial need to provide connectivity, networking, and other technologies to their students, not on the race and/or ethnicity of its student population. To be sure, many Minority serving institutions do not have the depth and breadth of financial resources that large research universities have. But we also know that not all Minority serving Institutions are poor, and that hundreds of other smaller and rural colleges also face the challenge of bridging the digital divide."

See also, stories titled "Sen. Allen Introduces Bill to Create Technology Grant Program for MSIs" in TLJ Daily E-Mail Alert No. 586, January 20, 2003; "Senate Committee Approves Technology Grant Program for Minority Serving Institutions" in TLJ Daily E-Mail Alert No. 623, March 14, 2003; "Senate Passes Technology Grant Bill" in TLJ Daily E-Mail Alert No. 655, May 5, 2003; and "Rep. Forbes Introduces Bill to Provide Grants for Digital and Wireless Technology for MSIs" in TLJ Daily E-Mail Alert No. 669, May 29, 2003.

House Judiciary Committee Approves USPTO Fee Bill

7/9. The House Judiciary Committee approved HR 1561, the "United States Patent and Trademark Fee Modernization Act of 2003".

On May 23, 2003, the Subcommittee on Courts, the Internet and Intellectual Property approved an amendment in the nature of a substitute. The full Committee approved this version, with a further amendment pertaining to outsourcing by the patent office. The bill would raise patent and trademark fees by a minimum of 15%.

The amendment in the nature of a substitute contains a new section which provides for ending the practice fee diversion. It would amend 35 U.S.C. § 42 pertaining to "Patent and Trademark Office funding". It would provide that "All fees paid to the Director and all appropriations for defraying the costs of the activities of the Patent and Trademark Office will be credited to the Patent and Trademark Office Account in the Treasury of the United States." It further provides that "Fees authorized in this title or any other Act to be charged or established by the Director shall be collected by the Director and shall be available until expended."

Currently, funding for the USPTO is set by bills reported by the House and Senate Appropriations Committees. The appropriation is less than the amount of fees collected, with the remainder being used to subsidize other government programs. Intellectual property owners, the groups that represent them, and technophiles in the Congress oppose the process of fee diversion.

Michael Kirk, Executive Director of the American Intellectual Property Law Association (AIPLA) told Tech Law Journal after the meeting that "our goal is to see an end to diversion". He added that the USPTO "badly needs funds". He stated that it can take up to four years to obtain a telecommunications or computer technology related patent.

Similarly, Michael Heltzer, of the International Trademark Association (INTA), told TLJ that "we are anxious to find an end to fee diversion". He added that "fee diversion has cost patent and trademark owners hundreds of millions of dollars ... $582.1 Million".

For many years, the members of the House Judiciary Committee have sought to end the practice of patent and trademark fee diversion, while members of the House Appropriations Committee have defended it. The appropriators have won every battle in the past.

Sen. Smith Introduces Universal Service Reform Bill

7/9. Sen. Gordon Smith (R-OR) and others introduced S 1380, the "Rural Universal Service Equity Act of 2003". It would require the Federal Communications Commission (FCC) to rewrite its high cost universal service support rules to provide for distributing funds to telephone company wire centers with the highest cost.

The FCC's universal service programs are cross subsidy programs under which some phone service consumers are, in effect, taxed to subsidize the service of others. While the FCC has long managed a universal service system, it was first codified by the Telecom Act of 1996. See, 47 U.S.C. § 254.

Sen. Gordon SmithSen. Smith (at right) described universal service as "a decades old Federal program intended to keep telephone service available and affordable across America. The Federal Universal Service Program has been a tremendous success." See, Congressional Record, July 9, 2003, at pages S9121-2.

He said that "Yet many of the most rural States in America the very States the program was intended to assist -- receive no funding at all. North Dakota, South Dakota, Idaho, Iowa, Utah, Kansas, Oklahoma, New Mexico, Nebraska and other rural States receive no funding under this program."

"When the FCC created this program in 1999, it determined which States would be eligible for funding by comparing the average cost of providing telephone service per line in each State to a benchmark tied to the national average cost per line. If a State's average cost of service per line exceeded the benchmark, that State would be eligible for funding. If the average cost was below the national benchmark, it would not be eligible."

Sen. Smith continued that "This method is skewed, in part, because telephone service in a metropolitan area is less expensive to provide than service in a rural area. Customers in cities are closer to one another, and the same facilities can serve more people at a lower cost. As a consequence, if you are served by a larger carrier and you live in a State with a city--no matter how rural an area, or no matter how far from the city you live--your State probably receives no support."

He then summarized his bill. "The Act directs the FCC to replace the current state-wide average formula with a new formula that distributes funds to telephone company wire centers with the highest cost. Wire centers are the telephone facilities where all of the telephone lines in a given area converge. And because funds would be directed to high-cost wire centers, as opposed to States with the highest average costs, rural residents would no longer be penalized if they lived in a State with a city hundreds of miles away."

The bill would requires the FCC to amend its regulations codified at 47 CFR 54.309 and 54.311. (See, Part 54 of the FCC rules.) Specifically, the bill provides that "In calculating Federal universal service support for eligible telecommunications carriers that serve rural, insular, and high cost areas, the Commission shall ... revise the Commission's support mechanism for high cost areas to provide support to each wire center in which the incumbent local exchange carrier's average cost per line for such wire center exceeds the national average cost per line by such amount as the Commission determines appropriate for the purpose of ensuring the equitable distribution of universal service support throughout the United States."

The bill is cosponsored by 10 Republicans, and Sen. Evan Bayh (D-IN), who are from states with large rural populations.

New Technologies and Universal Service Funding. The bill recites in its finding that "Local telephone competition and emerging technologies are threatening the viability of Federal universal service support." However, the bill would do nothing to change the way universal service is funded, such as by taxing new communications technologies. The bill states that one of its purposes is to "To begin consideration of universal service reform."

Sen. Gordon also stated that "the Universal Service Program has challenges beyond the inequities of the program for larger carriers. I look forward to participating in the broader debate on how to reform the Universal Service Program and ensure its long term viability and effectiveness. This bill will help further that debate. However, broadly reforming the Universal Service Program is complex and divisive. It may take years. And I do not believe the inequities of the program for larger carriers should be allowed to continue while Congress grapples with the broader issues."

BellSouth's Herschel Abbott stated in a release that "This legislation is looking at the wrong end of the question. It would cut off subsidy funding for phone service for people in some rural parts of the country. Yet it does not address the crucial problem in ensuring affordable universal telephone today -- that is, where does the money come from? Technology now allows people to be connected in many ways, yet the responsibility for funding universal service is not being borne by people making connections through the internet. It is the funding side of the universal service equation that is in peril, the distribution side should not be addressed separately."

More Capitol Hill News

7/9. The House passed HR 438, the Teacher Recruitment and Retention Act of 2003, a bill to increase the amount of student loans that may be forgiven for teachers in mathematics, science, and special education. The bill is sponsored by Rep. Joe Wilson (R-SC)

7/9. The Joint Economic Committee held a hearing titled "Technology, Innovation, and the Costs of Healthcare". See, prepared testimony [PDF] of Mark McClellan (Commissioner of the U.S. Food and Drug Administration), prepared testimony [PDF] of Carolyn Yancy (Director of the Agency for Healthcare Research and Quality), and prepared testimony [PDF] of Neil Powe (Johns Hopkins School of Medicine).

4th Circuit Rules in Cybersquatting Case

7/9. The U.S. Court of Appeals (4thCir) issued its opinion [PDF] in Hawes v. Network Solutions, a case interpreting the Anticybersquatting Consumer Protection Act (ACPA), Rule 12(b)(1) motions to dismiss for lack of subject matter jurisdiction, and Rule 12(b)(6) motions to dismiss for failure to state a claim. The District Court dismissed a two count complaint brought by a domain name registrant against a company that claimed trademark rights in the domain name, and the domain name registrar that transferred the domain name to that company. The Appeals Court affirmed in part and reversed in part, in a opinion that could be put to good use in civil procedure and trademark law courses.

Background. In April 1999 Christopher Hawes registered the domain name with Network Solutions, Inc. (NSI). L'Oreal, is a French cosmetics company.

L'Oreal filed a complaint in a French court against Hawes alleging infringement of its trademark. NSI then transmitted a Registrar Certificate for the domain name to counsel for L'Oreal in France, tendering control and authority over the registration of the domain name to the French court, in accordance with NSI's standard agreement with registrants. Hawes did not appear, and the court entered judgment for L'Oreal, ordering that the domain name be transferred to L'Oreal.

Hawes then sent a letter to NSI stating that if it transferred the domain name, pursuant to NSI's standard agreement and the French order, he would file suit in a United States federal court seeking judgment that his registration and use of the domain name were not unlawful. Nevertheless, NSI then transferred the domain name to L'Oreal.

District Court. Hawes filed a two count complaint in U.S. District Court (EDVa) against NSI and L'Oreal. He alleged that NSI violated its standard agreement with registrants. He also sought declaratory and injunctive relief under the Lanham Act, as amended by the ACPA, against L'Oreal. See, 15 U.S.C. § 1114(2)(D). He sought a declaratory judgment that NSI's transfer of his domain name to L'Oreal was improper, and that his registration and use of the domain name was not unlawful. He also sought an injunction ordering the return of the domain name. L'Oreal counterclaimed for trademark infringement and trademark dilution.

The District Court dismissed the complaint for lack of subject matter jurisdiction, pursuant to Rule 12(b)(1) of the FRCP. The District Court dismissed the count against NSI on the grounds that Hawes did not allege a violation of the ACPA against NSI. The District Court dismissed the count against L'Oreal on the grounds that there is no justiciable case or controversy, that the domain name was transferred pursuant to a French court order rather than NSI's standard agreement, and that 28 U.S.C. § 2201 allows the court discretion not to grant injunctive relief.

L'Oreal dismissed its counterclaims. This appeal followed.

Statutes and Rules. 15 U.S.C. § 1114(2)(D)(i)(I) provides that "A domain name registrar, a domain name registry, or other domain name registration authority that takes any action described under clause (ii) affecting a domain name shall not be liable for monetary relief or, except as provided in subclause (II), for injunctive relief, to any person for such action, regardless of whether the domain name is finally determined to infringe or dilute the mark."

15 U.S.C. § 1114(2)(D)(i)(II), in turn, provides, in part, that "A domain name registrar, domain name registry, or other domain name registration authority described in subclause (I) may be subject to injunctive relief only if such registrar, registry, or other registration authority has ... (bb) transferred, suspended, or otherwise modified the domain name during the pendency of the action, except upon order of the court"

Also, 15 U.S.C. § 1114(2)(D)(v) 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."

28 U.S.C. § 2201 provides, in part, that "In a case of actual controversy within its jurisdiction ... as determined by the administering authority, any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such."

Rule 12, FRCP, provides, in part, that "Every defense, in law or fact, to a claim for relief in any pleading, whether a claim, counterclaim, cross-claim, or third-party claim, shall be asserted in the responsive pleading thereto if one is required, except that the following defenses may at the option of the pleader be made by motion: (1) lack of jurisdiction over the subject matter, ... (6) failure to state a claim upon which relief can be granted, ..."

Appeals Court. The Appeals Court affirmed in part (the dismissal as to NSI), reversed in part (the dismissal as to L'oreal), and remanded.

The Appeals Court first examined the complaint, which was poorly drafted, and misstated the the statutory authority upon which it was based. The Appeals Court concluded that the first count, against NSI, alleged a violation of 15 U.S.C. 1114(2)(D)(i)(II)(bb), while the second count, against L'Oreal, alleged a violation of  15 U.S.C. 1114(2)(D)(v).

Then, the Appeals Court examined the District Court's dismissal of the first count. It held that the District Court erred in dismissing pursuant to Rule 12(b)(1), regarding lack of subject matter jurisdiction. While the ACPA generally limited the liability of domain name registrars, subsection (D)(i)(II)(bb) provides an exception, and that is what Hawes plead. But, the Appeals Court continued that NSI also moved to dismiss under Rule 12(b)(6), regarding failure to state a claim. The Appeals Court held that Hawes failed to state a claim, and that the count against NSI should have been dismissed for this reason.

The Appeals Court reasoned that "Hawes did allege that Network Solutions tendered control over the domain name to the French court after L'Oreal commenced an action in France against Hawes for infringing L'Oreal's French trademarks, but the pendency of a foreign action is irrelevant to the question of whether a registrar is exposed to liability under the Lanham Act. This conclusion that the French proceedings are irrelevant to a registrar’s liability under § 1114(2)(D)(i) is compelled by the language of the Lanham Act as amended by the ACPA, as well as its scope and structure."

The Court continued that "The ACPA creates a cause of action for cybersquatting against anyone who registers, traffics in, or uses a domain name that is identical or confusingly similar to a trademark with the bad-faith intent to profit from the good will associated with the trademark. See 15 U.S.C. § 1125(d)(1). It also creates a cause of action for reverse domain name hijacking against trademark owners who misuse or abuse their rights in bringing a cybersquatting action."

"The ACPA thus protects both trademark owners and domain name registrants. In creating these causes of action, Congress intended expressly to limit the liability of domain name registrars under the Act as long as the domain name registrars comply with the conditions stated in § 1114(2)(D)(i)."

The Court added that "Without such limitation of liability, all registrars would potentially have been exposed to the offense of cybersquatting because they register and traffic in domain names that could be infringing or diluting trademarks protected by the Lanham Act. See 15 U.S.C. § 1125(d)(1). Thus, § 3004 of the ACPA, which contains the language codified at 15 U.S.C. § 1114(2)(D)(i) and is captioned ``Limitation on Liability,´´ generally exempts domain name registrars from the liability imposed by the Act for cybersquatting or reverse domain name hijacking. Because the provisions conditioning the limitation of liability in § 1114(2)(D)(i) relate to liability imposed by the Lanham Act as amended by the ACPA, cooperating conduct by registrars with respect to foreign courts under foreign law is given no relevance in interpreting § 1114(2)(D)(i)(II)(bb) insofar as it requires the pendency of an ``action.´´"

The Court concluded that "In this case, there was no anticybersquatting action or reverse anticybersquatting action under the ACPA pending in any court at the time Network Solutions transferred the domain name <>. Because there was no action adjudicating Lanham Act liability, there could be no allegation that Network Solutions was not cooperating with a court in a domain name dispute involving domain name hijacking or reverse domain name hijacking, and thus there could be no basis to consider an exception from the limitation of liability. Accordingly, the district court was correct in concluding that the complaint failed to include a necessary averment of fact in support of a claim to find Network Solutions’ conduct fell within the exception to the limitation of liability granted by § 1114(2)(D)(i)." Hence, the Court wrote that "we agree with the district court that the claim against Network Solutions must be dismissed, but we affirm this conclusion on the basis of Federal Rule of Civil Procedure 12(b)(6)."

Next, the Appeals Court examined the District Court's dismissal of the second count, against L'Oreal. The District Court dismissed an ACPA (D)(v) claim for lack of subject matter jurisdiction.

The District Court dismissed, in part, because it held that the transfer of the domain name was pursuant to a French court order, rather than NSI's standard agreement, and one element of a (D)(v) claim is that the transfer be pursuant to the registrar's policy. The Appeals Court ruled that "Implicitly, the court concluded that the element was a jurisdictional one. Again we disagree."

The Appeals Court explained. "But the statute makes none of these elements jurisdictional. Rather, jurisdiction is conferred by the fact that the cause of action provided under § 1114(2)(D)(v) is part of the ACPA which amended the Trademark Act of 1946 (the Lanham Act), and as such is a civil action relating to trademarks. Section 1338 of Title 28 confers subject matter jurisdiction on federal courts for actions relating to trademarks. Thus, if Hawes failed to allege any of the elements for a reverse domain name hijacking claim, L'Oreal’s remedy would be to file a motion for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). Although we agree with the district court that the failure to allege one of the required elements would be fatal to recovery, it would not be fatal to the district court's jurisdiction."

But, the Appeals Court continued that the District Court misinterpreted the complaint. It wrote that "Fully and fairly read, the complaint alleges that the transfer of the domain name took place pursuant to Network Solutions' Domain Name Dispute Policy as contained in the Domain Name Registration Agreement, and it was because of that policy, as interpreted by Network Solutions, that the Registrar Certificate was filed with the French court and that the domain name was ultimately transferred. Because L'Oreal is alleged to have received the domain name <> on the basis of Network Solutions’ interpretation of the scope of its ``Domain Name Dispute Policy,´´ the second element for a cause of action under § 1114(2)(D)(v) would appear to have been adequately alleged."

Hence, not only was it error to dismiss the count against L'Oreal for lack of subject matter jurisdiction, but Hawes plead a claim upon which relief may be granted.

The Appeals Court rejected the 28 U.S.C. § 2201 discretion argument in a single footnote. It wrote, "But a federal district court possesses no similar discretion in adjudicating an action brought under 15 U.S.C. § 1114(2)(D)(v), in which Congress created a new and independent cause of action and, unlike in § 2201, used no language indicating that a district court may exercise discretion regarding whether to grant declaratory relief."

People and Appointments

7/9. The Senate confirmed Victor Wolski to be a Judge of the U.S. Court of Federal Claims for a term of fifteen years by a vote of 56-43. See, Roll Call No. 265. It was a nearly straight party line vote.

7/9. Peter Fisher, Under Secretary for Domestic Finance at the Department of the Treasury, announced his resignation, effective October 10, 2003. See, resignation letter and Treasury release.

7/9. President Bush announced his intent to nominate Kenneth Leet to be Under Secretary for Domestic Finance at the Department of the Treasury. If confirmed by the Senate, he will replace Peter Fisher. Leet is currently Managing Director of the Investment Banking Division at the Goldman Sachs Group. See, White House release.

7/9. President Bush announced his intent to nominate Susan Schwab to be Deputy Secretary of the Treasury. She is currently Dean of the University of Maryland School of Public Affairs. Prior to that, she worked for Motorola. She was also an Assistant Secretary of Commerce and Director General of the U.S. & Foreign Commercial Service of the Department of Commerce during the first Bush administration. Before that, she worked for former Sen. John Danforth (R-MO) as legislative director, chief economist, and legislative assistant for international trade. See, White House release.

7/9. Charles Schott was named Deputy Assistant Secretary for Trade and Investment in the Office of International Affairs at the Department of the Treasury, effective July 28. He will handle policy development and analysis on financial services and investment trade issues. He previously worked at Paradigm Partners in New Canaan, Connecticut. Before that, he worked at the management consulting firm of McKinsey & Company. During the Reagan administration, he worked at the Federal Communications Commission (FCC) and at the National Telecommunications & Information Administration, as Deputy Assistant Secretary of Commerce for Communications and Information. See, Treasury release.

7/9. Courtney Clelan was named Deputy Assistant Secretary of Legislative Affairs at the Department of the Treasury, effective July 28. She will handle congressional relations pertaining to banking and finance issues. Previously, she worked for the Consumer Bankers Association and for T. Rowe Price. See, Treasury release.

7/9. The Senate approved the nominations of Mary Ellen Williams, Victor Wolski, Susan Braden, and Charles Lettow to be a Judges of the U.S. Court of Federal Claims for a term of fifteen years.

More News

7/9. The Federal Communications Commission (FCC) published a notice in the Federal Register containing its revised list of foreign telecommunications carriers that are presumed to possess market power in foreign telecommunications markets. See, Federal Register, July 9, 2003, Vol. 68, No. 131, at Pages 40947 - 40951.

7/9. The U.S. Court of Appeals (FedCir) issued its opinion [MS Word] in In Re The Boulevard Entertainment, Inc., a trademark registration case. Boulevard provides entertainment services over the telephone of a vulgar and pormographic nature. It attempted to register a trademark in an alphanumeric telephone number that included a vulgar term, as well as a trademark in the vulgar term itself. The examining attorney at the U.S. Patent and Trademark Office (USPTO) refused to register the marks, pursuant to 15 U.S.C. § 1052(a), which precludes registration of marks that consist of or comprise "immoral, deceptive, or scandalous matter". The Trademark Trial and Appeal Board (TTAB) affirmed. See, TTAB summary. Boulevard appealed, on both § 1052(a) and First Amendment grounds. The Appeals Court also affirmed. On the freedom of speech issue, the Court wrote that "the refusal to register a mark does not proscribe any conduct or suppress any form of expression because it does not affect the applicant's right to use the mark in question".

7/9. The American Civil Liberties Union (ACLU) released a report [14 pages in PDF] titled "PATRIOT Propaganda: The Justice Department's Campaign to Mislead The Public About the USA PATRIOT Act". The report pertains to Section 215 of the Act, which is codified at 50 U.S.C. § 1862. Section 215 addresses access to records of common carriers, public accommodation facilities, and others, under the Foreign Intelligence Security Act (FISA). The report states that "Section 215 allows the government to obtain -- without an ordinary criminal subpoena or search warrant and without probable cause -- an order from a court giving them records on clients or customers from libraries, bookstores, doctors, universities, Internet service providers and other public entities and private sector businesses."

7/9. Rep. Tom Tancredo (R-CO) introduced HR 2688, a bill to amend the Immigration and Nationality Act to repeal authorities relating to H1-B visas, which are used by high tech workers. It is a short and simple bill that provides that "The Immigration and Nationality Act (8 U.S.C. 1101 et seq.) is amended by striking section 101(a)(15)(H)(i)(b) ..." It was referred to the House Judiciary Committee.

House Judiciary Committee Holds Hearing on Spam Bill

7/8. The House Judiciary Committee's Subcommittee on Crime held a hearing on HR 2214, the Reduction in Distribution of Spam Act of 2003.

Rep. Howard Coble (R-NC), the Chairman of the Subcommittee, presided. See, opening statement. See also, prepared testimony of witnesses:  Jerry Kilgore (Attorney General of Virginia, who testified regarding Virginia's anti spam statute), Will Moschella (Assistant Attorney General for the Office of Legislative Affairs), Joe Rubin (U.S. Chamber of Commerce), and Chris Murray (Consumers Union).

Rep. Bob Goodlatte (R-VA), who is a cosponsor of the bill, spoke in support. He defended its opt out provisions, opposed expanding remedies to include class actions, and argued that the best way to address spam "is very strong criminal provisions that are provided in this legislation, coupled with a great deal of international work that is going to have to be done to get other countries cooperating with us in that area."

Will Moschella provided the view of the Department of Justice (DOJ) on the criminal provisions of HR 2214. He wrote in his prepared testimony that "we support the bill’s approach to criminalizing the knowing falsification of the identity of the sender." He also wrote that the DOJ "supports making it criminal offense to send unsolicited commercial electronic mail containing sexually explicit content without marking it as such."

He also made numerous recommendations for changes to the bill. For example, he wrote that "we are concerned about using a felony threshold that relies on the number of prohibited e-mail messages sent. In order to establish a felony for a first-time offender under the bill, a prosecutor would have to prove beyond a reasonable doubt that the sender knew that he falsified his identity in each of 10,000 commercial electronic mail messages or that each of 10,000 messages containing unmarked sexually explicit conduct were truly unsolicited by all recipients. The prosecutors in the Criminal Division tell me that these thresholds would make these felonies extremely difficult to prosecute because they would have to accumulate a massive documentary case just to meet the felony definition." He added that "we strongly suggest that the Subcommittee consider other triggers for felony treatment".

He also wrote that the DOJ does not support a separate criminal offense for harvesting e-mail addresses. Rather, "We believe that harvesting should be an aggravating factor at sentencing and we recommend that this separate harvesting offense be removed from the draft legislation." He argued that since harvesting would not be a crime by itself, and would only be a crime if done in conjunction with another criminal act, it would be redundant.

Joe Rubin of the U.S. Chamber of Commerce wrote in his prepared testimony that the the Chamber supports legislating in this area. However, he recommended that legislation distinguish between e-mail sent by legitimate businesses, and that send by fraudulent businesses.

He wrote that "there is a clear distinction between legitimate companies, those that do not spoof or mislead their customers, respect and honor opt-outs, seek to gain repeat customers, and who obtain email addresses through legitimate means, versus those who attempt to use fraud and deception to get consumers to open their emails or avoid Internet Service Provider (ISP) filters and obtain customer ``leads´´ by, in effect, stealing addresses from other online service providers. This distinction has to be clearly recognized in any legislative attempts to address spam -- legitimate companies will comply with the rules, even if they are extremely burdensome and unworkable, while spammers will continue to ignore legislative and judicial rules and edicts."

He also commented that "One provision that this legislation adds to the current stable of tools to fight spam is an enhanced ability of ISPs, who are in the best position to trace the source of spam, to sue spammers, and institutes a single, nation-wide standard to facilitate their efforts. It does so in a way, however, that protects the needs of legitimate businesses to communicate with their customers through email. For instance, the legislation requires that ISPs establish a ``pattern or practice´´ of violations with regards to disregarding an opt-out, but has no similar requirements when suing for intentional acts like using false header and routing information or harvesting email addresses – activities that legitimate companies would not undertake, and therefore no additional protection is required."

Rubin also recommended some changes to the bill. For example, he wrote that the FTC should be given "the ability and authority to go after those businesses that actually benefit from the use of spam. Generally, spammers are not promoting their own products, but are acting on behalf of businesses that hire them to bring in customers. These are the companies that hire spammers to sell their products." He also wrote that "we believe that spam should be enforced by functional regulators, rather than by the FTC, in industries where that is feasible."

Not all Representatives support anti spam legislation. Rep. Maxine Waters (D-CA) said that "I do not believe that there should be any limits on the use of e-mail." She added that with spam legislative proposals "we start wanting to censor". She also said that there are already laws regarding fraud and pornography.

"I don't know what spam is", said Rep. Waters. Moreover, "we should not try to create a definition." She concluded, "I am not in the business of that kind of censorship".

Rep. Bobby Scott (D-VA) raised questions about whether state attorneys general would be able to obtain personal jurisdiction over spammers located in other jurisdictions. He also raised questions about whether some provisions of proposed legislation would violate constitutional protections of anonymous speech. He also questioned whether commercial e-mail that is neither fraudulent nor pornographic should be banned. However, he argued that any legislation should allow for class actions.

Class Actions. HR 2214 does not provide a class action remedy.

Chris Murray, who testified on behalf of the Consumers Union, stated in his prepared testimony that "We believe that the threat of class action enforcement combined with an opt-in approach is the best way to reduce spam for consumers."

Rep. Burr, the sponsor of the bill, is not a member of the Judiciary Committee, but was allowed to participate in the hearing. He spoke in opposition to creating a class action remedy.

Rep. Bob GoodlatteHowever, Rep. Goodlatte (at right) offered the most emphatic criticism. He stated that "With regard to the issue of class action lawsuits, I think that that would be an abomination. We would have a situation where the legitimate businesses that we want to encourage to share valuable useful  information with consumers, and who may go wrong some of the time, in terms of whatever scheme might be devised, to face the fact that they would then face the loss of, not just for the one angry consumer, but for the 999,000 or 2,000,000 or 10,000,000 other consumers, who just did what I did, that is, just deleted that ad, or sent a request for an opt out, suddenly, were all made part of a class action lawsuit as plaintiffs.

He continued that "we will all get some nominal benefit from this, because we only suffered some nominal loss by receiving it. And some attorney will as we have seen in the class action lawsuit legislation that this Committee passed out, which the House of Representatives passed recently. Some attorney will get 5 million, 10 million, 15 million dollars in attorneys fees for having successfully extorted this particular legitimate business for doing that. And the end result will be that legitimate businesses which are very careful, as Mr. Rubin has already pointed out, to not offend consumers, because they want them as customers. Those legitimate businesses will suffer. Consumers will receive less information. And, the people we are really having a problem with -- the pornographers, the overseas spammers, the people sending all kinds of information the Chairman sited -- they are going to continue on their merry way. Because the only way to get at them is not through a class action lawsuit -- they don't have the deep pocket that will be hurt by this. They are going to skedaddle to another country, another location, another identity, as soon as they see the slightest scent, smell. I have worked with the Federal Communications Commission on the fax law. We actually got a massive fine imposed upon a New York operation. They moved to Canada just as soon as that happened. We have got to work on the criminal aspects of this law, to go after those folks, get them extradited to this county, and put them in prison."

House Passes Defense Appropriations Bill

7/8. The House passed HR 2658, the Department of Defense Appropriations for Fiscal Year 2004, by a vote of 399-19. See, Roll Call No. 335. See also, statement by President Bush praising the House. The Senate has yet to pass its version of the bill.

This is an appropriations bill. However, several provisions are technology related.

Total Information Awareness. Section 8124 of the bill places a limitation upon the Department of Defense Advanced Research Projects Agency (DARPA) Terrorism Information Awareness (TIA) program. This is DARPA's new name for Total Information Awareness.

The bill provides that "if and when research and development on the Terrorism Information Awareness program ... or any component of such program, permits the deployment or implementation of such program or component, no department, agency, or element of the Federal Government may deploy or implement such program or component, or transfer such program or component to another department, agency, or element of the Federal Government, until the Secretary of Defense--
  (A) notifies Congress of that development, including a specific and detailed description of (i) each element or component of such program intended to be deployed or implemented; and (ii) the method and scope of the intended deployment or implementation of such program or component (including the data or information to be accessed or used); and
  (B) has received specific authorization by law from Congress for the deployment or implementation of such program or component, including (i) a specific authorization by law for the deployment or implementation of such program or component; and (ii) a specific appropriation by law of funds for the deployment or implementation of such program or component."

However, the bill provides two exceptions, for "Lawful military operations of the United States conducted outside the United States", and for "Lawful foreign intelligence activities conducted wholly overseas, or wholly against non-United States citizens."

See also, stories titled "Senate Approves Total Information Awareness Amendment" in TLJ Daily E-Mail Alert No. 590, January 24, 2003; "House and Senate Pass FY 2003 Appropriation Package With TIA Amendment" in TLJ Daily E-Mail Alert No. 604, February 14, 2003; and "DARPA Releases TIA Report" in TLJ Daily E-Mail Alert No. 666, May 21, 2003.

Supercomputer Purchases. Section 8061 of the bill provides that "None of the funds in this Act may be used to purchase any supercomputer which is not manufactured in the United States, unless the Secretary of Defense certifies to the congressional defense committees that such an acquisition must be made in order to acquire capability for national security purposes that is not available from United States manufacturers."

DOD Chief Information Officer. Section 8084 of the bill provides that "None of the funds appropriated in this Act may be used for a mission critical or mission essential financial management information technology system (including a system funded by the defense working capital fund) that is not registered with the Chief Information Officer of the Department of Defense." (Parentheses in original.)

GPS. Section 8090 of the bill provides that "Funds available to the Department of Defense for the Global Positioning System during the current fiscal year may be used to fund civil requirements associated with the satellite and ground control segments of such system's modernization program."

Also on July 8 the Senate Appropriations Committee's Defense Subcommittee passed its version of the defense appropriations bill.

FCC Releases NPRM Regarding Allocating Spectrum to DOD to Replace Spectrum Allocated for 3G Services

7/8. The Federal Communications Commission (FCC) released its Fourth Notice of Proposed Rulemaking [49 pages in PDF] in a proceeding to support the introduction of new advanced wireless services, including Third Generation (3G) wireless systems.

Current plans call for reallocating the 1710-1755 MHz band, which is used by the Department of Defense, for advanced wireless services (AWS), such as 3G services. 3G is intended to bring broadband internet access to portable devices. In the present 4th NPRM, the FCC proposes to make spectrum available for federal government operations that will be moved to make room for AWS and 3G services.

This 4th NPRM states, "Specifically, we propose to allow the U.S. Department of Defense ("DOD") to use the band 2025-2110 MHz, on a co-equal, primary basis with non-Federal Government operations, for earth stations at 11 sites that support military space operations (also known as tracking, telemetry, and commanding or "TT&C"). Over time, DOD access to the band 2025-2110 MHz for TT&C Earth-to-space transmissions ("uplinks") may make more spectrum available in the band 1755-1850 MHz for absorbing certain DOD systems displaced from the band 1710-1755 MHz. In addition, we propose to permit the military services to operate stations in the fixed and mobile except aeronautical mobile services in the band 2025-2110 MHz on a secondary basis at six sites in the southwestern region of the United States." (Footnotes omitted.)

This NPRM continues that "We also propose to make numerous allocation changes to the band 2360-2400 MHz, the most significant of which would rescind the recent establishment of Wireless Communications Services ("WCS") at 2385-2390 MHz, allow Federal and non-Federal Government flight test stations to operate in the band 2385-2395 MHz, and no longer make the band 2390-2400 MHz available for use by unlicensed Personal Communications Services ("PCS") devices. These allocation changes would permit DOD to relocate all aeronautical mobile systems out of the band 1710-1755 MHz, which is a major objective for facilitating the introduction of AWS. In addition, these allocation changes would provide needed replacement spectrum for use by DOD and commercial flight test stations, which may shortly lose access to the 35 megahertz of spectrum at 1525-1535 MHz and 2320-2345 MHz. Specifically, with regard to the Federal Government Table of Frequency Allocations, we propose: (1) to allocate the band 2385-2390 MHz to the mobile and radiolocation services on a primary basis and to the fixed service on a secondary basis; (2) to allocate the band 2390-2395 MHz to the mobile service on a primary basis; and (3) to limit use of the primary mobile service allocation at 2360-2395 MHz to aeronautical mobile applications, except that other mobile uses may be authorized on a secondary basis to aeronautical mobile applications." (Footnotes omitted.)

This NPRM also states that "With regard to the Non-Federal Government Table of Frequency Allocations, we propose: (1) to allocate the band 2390-2395 MHz to the mobile service on a primary basis, (2) to limit use of the existing mobile service allocation in the band 2385-2390 MHz and the proposed mobile service allocation in the band 2390-2395 MHz to flight test stations, and (3) to delete the unused fixed service allocation from the band 2385-2390 MHz. In addition, we propose to no longer make the band 2390-2400 MHz available for use by unlicensed Personal Communications Services ("PCS") devices. Consequently, we propose to rescind the WCS service rules for the band 2385-2390 MHz and to rescind the technical rules for unlicensed PCS operations in the band 2390-2400 MHz." (Footnotes omitted.)

Public comments will be due within 60 days of publication of a notice in the Federal Register, which has not yet occurred. Reply comments will be due within 90 of publication in the Federal Register.

This is ET Docket No. 00-258 and WT Docket No. 02-8.

FCC Releases Annual Report on Cable Industry Prices

7/8. The Federal Communications Commission's (FCC) Media Bureau (MB) released its annual report [27 pages in PDF] titled "Report on Cable Industry Prices. See also, FCC release [PDF].

The FCC collected information about average monthly rates for the basic service tier (BST), which consists of local stations plus a few satellite channels, and major cable programming service tier (CPST).

The report concludes that "the average monthly rate for cable service, both programming and equipment, increased by 8.2% from $37.06 to $40.11, over the 12-month period ending July 1, 2002. This compares with a 5-year compound annual rate of increase of 7.1% from July 1997 to July 2002. The 8.2% increase reflects average increases in monthly charges of 3.7% for the BST, from $13.93 to $14.45; 10.8% for the CPST, from $19.88 to $22.02; and 12.0% for equipment, from $3.25 to $3.64. The average number of channels increased from 59.0 to 62.7 channels, an increase of 6.3% for the year ending July 1, 2002. To reflect this growth in channels, we calculated the average rate per channel. On this basis, the monthly rate per channel increased from 65.6 cents to 66.4 cents per channel, an increase of 1.2%. This compares with a 5-year average increase of 0.9%." (Footnotes omitted.)

FCC Commissioner Michael Copps wrote in a dissenting statement that the data and analysis contained in the report are insufficient.

He also wrote that "The data show the continuation of a troubling trend -- rates increased 8.2 percent in one year, significantly more than inflation and more than the average over the preceding five years. We hear from consumers who are fed up with continual increases in their cable bills. When consumers keep getting hit in the pocketbook year after year, we must commit the resources necessary to gather the information so we can make informed decisions to ensure that consumers are protected."

FCC Commissioner Jonathan Adelstein wrote in a concurring statement that "this year's Report omits statistical analyses conducted in previous years. The Commission traditionally has undertaken econometric analyses to determine whether specific factors influence rates, and to measure the extent of that influence. Such analyses would isolate and account for certain factors such as the number of channels, the impact of clustering and the type of competition faced by cable operators. For example, one question relevant to today’s cable environment is the effect on competition for cable from local-into-local DBS service. Analyzing this and other factors is related to our statutory mandate and would provide a more complete picture to the Congress in setting cable policy, and to the Commission in implementing it."

Bob Stoddard of the National Cable Telecommunications Association (NCTA) stated in a release that "Although cable prices have increased, cable consumers are also enjoying increased value for their entertainment dollar. Compared with taking a family of four to a single movie, concert or professional sports event, a month of basic cable remains a superior entertainment value. Cable customers are enjoying greater choice and quality in basic channels plus additional optional digital TV services. They’re also watching more basic cable programming than ever before. During 2002 and the first half of 2003, viewership of basic cable networks surpassed primetime viewership of the broadcast networks, a trend that shows no signs of abating."

The FCC is required to compile this report by the Cable Act of 1992. This is MM Docket No. 92-266.

Senate Commerce Committee Holds Hearing on Radio Ownership

7/8. The Senate Commerce Committee held a hearing on Federal Communications Commission's (FCC) recently released changes to its media ownership rules, focusing on the new rules on local radio ownership.

The FCC announced its changes to its media ownership rules at its June 2 meeting. See, FCC press release [10 pages in PDF] summarizing the changes. See also, story titled "FCC Announces Revisions to Media Ownership Rules" in TLJ Daily E-Mail Alert No. 672, June 3, 2003. The FCC released the Report and Order and Notice of Proposed Rulemaking [257 pages in PDF] on July 2, 2003.

The FCC summarized the radio portion of its report and order as follows: "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."

Sen. John McCain (R-AZ), the Chairman of the Committee, wrote in his prepared statement that the FCC's report and order "determined numerical limits on local radio ownership are ``necessary in the public interest to protect competition in local radio markets.´´ However, the FCC found its existing methodology of defining local markets based on a station owner’s signal contour to be ``flawed as a means to protect competition in local radio markets.´´ As a result, the FCC will now use an advertising metric provided by Arbitron, a market research company, as the basis for determining market definitions, rather than engineering data."

Sen. Ernest Hollings (D-SC), who attended the defense appropriations subcommittee's markup of the FY 2004 defense appropriation bill, rather than this one, wrote in his prepared statement that "Since 1996, there has been massive consolidation in the radio market. The number of radio owners has dropped 34% and the average revenue share of the top two owners in a local market is 74%. The result has been downsized local staff, elimination of local news and homogenized playlists. Opportunities for local and regional artists have been limited and even some popular artists have found themselves at odds with powerful radio owner groups."

He also wrote that "In selecting Arbitron Metros for the new radio market definition, the FCC has chosen to throw out the contour rule in its entirety in favor of a market definition created for the purpose of determining advertising metrics, not radio ownership. Moreover, Arbitron generates its revenues from the very radio broadcasters the FCC seeks to regulate. While the contour market definition was admittedly flawed, replacing it with a new definition with unknown and potentially unintended consequences may create more problems than it solves."

See also, prepared testimony of witnesses: Lewis Dickey (Cumulus Broadcasting), Jon Mandel (MediaCom), Simon Renshaw (The Firm), Irving Azoff (Azoff Music Management), and Alex Kolobielski (First Media Radio).

Microsoft to Grant Employees Stock Awards Instead of Stock Options

7/8. Microsoft announced that "Starting in September 2003, employees will be granted Stock Awards instead of stock options. The Stock Award program offers employees the opportunity to earn actual shares of Microsoft stock over time, rather than options that give employees the right to purchase stock at a set price." See, MSFT release.

It added that "As a result of the changes in its compensation approach, Microsoft indicated that starting with its 2004 fiscal year, the company will begin expensing all equity-based compensation, including previously granted stock options."

See also, instructions for audio replay of Microsoft CEO Steve Ballmer's conference call.

Rep. Anna Eshoo (D-CA), who is a sponsor of HR 1372, the Broad-Based Stock Option Plan Transparency Act of 2003, stated in a release that "In the past few months, a wide range of companies have decided to either expense or not expense employee stock option plans. My position remains unchanged. No company or entity has developed an accurate method of valuing these plans. Until that happens, we shouldn't force companies to penalize themselves by assigning arbitrary values to options which may never even be exercised. If we do, the only losers will be rank-and-file employees."

Rep. Eshoo, who represents a Silicon Valley district, added that "In Silicon Valley, many start-ups and high technology companies offer stock options plans as a tool for attracting innovative, entrepreneurial employees. Often times, these are the only incentives a small company can afford to offer until it grows and goes public. I will continue to fight for legislation that improves the clarity of a company's financial position without arbitrarily penalizing its rank-and-file employees or their bottom line."

People and Appointments

7/8. The Senate confirmed David Campbell to be a Judge of the U.S. District Court (DAriz) by a vote of 92-0. See, Roll Call No. 263.

7/8. Avie Tevanian was named Chief Software Technology Officer of Apple. Bertrand Serlet was named SVP of Software Engineering. Apple stated in a release that "Tevanian will focus on setting company-wide software technology directions, and Serlet will now report directly to Apple CEO Steve Jobs and lead the company's OS Software Engineering group."

More News

7/8. The Federal Trade Commission (FTC) filed a complaint on July 7 in U.S. District Court (WDTex) against Electronic Financial Group, Inc. and its principals, Paul McClinton, Jerry Federico, and Randy Balusek, alleging violation of Federal Trade Commission Act and the FTC's Telemarketing Sales Rule in connection with their providing assistance to fraudulent telemarketers seeking to drain funds from consumers' checking accounts. On July 8 the District Court entered a temporary restraining order. See, FTC release.

7/8. The House Government Reform Committee's Subcommittee on Technology, Information Policy, Intergovernmental Relations, and the Census held a hearing titled "Federal Electronic Records Management: What is the Plan? What is our Progress?" See, testimony [pages in PDF] of the General Accounting Office (GAO) titled "Electronic Records: Management and Preservation Pose Challenges". This focuses on the National Archives and Records Administration's (NARA) difficulties in managing, preserving, and providing access to the electronic records produced by federal agencies. This testimony states that "most electronic records -- including databases of major federal information systems -- remained unscheduled: that is, their value had not been assessed, and their disposition -- to destruction or archives -- had not been determined. In addition, records of historical value were not being identified and provided to NARA; as a result, they were at risk of loss. NARA has begun to address these problems by taking steps to improve federal records management programs; among other things, it has (1) updated guidance to reflect new types of electronic records, (2) devised a strategy for raising awareness among senior agency management of the importance of good federal records management, and (3) devised a comprehensive approach to improving agency records management that includes inspections and identification of risks and priorities. Through these and other actions, NARA is making progress, but its approach to improving records management does not include provisions for using inspections to evaluate the efficacy of its governmentwide guidance, and an implementation plan for the approach has yet to be established. Without these elements, the risk is increased that federal records management problems will persist."

District Court Approves SEC Settlement with WorldCom

7/7. The U.S. District Court (SDNY) issued issued its Opinion and Order approving the Securities and Exchange Commission's (SEC) settlement with WorldCom.

The SEC issued a release in which it summarized the settlement. It wrote that the Court "will enter the Final Judgment as to Monetary Relief in the form submitted by the parties. That Final Judgment provides that WorldCom is liable for a civil penalty in the amount of $2,25 billion. The Final Judgment also provides that in the event of confirmation of a plan of reorganization of WorldCom by the Bankruptcy Court, WorldCom's obligations under the Commission's judgment shall be deemed to be satisfied by the company's payment of $500 million in cash and by its transfer of common stock in the reorganized company having a value of $250 million to a distribution agent to be appointed by the District Court. Under the terms of the settlement, the funds paid and the common stock transferred by WorldCom to satisfy the Commission's judgment will be distributed to victims of the company's fraud, pursuant to Section 308 (Fair Funds For Investors) of the Sarbanes-Oxley Act of 2002. The proposed settlement remains subject to review and approval of the United States Bankruptcy Court for the Southern District of New York."

On July 2, the SEC filed documents with the District Court modifying the proposed settlement of its claim for a civil penalty in its civil action against WorldCom. See, SEC release.

The SEC stated that "The filings supplement the relief provisions in the proposed settlement previously filed in that action on May 19, 2003, which required WorldCom to pay a civil penalty judgment in the amount of $1,510,000,000. That proposed settlement further provided that, as a result of the company's pending bankruptcy case, the Commission's judgment would be satisfied by WorldCom's payment, after review and approval of the terms of the settlement by the Bankruptcy Court, of $500,000,000."

The SEC continued that "WorldCom and the SEC mutually agreed to supplement to the terms of the proposed settlement. The modifications ... provide that in the event of confirmation of a plan of reorganization of WorldCom by the Bankruptcy Court, WorldCom's obligations under the Commission's judgment shall be deemed to be satisfied by the company's payment of $500,000,000 in cash and by its transfer of common stock in the reorganized company having a value of $250,000,000 to a distribution agent to be appointed by the District Court. The supplemental relief, if approved, would allow victims of the fraud to share in the potential upside of owning WorldCom common stock when it emerges from bankruptcy. All other material terms of the proposed settlement remain the same."

See also, WorldCom release of July 2, and release of July 7.

The Senate Judiciary Committee is scheduled to hold a hearing on Tuesday, July 15, titled "Bankruptcy and Competition Issues in relation to the WorldCom Case".

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7/7. The Federal Trade Commission (FTC) announced that it filed a complaint in U.S. District Court (DAriz) against and others alleging violation of the Federal Trade Commission Act in connection with their operation of an internet shopping mall network that allegedly constitutes a pyramid scam. The complaint names as defendants, Globion, Inc., Infinity2, Inc., David A. Charette, Jennifer K. Charette, Robert J. Charette, Jr., Marta H. Charette, Stephen M. Diamond, Christine A. Wasser, and Edward G. Hoyt. See, FTC release.

7/7. The U.S. District Court (SDNY) published its Opinion and Order [14 pages in PDF] in Securities and Exchange Commission v. WorldCom approving settlement between the SEC and WorldCom.

Go to News from July 1-5, 2003.