News from December 16-20, 2003

DC Circuit Reverses in RIAA v. Verizon

12/19. The U.S. Court of Appeals (DCCir) issued its opinion [16 pages in PDF] in RIAA v. Verizon, reversing the District Court, and holding that a Section 512(h) subpoena may only be issued to an ISP that is engaged in storing on its servers material that is infringing or the subject of infringing activity.

This opinion deprives the RIAA and copyright holders of an expeditious and inexpensive means for acquiring the names of P2P infringers from their ISPs. Other more time consuming and expensive procedures remain available to the music industry. However, since the number of P2P infringers is huge, the opinion is a significant setback for the RIAA and the music industry in their efforts to protect copyrighted material from online infringement. See, full story.

FCC Approves News Corps.' Acquisition of DirecTV, With Conditions

12/19. The Federal Communications Commission (FCC) announced that it has approved, by a vote of 3-2, News Corporation's acquisition of a de facto controlling interest in Hughes Electronics, and hence, its subsidiary, DirecTV Holdings, which provides direct broadcast satellite service (DBS) in the U.S.

The FCC did not release its Memorandum Opinion and Order (MOO). Rather, it released a document [29 pages in PDF] titled "Public Notice" that summarizes the MOO, which is to be released at an unspecified time. However, this is a very detailed public notice. The body of the notice is 16 pages. Four FCC Commissioners also released separate statements.

The three Republicans (Powell, Martin and Abernathy) formed the majority, while the two Democrats (Copps and Adelstein) dissented.

The Department of Justice (DOJ) also announced in a release that "it will not challenge News Corp.'s proposed acquisition of Hughes Electronics Corp., including its DirecTV subsidiary."

Previously, Echostar had sought to acquire DirecTV. However, the FCC rejected this proposed transaction. See, story titled "FCC Declines to Approve EchoStar DirectTV Merger", October 10, 2002. Echostar is also a DBS service provider. Hence, this would have been a horizontal merger.

News Corp. is a media business with operations around the world. Hence, this is a vertical merger.

News Corps.' operations include a U.S. broadcast network (Fox), numerous television stations, cable networks, a film studio, a television studio, newspapers (such as the New York Post), cable programming assets (such as the Fox News Channel, Speedvision, FX, Fox Movie Channel, and the National Geographic Channel), and interactive technology services.

On April 9, 2003, General Motors and Hughes Electronics announced that GM intended to split off Hughes, and simultaneously sell GM's 19.9 percent economic interest in Hughes to News Corp. See, story titled "GM, Hughes and News Corps Announce Directv Deal" in TLJ Daily E-Mail Alert No. 643, April 14, 2003.

GM, Hughes and News Corp. submitted their joint application for approval to the FCC on May 2, 2003. Thus, it took the FCC over seven and one half months to announce its decision.

See also, stories titled "Murdoch Defends News Corp.'s DirecTV Deal" in TLJ Daily E-Mail Alert No. 659, May 12, 2003; and "FCC Sets Deadlines for Comments on News Corp.'s DirecTV Deal" in TLJ Daily E-Mail Alert No. 664, May 19, 2003.

The FCC public notice summarizes the transaction. "This transaction involves the split-off of Hughes from GM, wherein Hughes will become a separate and independent company, followed by a series of transactions through which News Corp., through its majority-held subsidiary, Fox Entertainment Group ("FEG"), will acquire a 34% interest in Hughes. The remaining 66% interest in Hughes will be held by three GM employee benefit trusts (managed by an independent trustee), which combined will hold an approximately 20% interest in Hughes, and by the general public, which will hold an approximately 46% interest in Hughes."

It adds that "As a result, News Corp. will hold the single largest block of shares in Hughes, thus providing News Corp. with a de facto controlling interest over Hughes and its subsidiaries, including DirecTV Holdings, LLC ("DirecTV"), a wholly-owned subsidiary of Hughes, which provides DBS service in the United States, as well as Hughes Network Systems, Inc. ("HNS"), a facilities-based provider of very small aperture terminal ("VSAT") network systems, and PanAmSat Corporation ("PanAmSat"), a global facilities-based provider of geostationary-satellite orbit fixed satellite services ("FSS")."

The application to the FCC requests approval of the transfer of licenses associated with the transaction. The present public notice states that the FCC consents to the transfer of licenses. However, this proceeding is in the nature of an antitrust merger review. The FCC approval also imposes numerous conditions upon News Corp.

This public notice states that the FCC's "primary objective in reviewing license transfer applications is to promote the interest of the consumer of video programming -- to maximize the variety, quality and innovation of available programming and minimize its price where possible. The mechanism of choice to achieve this goal is generally to encourage a competitive marketplace."

The notice states that the FCC concludes that "The proposed transaction will shift control of one of the two domestic DBS providers from an owner who has made no secret of its desire to get out of the business in recent years to a company that has a proven record of innovation and success in providing DBS services and in competing with cable distribution systems in other markets throughout the world. The Commission finds that the potential improvement in DirecTV's service offerings under News Corp.'s innovative and aggressively competitive management, while inherently difficult to quantify precisely, would be a major public interest benefit. Another tangible benefit that we can ensure will be realized is News Corp.'s commitment to achieve the important public interest benefit of offering increased local channel service."

"The Commission also considers whether, as a result of the transaction, the post-transaction entity will have an increased incentive and ability to engage in anticompetitive foreclosure strategies with respect to broadcast television station signals, regional sports cable programming networks, national and non-sports regional cable programming networks, and program-related technologies, including electronic and interactive programming guides. In several areas, no transaction-specific harms were found. In other areas, where the record demonstrates that the proposed transaction is likely to result in anticompetitive harms, the Commission crafted license conditions that are narrowly targeted to address those harms. The Commission concluded that, on balance, the potential public interest benefits of the transaction outweigh the potential harms, as ameliorated by the license conditions."

The notice states that the MOO imposes numerous conditions on News Corp. For example:

First, by the end of 2004, DirecTV must offer local service packages in an additional 30 designated market areas (DMAs) beyond what had been previously funded, projected or planned.

Second, News Corp. must offer its existing and future cable programming services on a non-exclusive basis and non-discriminatory terms and conditions, for as long as the FCC's program access rules are in effect. Moreover, an aggrieved multichannel video programming distributor (MVPD) may file a program access complaint for any alleged violation of the program access conditions.

Third, News Corp.'s commitments regarding nondiscriminatory MVPD access to cable programming is extended to any broadcast television station that News Corp. owns and operates, or on whose behalf it negotiates retransmission consent. Also, the good faith and exclusivity requirements of the 1999 Satellite Home Viewer Improvement Act (SHIVA), due to sunset at the end of 2005, are extended for as long as the FCC's program access rules are in effect.

Michael PowellFCC Chairman Michael Powell (at right) wrote in a separate statement [PDF] that "This merger with strict conditions ultimately benefits the American public. News Corporation has a history of taking significant risks and introducing new and innovative media services. Enhanced competition will increase pressure to improve service and lower prices for both cable and satellite television subscribers. This is a particularly compelling public interest benefit in light of continued cable rate hikes. Increased availability of local channels over satellite in rural America means access to more local programming in an additional 30 markets by year end 2004. Consumers are the winners."

He added that "Facilities-based competition among satellite and cable providers has led to more innovation, more programming and more subscribers. As a result of this transaction, those trends, competitive prices and better quality of service will continue for the American public."

FCC Commissioner Kevin Martin wrote in a separate statement [PDF] that "I support the Commission's decision to approve this transaction. While the merger of News Corp. and DirecTV presents potential harms and benefits, I believe that, on balance, the merger as conditioned will benefit consumers, competition, and the public interest."

He wrote separately to express his "disappointment that a majority of my colleagues is unwilling to grant APTS/PBS’s request to clarify the requirements under the Satellite Home Viewer Improvement Act ("SHVIA") and specifically require that, in providing local-into-local service pursuant to SHVIA, DirecTV could not place certain local broadcast stations on wing satellites."

FCC Commissioner Michael Copps wrote a separate statement [PDF] dissenting from "allowing this merger to go forward". He wrote, "Here we go again. Today the Commission demonstrates how serious -- and seriously misguided -- it was when it voted on June 2 to eviscerate media concentration protections."

"When is ``Big Media´´ big enough? With spectrum always scarce and diversity hanging by a thread, where is the logic -- where is the public interest benefit -- of giving more and more media power to fewer and fewer players? In the end, it all comes back to this: to putting too much power in one conglomerate’s hands and creating opportunities for abuse that accompany such concentrated power", stated Copps.

FCC Commissioner Jonathan Adelstein also wrote a separate statement [PDF] in which he expressed his reasons for dissenting. He wrote that the acquisition "will result in unprecedented control over local and national media properties in one global media empire. Its shockwaves will undoubtedly recast our entire media landscape."

He asserted that "With this unprecedented combination, News Corp. could be in a position to raise programming prices for consumers, harm competition in video programming and distribution markets nationwide, and decrease the diversity of media voices."

This proceeding is MB Docket No. 03-124.

USTR Complains About Lack of Transparency in the PR China

12/19. The Office of the U.S. Trade Representative (USTR) released a report [73 pages in PDF] titled "2003 Report To Congress On China's WTO Compliance" on December 18. It addresses, among other topics, the lack of transparency in the People's Republic of China. It finds that China has done a tremendous amount of work in writing and revising its laws and rules, and has made these available to the public. However, the report criticizes the lack of openness during the process of writing and revising laws and rules.

See also, story titled "USTR Releases 2nd Annual Report on WTO Compliance by PR China" in TLJ Daily E-Mail Alert No. 803, December 19, 2003, which covers the intellectual property rights (IPR) and telecommunications related portions of the report.

The USTR report also reviews China's obligations regarding transparency. "China made a number of transparency commitments in its accession agreement. One of the most important of these commitments concerned the procedures for adopting or revising laws and regulations affecting trade in goods, services, TRIPS or the control of foreign exchange, given that China’s accession to the WTO became effective while China was still in the process of revising its trade-related laws and regulations to become WTO-consistent. China agreed to provide a reasonable period for public comment on these new or modified laws and regulations before implementing them, except in certain specific instances, enumerated in China’s accession agreement."

The USTR reports that China's has done a "tremendous amount of work" in writing and rewriting its laws and rules. Nevertheless, it complains that "China's ministries and agencies have a poor record of providing an opportunity for public comment before new or modified laws and regulations are implemented. Although the State Council issued regulations in December 2001 addressing the procedures for the formulation of administrative regulations and rules and expressly allowing public comment, many of China’s ministries and agencies in 2002 continued to follow the practice prior to China’s accession to the WTO, and no notable progress took place in 2003."

The report elaborates that "Typically, the ministry or agency drafting a new or revised law or regulation consulted with and submitted drafts to other ministries and agencies, Chinese experts and affected Chinese companies. At times, it also consulted with select foreign companies, although it would not necessarily share drafts with them. As a result, as the end of the second year of China's WTO membership draws near, only a small proportion of new or revised laws and regulations have been issued after a period for public comment, and even in those cases the amount of time provided for public comment has generally been too short."

The report also finds that "China's ministries and agencies have a much better record when it comes to making new or revised laws and regulations available to the public. ... Indeed, these laws and regulations are often published not only in official journals, but also on the Internet." However, the report faults China for lagging in providing English translations.

Europe Complains About the USA's Trade Barriers

12/19. The European Commission (EC) released a report [85 pages in PDF] titled "Report on United States Barriers to Trade and Investment, 2003". It complains of lack of protection of certain intellectual property rights by the U.S. It complaints of market access barriers, and lack of transparency, in U.S. telecommunications regulation. And, it complains about U.S. export controls on encryption products, and the resulting negative impact on electronic commerce.

Pascal LamyEU Trade Commissioner Pascal Lamy (at right) stated in a release that "Although the vast majority of transatlantic trade passes unhindered, we need to review regularly those obstacles which exist and pursue action to remove them. This will ensure that business on both sides of the Atlantic benefit from clearer, more transparent trading conditions."

The report states that "The US Administration has stressed that its trade policy is based on the values of openness, transparency and respect for the rule of law." However, it continues that "there remain aspects of US trade policy which are a source of concern to the EU."

It concludes that "One of the most disquieting aspects of US policy is that domestic pressure to adopt protectionist measures appears to be stronger than willingness to seek internationally agreed solutions."

As would be expected, the report complains about many high profile non technology related protectionist measures, such as the recent steel quotas, the Helms Burton Act, and various buy America government procurement policies. But, it also makes numerous assertions regarding trade barriers involving intellectual property rights (IPR), encryption and e-commerce, and communications.

Intellectual Property. The report states that "Despite a number of positive changes in US legislation following Uruguay Round commitments, problems remain due to discrepancies between US legislation and other international commitments. Issues such as those related to the recognition of ``moral rights´´ to authors or government use of patents have not been resolved. The continued used of EU geographical indications on US products, particularly in the wine sector, is the source of considerable frustration for EU producers. In addition, the US has been condemned in dispute settlement cases related to US intellectual property legislation: Section 110(5) of the US Copyright Act (concerning licensing of music works) and Section 211 of the Omnibus Appropriations Act (on protection of trademarks). Moreover, the co-existence of fundamentally different patent systems (US first-to-invent system versus first-to-file system followed in the rest of the world) continues to create considerable interface problems for EU companies, not to speak of the financial effects of high administrative and litigation costs in patent matters." (Parentheses in original.)

Encryption and E-Commerce. The report states that "An interim final rule was published on 14 January 2000, which amends the Export Administration Regulations (EAR) to allow the export and re-export of any encryption commodity or software to individuals, commercial firms and other non-governmental end users in all destinations. It also allowed export and re-export of retail encryption commodities to end users in all destinations, streamlined post-export reporting requirements and incorporated the changes of the Wassenaar Arrangements (Cryptography Note)." (Parentheses in original.) See, notice in the Federal Register, January 14, 2000, Vol. 65, No. 10, at Pages 2491 -  2502; and, Export Administration Regulations.

However, the report continues that "This rule poses potential problems such as differential treatment for use by on the one hand government bodies, and on the other Internet and telecommunications service providers for which existing or new restrictions apply." The report elaborates on several of these problems.

The report adds that "A combination of the continuing constraints on the export of strong encryption products and on the interoperability of systems employing such technology inhibits not only trade in encryption products but also, more importantly, the effective growth of e-commerce. Thus, significant barriers to international trade in encryption products without key recovery continue to exist, despite the fact that EU Member States, like the USA, are all members of the Wassenaar Arrangement."

"The trend reported by some EU Member States of the US denying the export of certain dual-use items to EU Member States is especially worrying, given the high non-proliferation commitment of the EU Member States", the report states.

Communications. The report also states that "the EU remains concerned about the considerable barriers that EU and foreign-owned firms wishing to get access to the US market still face (e.g. investment restrictions, lengthy proceedings, conditionality of market access, and reciprocity-based procedures). EU-based satellite communications operators in particular have experienced difficulties accessing the US market." (Parentheses in original.)

Commentary: Process and Transparency

12/19. Three documents were publicly released on Thursday, December 18 or Friday December 19 that pertain to the transparency of laws and rules affecting technology and communications. The U.S. Trade Representative (USTR) released a report [73 pages in PDF] that thoroughly criticizes the People's Republic of China for acting in a non-transparent manner in writing and re-writing its laws and rules. The USTR argues that this lack of transparency violates World Trade Organization (WTO) obligations. Second, the European Commission released a report [85 pages in PDF] that states that the Federal Communications Commission (FCC) has not acted in a transparent manner with respect to European satellite operators. Third, the FCC released a public notice [29 pages in PDF] announcing its approval News Corp.'s acquisition of direct broadcast satellite (DBS) service provider DirecTV. The FCC's News Corp. DirecTV proceeding is not about transparency; rather, it serves as useful starting point for a case study into the extent of the FCC's transparency.

The comment that is offered here is that while the U.S. has just released another in a series of comprehensive reports on lack of transparency abroad, there are also transparency issues in the U.S., as reflected by the EC's report that complains about FCC transparency, and the analysis in this article of FCC transparency in the merger review process.

See also, separate stories in this issue, titled "Europe Complains About the USA's Trade Barriers" and "USTR Complains About Lack of Transparency in the PR China", and "FCC Approves News Corps.' Acquisition of DirecTV, With Conditions"

The U.S. has just complained about China's lack of transparency. Various representatives of the U.S. have complained many times in the past about China's lack of transparency. Moreover, the USTR now regularly seeks to include transparency provisions in both multilateral and bilateral trade negotiations.

The just released USTR report finds that China has done a tremendous amount of work in writing and revising its laws and rules, and has made these available to the public. That is, it satisfies the first and most fundamental notion of transparency -- written rules. However, the report criticizes China on another aspect of transparency -- openness during the process of writing and revising laws and rules.

The EC has just accused the FCC of a lack of transparency. Although, the EC does have a record of asserting tenuous claims regarding U.S. trade related policies.

This EC report states that "European satellite operators have encountered serious difficulties in serving the US market". In particular, "These cases show that proceedings by the FCC on spectrum allocation and licensing are not always carried out in an objective, transparent, timely and non-discriminatory manner, and they have raised concerns regarding their compatibility with US WTO commitments."

This TLJ commentary examines the extent of the FCC's transparency in the case of merger reviews, such as the News Corp. DirecTV matter.

The first fundamental aspect of transparency is the notion that government must have rules, that are reduced to writing, that are made available to everyone, and are binding upon the public and government alike.

For example, on December 8, 2003, FCC Commissioner Kathleen Abernathy gave a speech [3 pages in PDF] in Geneva, Switzerland, in which she stated that "I believe that transparency is best achieved through the creation and publication of clear rules. However, for the regulatory regime to be successful, these rules must also be strictly enforced."

Hence, the first question in an analysis of transparency of merger reviews is to what extent there are written rules.

The starting point is the applicable statute. The FCC's decision in major merger reviews is based upon an application of competition or antitrust analysis to a proposed merger of companies. So then, what is the underlying statute that instructs the FCC to conduct merger reviews of companies and apply competition analysis, and sets out the standards as to which mergers are subject to review and the competition or antitrust principles to be applied?

Simply put, there is no such statute.

While the FCC has license transfer authority under Titled 47, the FCC conducts these proceedings as though it also has antitrust authority under Title 15, Chapter 1. But, it is not bound by the provisions of Title 15.

The second point in the analysis is the FCC's rules. That is, what regulations have the FCC promulgated to identify which mergers are subject to antitrust merger review analysis, the standards of competition analysis to be applied, and so forth.

Simply put, there no such regulations.

The Department of Justice (DOJ) and Federal Trade Commission (FTC), which statutory authority to apply competition analysis in merger reviews, have issued detailed guidelines. See, for example, Non-Horizontal Merger Guidelines (1984), Antitrust Guidelines for the Licensing of Intellectual Property (1995), Horizontal Merger Guidelines (1997), and Antitrust Guidelines for Collaborations Among Competitors (2000).

But, simply put, the FCC has no such guidelines.

The third point in the analysis is the FCC's procedural rules governing merger reviews. That is, what are the rules that cover procedural matters such as what to file, when to file it, deadlines, the decision making process, and so forth.

These rules do not exist.

To be sure, the FCC has engaged in some activities that possess some of the attributes of a transparent rule making proceeding. For example, while the FCC has promulgated no substantive or procedural rules governing merger reviews, it has conducted an informal, off the books, non-public process.

The FCC has held a series of meetings with affected companies, and their lawyers and consultants in recent years in which it has received verbal comments regarding merger reviews, and offered verbal guidance.

At one of these meetings, on March 1, 2000, the FCC did release a short, informal, and non-binding statement of the FCC's merger review process. See also, TLJ transcript of statement by then FCC General Counsel, Chris Wright. However, the last time that this writer attempted to attend one of these FCC meetings, an FCC lawyer instructed this writer to leave the room. The meeting was not noticed in the Federal Register, it was not webcast, and the FCC has published no transcript or record of the meeting. And, since this writer was ejected, there was no story in the TLJ Daily E-Mail Alert.

Thus, the FCC has no statute, substantive rules, guidelines, or procedural rules. The next point in the analysis is the body of court made case law. But, there is nothing here either. The U.S. Courts of Appeals have authority to hear petitions for review of final orders of the FCC, such as the final orders adopting rules. But, the FCC has adopted no rules, so there have been no rules to challenge in the Courts, and hence, no Court opinions regarding those rules.

The Courts might also hear challenges to denials of merger requests. But, with only one notable exception (Echostar-DirecTV), the FCC has always approved the major mergers, albeit with conditions attached. Hence, the parties to the merger are not challenging denials of their requests.

The final source of written law would be the actual orders of the FCC granting or denying merger requests. In the present proceeding, the FCC issued "Public Notice" that states that the FCC has adopted a "Memorandum Opinion and Order". A final order could be the subject of a petition for reconsideration at the FCC. It could be subject to judicial review. It would also, in principle, be binding upon the FCC. But, the FCC has not issued an order. It has issued only a "Public Notice". A public notice is not written law.

Hypothetically, the FCC could release the order tomorrow. Sometimes the lag time between the announcement of an order and its release is only one day. On the other hand, in some important matters, the dead time has been months. For example, the FCC announced its triennial review order on February 20, 2003, but did not release the order until August 21, 2003 -- six months later.

Moreover, orders in merger review proceedings have limited value as written law. For example, these orders only instruct the parties to the merger. Similarly or identically situated parties, who did not happen to go through a license transfer, are not affected by the order.

So, there is little that one can cite in support of the proposition that the FCC has written rules governing merger reviews. In contrast, the U.S. is vociferously complaining about China, while all along conceding that the Chinese government has written rules, and is making them available to the public. (There is an issue regarding the availability to English translations.) The complaint, generally, goes to the process by which the Chinese adopt rules (that is, notice and opportunity to submit comments). And in the case of intellectual property, there is also the complaint that the rules are not enforced.

Analyzing the fairness of the procedure employed by the FCC in writing its rules is problematic, because the FCC has no rules in the area of merger reviews. Moreover, to the extent that the FCC has engaged in informal proceedings that provide some opportunity for comment, and some feedback, these proceedings possess some of the deficiencies cited by the USTR in its report.

And of course, this commentary goes only to transparency at the FCC in merger reviews. Case studies of some other areas would reveal a much higher degree of transparency.

GAO Finds Inconsistencies, Inaccuracies and Omissions in the DOD IT Budget Submission for FY 2004

12/19. The General Accounting Office (GAO) released a report [PDF] titled "Information Technology: Improvements Needed in the Reliability of Defense Budget Submissions". See, Volume I [PDF] and Volume II [PDF].

The information technology (IT) budget for the Department of Defense (DOD) accounts for about half of the about $59 Billion government-wide IT budget in fiscal year 2004.

The GAO report found that the "DOD's fiscal year 2004 IT budget submission includes inconsistencies, inaccuracies, and omissions that limit its reliability. For example, the Capital Investment Reports, which provide detailed information on each major IT initiative, are inconsistent with DOD’s IT budget summary report. In particular, 15 major initiatives that appear in the budget summary report do not appear in the Capital Investment Reports, and discrepancies exist between the amounts that the two types of reports included for 73 major initiatives. These discrepancies total about $1.6 billion." (Footnote omitted.)

The report was prepared for Rep. Jim Saxton (R-NJ) and Rep. Marty Meehan (D-MA), the Chairman and ranking Democrat on the House Armed Services Committee's Subcommittee on Terrorism, Unconventional Threats, and Capabilities.

FTC Files and Settles Complaint Against Domain Name Services Company

12/19. The Federal Trade Commission (FTC) filed a complaint [9 pages in PDF] in U.S. District Court (SDNY) against Domain Registry of America, Inc. alleging misrepresentation and failure to disclose material information in connection with its marketing of domain name services, in violation of the Section 5 of the Federal Trade Commission Act. The complaint also alleges violations of the Truth in Lending Act.

The FTC and DRAI also entered into and filed a Stipulated Final Judgment and Order for Permanent Injunction and Consumer Redress [17 pages in PDF].

The complaint alleges that "In the course of advertising, marketing, promoting, offering for sale, and selling domain name services, in numerous instances, defendant represents, expressly or by implication, that consumers who receive defendant's renewal notice/invoice are current customers of defendant and that by replying to defendant’s renewal notice/invoice, consumers will ``renew´´ their domain registration with defendant."

The complaint continues that "In truth and in fact, consumers who receive this renewal notice/invoice are not current customers of defendant and by replying to defendant’s renewal notice/invoice, consumers will not ``renew´´ their domain registration with defendant, but instead transfer their domain registration to defendant." This, the complaint alleges, is a deceptive act or practice in violation of the Section 5 of the FTC Act, which is codified at 15 U.S.C. § 45(a).

The Stipulated Final Judgment enjoins DRAI from making "any false or misleading statement or representation of material fact, including but not limited to any representation that the transfer of a domain name registration is a renewal". It also requires DRAI to pay consumer redress. See also, FTC release.

This case is FTC v. Domain Registry of America, Inc., U.S. District Court for the Southern District of New York, D.C. No. 03-CV-10075.

People and Appointments

12/19. Wayne Carlin, Regional Director of the Securities and Exchange Commission's (SEC) Northeast Regional Office, will leave the SEC in January. He will become a partner in the law firm of Wachtell Lipton Rosen & Katz. See, SEC release.

More News

12/19. The National Institute of Standards and Technology's (NIST) Computer Security Division (CSD) release the first draft of a report titled "NIST Special Publication 800-60, Guide for Mapping Types of Information and Information Systems to Security Categories". See, Volume I [PDF] and Volume II [PDF]. Public comments are due by February 20, 2004. The NIST will hold a two day conference on February 26-27, 2004. However, it will be closed to the public.

12/19. Alfred Kahn wrote a report titled "Lessons from Deregulation: Telecommunications and Airlines after the Crunch". The 88 page report is on sale for $17.00 by the Brookings Institute.

USTR Releases 2nd Annual Report on WTO Compliance by PR China

12/18. The Office of the U.S. Trade Representative (USTR) released a report [73 pages in PDF] titled "2003 Report To Congress On China's WTO Compliance".

The report is dated December 11, 2003. It is the USTR's second annual report submitted to the Congress pursuant to Section 421 of the U.S.-China Relations Act of 2000, which is codified at 22 U.S.C. § 6951. The USTR released its first report [55 pages in PDF] on December 12, 2002. See also, story titled "USTR Reports to Congress on PR China's WTO Compliance" in TLJ Daily E-Mail Alert No. 567, December 13, 2002.

In intellectual property rights (IPR) protection, the report finds that China's compliance with the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) has been "largely satisfactory" to the extent that Chain has passed laws, regulations and rules. However, the report finds that IPR enforcement in China "remains ineffective".

In telecommunications, the report finds that "China has not yet established an independent regulator in the telecommunications sector" and that "the problems in the telecommunications sector have increased".

See, full story.

Powell Prophesies the Digital Revolution

12/18. Federal Communications Commission (FCC) Chairman Michael Powell gave a speech [10 pages in PDF] to the Chicago Economic Club titled "And a Child Shall Lead Them".

The title is an allusion to the Prophet Isaiah. (See,  Isaiah 11, Verse 6.) The theme of Powell's speech was that it is the "kids" or the "digital generation" that will lead the adoption and use of new technologies. He said that "Our kids and the technologies that they embrace shows us what our society will look like from a personal perspective and, by extension, what business will look like as it adapts to accommodate these new citizens."

He cited as examples his own kids' use of technology. For example, one of his sons "hates television", because "He must command his medium", but "expects nothing less than to be within arms link of some digital device and to be plugged into the net whenever he wants."

Michael PowellPowell (at right) also said that kids are "comfortable with this technology and they present enormous opportunities for new markets, new products, and new services. But, beware. If you do not move to serve their needs in the way that they require, they know how to use the technology to help themselves."

Powell cited Napster as an example, He said that it demonstrated that kids "want to program the album and assemble songs in collections to their liking. They do not want the record label putting 1 great song in a package with 10 crummy songs and forcing them to buy the whole thing at ridiculously high prices. If industry will not serve that need, this generation will do it themselves. Nineteen year old Shawn Fanning invented Napster because the record labels didn't. While the record business will fight back, they may have lost a whole generation of consumers that have come to expect free music."

Free Markets. It was not a speech about how to regulate. Rather it was Powell's overview of the direction of various technologies, and the progress of convergence. He discussed old industries over which the FCC has statutory authority (such as phone, cable, and broadcast), and new industries over which the FCC does not have statutory authority (such as software, computer, and networking). Finally, without addressing specific proceedings, he offered his view of what this digital revolution means for competitors and for regulators.

His vision for regulators is limited. Free markets, individual freedom, consumer choice and control, and limiting regulation is the best policy. "We must place our faith in entrepreneurs and not extinguish the burning energy of innovation with the wet blanket of over-regulation, as some seem to prefer", said Powell.

He said in this speech that "A revolution is rarely government led." (Thus, he did not cover the FCC's efforts to plan a transition to digital television.)

Internet Paradigm. Powell spoke at length about his understanding of many of the developments in technology. For example, he opined that "To boil it all down, more and more power will be shifted to individuals. Traditionally, in communication services, a corporate carrier and a regulator stand at the center of everything. The service provider controls the brains of the network and regulators set the rules. The carrier makes decisions about when your phone rings, what number you will have, what services are available to you and at what price. Your telephone is a dumb machine. You have little role in this system other than to pay your bill."

"The Internet paradigm puts more of those choices into the hands of individuals at the edge of the network", said Powell. "This is a radical departure from the cozy world of telephone regulation. Consumers, like our children, will be more in command."

Brutal Competition. The Book of Isaiah states that "The wolf also shall dwell with the lamb, and the leopard shall lie down with the kid; and the calf and the young lion and the fatling together; and a little child shall lead them." In Isaiah's prophecy, even natural enemies shall live in peace together.

In contrast, Powell's vision for the future of technology is more Schumpeter than Isaiah. Powell predicts that "competition in communications is going to be brutally intense." (See, Joseph Schumpeter, Capitalism, Socialism and Democracy.)

Incumbent companies will have to "rebuild their infrastructure in order to compete with new digital age companies". Powell continued that "they have to invest capital today to generate uncertain revenue tomorrow that may cannibalize today's business. They have little choice, however, for if they don't someone else will and they will be dead."

"Cable companies have had to rebuild their networks to compete with digital satellite systems. Telephone companies have to upgrade their copper voice lines to compete with cable TV’s broadband service. Television broadcasters have to replace their analog service with digital television to compete with cable and satellite. All this investment is critical if one hopes to have any chance to compete for the business of the digital generation."

Powell said the increasing competition will come for a variety of reasons. First there is the shift in government policy from support for monopolies to competition. Second, there is the "rapid technological erosion of the walls that separated different industry segments from each other."

Moreover, "The Internet threat is even greater. Over the Internet, applications are separated from the infrastructure. Now, services can all be software applications that ride over the platform as bits. ... The fact that applications are divorced from infrastructure means companies like Microsoft, Intel and Apple are suddenly competitors to traditional communications companies."

In Powell's prediction, "Companies will have to operate faster, more nimble organizations. They will have to get comfortable with greater risk taking and with failure. They will have to invest in research and development. Small companies unburdened by a legacy network will spring up constantly and attack."

But, like Schumpeter, Powell welcomes this competition and creative destruction. He said that "At the FCC we are moving in a direction that embraces revolutionary change." And, "We look to the Internet, entrepreneurs and technology for the world of tomorrow, rather than the telephone, monopoly and dated regulation."

FCC Proceedings. Powell made a few vague references that pertain to some ongoing proceeding, or proceeding likely to be initiated soon.

Powell discussed voice over internet protocol (VOIP). But, he only addressed the new technologies. He said nothing about how the FCC might classify various VOIP services for regulatory purposes, or whether the FCC might extend universal service, E-911, CALEA, or other legacy rules to any VOIP services.

Powell also briefly referenced the FCC's local number portability (LNP) rules when discussing new phone technologies, the ultrawideband (UWB) rules when discussing electronic devices for the home, and the FCC's allocation of more spectrum for unlicensed devices when discussing Wi-Fi developments.

He also alluded to the FCC's triennial review order, released on August 21, 2003. While discussing what the FCC is doing to promote broadband deployment, he stated that "We have adopted policies that provide incentives for building fiber to homes, by limiting unnecessary regulations so that entrepreneurs can focus on their work and not on filling out regulatory forms and hiring lobbyists."

California Court Rules City Can Only Charge Reasonable Costs for Fiber Optic Access to ROW

12/18. The California Court of Appeal (4/2) issued its opinion [MS Word] in Williams v. Riverside, a case regarding a California city's attempt to exact monopoly rents from a company installing a fiber optic network using the city's local rights of way. The company paid under protest, built its network, and then sued the city. The Superior Court upheld the city's scheme. The Court of Appeal, applying California's public utilities and government codes, reversed.

Williams Communications installed conduit, fiber optic cable, and related equipment in streets in the City of Riverside, in southern California. Riverside required Williams to pay $750,000, calculated at the rate of $1.50 per foot, to build these facilities. Williams paid under protest, and built the facilities.

Williams then filed a complaint in Superior Court for Riverside County arguing that the mandated payment was in excess of Riverside's reasonable costs, and therefore illegal under California's Public Utilities Code section 7901 and Government Code section 50030. Williams further argued that the payment was coerced and that it had the right to recover the illegal payment under the California Mitigation Fee Act, codified at Gov. Code, § 66000, et seq.

Riverside argued that it did not require the payment. Rather, it was negotiated. However, it did not assert that $750,000 represented its costs.

The trial court ruled in favor of Riverside, and ordered Williams to pay Riverside an additional $212,861, as attorneys fees.

Section 7901 provides that "Telegraph or telephone corporations may construct lines of telegraph or telephone lines along and upon any public road or highway, along or across any of the waters or lands within this State, and may erect poles, posts, piers, or abutments for supporting the insulators, wires, and other necessary fixtures of their lines, in such manner and at such points as not to incommode the public use of the road or highway or interrupt the navigation of the waters."

Riverside argued that section 7901 is inapplicable because Williams failed to show that it is a telephone corporation which will use the right of way on Riverside to provide telephone services. The gist of its argument was that Williams does not provide telephone services within the meaning of this section because it is building a digital fiber optic network that that provides voice, data, video, and internet transmission services.

The trial court adopted this argument. The Court of Appeal did not. It wrote that "The fundamental issue, therefore, is whether the City may levy charges for use of the City streets to a telephone company when the telephone company lines may carry signals which are not telephone signals." It concluded that "Williams established that it is a telephone company which provides telephone services. The bulk of its income is derived from telephone transmission services.  The fact that other data is transmitted over the telephone lines does not deprive Williams of the protection afforded by section 7901."

Section 50030 provides that "Any permit fee imposed by a city, including a chartered city, a county, or a city and county, for the placement, installation, repair, or upgrading of telecommunications facilities such as lines, poles, or antennas by a telephone corporation that has obtained all required authorizations to provide telecommunications services from the Public Utilities Commission and the Federal Communications Commission, shall not exceed the reasonable costs of providing the service for which the fee is charged and shall not be levied for general revenue purposes."

The Court of Appeal held that the payment was in excess of "reasonable costs" under section 50030, and hence, illegal.

The Court of Appeal construed sections 7901 and 50030. However, it also referred to the legislative history of section 50030, which was enacted in 1996. It addresses the policy of promoting emerging technologies, and hence, economic growth and social benefits.

The Court of Appeal quoted from the state legislature's findings and declarations: "(1) Connecting all California homes and businesses to the information superhighway has the potential to position the state on the leading edge of the telecommunications revolution. The emerging technologies will encourage economic growth and provide social benefits to all Californians, as well as allow California businesses and residents to compete in national and international markets.  [¶] (2) Congress and the Legislature of the State of California have enacted telecommunications policies that include provisions to encourage the development and deployment of new technologies, and the equitable provision of services in a way that efficiently meets consumer need and encourages the ubiquitous availability of a wide choice of state-of-the-art services, and to promote economic growth, job creation, and the substantial social benefits that will result from the rapid implementation of advanced information and communications technologies. [¶] (3) New technologies require investment and expansion of telecommunications networks in order to bring greater choice to consumers by encouraging universally available telecommunications service. [¶] (b) The Legislature further finds and declares that this act does not constitute a change in existing law."

The Court of Appeal also rejected Riverside's argument that it did not require the payment. It wrote that "The evidence established, however, that the City would not grant the necessary permits without a license agreement, and would not enter into a license agreement without payment of the fee".

The Court of Appeal also reversed the trial court's holding that the California Mitigation Fee Act does not apply.

Finally, the Court of Appeals reversed the award of attorneys fees to Riverside, because Williams is the prevailing party.

This case is Williams Communications LLC v. City of Riverside, Court of Appeal, Fourth Appellate District, Division Two, No. E032661, an appeal from the Superior Court for Riverside County, Super. Ct. No. RIC354749.

7th Circuit Rules in Cell Tower Case

12/18. The U.S. Court of Appeals (7thCir) issued its opinion [PDF] in Primeco Personal Communications v. City of Mequon, a cell tower construction case. The city denied a permit. The District Court granted summary judgment to the service provider. The Appeals Court affirmed.

The City of Mequon, in the state of Wisconsin, denied Primeco's (dba Verizon Wireless) request to build a cell tower. Primeco then filed a complaint in U.S. District Court (EDWisc) against Mequon alleging violation of 47 U.S.C. § 332(c)(7).

Section 332(c)(7)(B)(iii) requires that "Any decision by a State or local government or instrumentality thereof to deny a request to place, construct, or modify personal wireless service facilities shall be in writing and supported by substantial evidence contained in a written record."

The Appeals Court wrote that Mequon's decision was made "without opinion, so that the only written record of the evidence and reasoning supporting denial is the transcript of the planning commission’s deliberations". Nevertheless, the Appeals Court gave a detailed review of the statute and precedent, analyzed the planning commission's members' statements, and concluded that Mequon had violated the statute.

The Court wrote, in the end, that "It is doubtful that the planning commission's decision can be said to be supported by any evidence at all; certainly it cannot be said to be supported by substantial evidence."

Judge Richard Posner wrote the opinion of the Court, in which Judges Kanne and Rovner joined.

Posner gave this summary of the analysis to be applied under Section 332. "A reasonable decision whether to approve the construction of an antenna for cellphone communications requires balancing two considerations. The first is the contribution that the antenna will make to the availability of cellphone service. The second is the aesthetic or other harm that the antenna will cause. The unsightliness of the antenna and the adverse effect on property values that is caused by its unsightliness are the most common concerns, ... and even safety effects: fear of adverse health effects from electromagnetic radiation is excluded as a factor, ... but not, for example, concern that the antenna might obstruct vision or topple over in a strong wind." (Citations omitted.)

He elaborated that "The balancing test can be refined a bit. The availability of cellphone service is a function of the number of existing service providers and the coverage and quality of service that the applicant could achieve by constructing his antenna in another location where its unsightliness (or other harmful effects, but none is suggested here) would be less of a problem or by sharing an already existing telecommunications tower. The unsightliness of an antenna depends on its height, thickness, and general appearance, the number of other antennas in the area, and the character of the area’s land uses (for example, residential versus commercial), including the height of other buildings in the area. Coverage is a function of the number of providers, the coverage by each provider, and the increase in overall coverage at the disputed site if the antenna is built there, compared to alternative locations. Thus a new firm that has from a service standpoint two equally good alternative sites can rightly be compelled to place the antenna in the less conspicuous location, which might be an existing telecommunications tower." (Parentheses in original.)

This case is Primeco Personal Communications, Limited Partnership, d/b/a Verizon Wireless v. City of Mequon, U.S. Court of Appeals for the 7th Circuit, Nos. 03-1514 and 03-1548, appeals from the U.S. District Court for the Eastern District of Wisconsin, D.C. No. 01-C-1205, Judge Lynn Adelman presiding.

FCC Issues First Citation Under FCC Do Not Call Rules

12/18. Kurt Schroeder, Deputy Chief of the Telecommunications Consumers Division of the Enforcement Bureau of the Federal Communications Commission (FCC) wrote a letter [4 pages in PDF] to CPM Funding, Inc., d/b/a California Pacific Mortgage, regarding its alleged failure to comply with the FCC's national do not call rules.

The letter states that "This is an official CITATION, issued pursuant to section 503(b)(5) of the Communications Act of 1934, as amended (the Communications Act), 47 U.S.C. § 503(b)(5), for violations of the Federal Communications Commission's rules that govern telephone solicitations and unsolicited advertisements." (Emphasis in original. Hyperlink added.)

FCC Enforcement Bureau Chief David Solomon stated in a release [PDF] that "This is a landmark enforcement step -- the first FCC action to enforce our new National Do Not Call rules. This citation demonstrates our resolve to ensure that consumers are not bothered by unwanted, intrusive calls to their homes. Do Not Call enforcement is the FCC’s top consumer protection priority and we, along with our partners at the FTC, will continue to be vigilant in this area on behalf of the American public."

GAO Reports that Federal Agencies' Enterprise Architecture Management is Limited, and Not Improving

12/18. The General Accounting Office (GAO) released a report [427 pages in PDF] titled "Information Technology: Leadership Remains Key to Agencies Making Progress on Enterprise Architecture Efforts".

This report, which was prepared for the House Government Reform Committee, finds that federal agencies' progress toward effective enterprise architecture management is limited. Of the agencies studied by the GAO, only the Executive Office of the President reported performing all of the management practices that are indicative of effective enterprise architecture management. In contrast, the Department of Commerce (DOC) and the Department of Justice (DOJ) both performed only one of five such practices.

The report begins with a discussion of information technology (IT) and enterprise architecture (EA). It states that "attempting to modernize and evolve IT environments without an enterprise architecture to guide and constrain investments often results in operations and systems that are duplicative, not well integrated, unnecessarily costly to maintain and interface, and ineffective in supporting mission goals. A properly managed enterprise architecture helps to clarify and optimize the interdependencies and relationships among enterprise operations and their supporting IT assets, so that agencies can base IT investment decisions on an explicit and common understanding of both today’s and tomorrow’s environments. The development, implementation, and maintenance of architectures are widely recognized as hallmarks of successful public and private organizations, and their use is required by the Clinger-Cohen Act and the implementing guidance, issued by the Office of Management and Budget (OMB). Further, the E-Government Act of 2002 assigns OMB responsibility for overseeing enterprise architectures." (Footnotes omitted.)

The report finds that "Federal agencies progress toward effectively managing enterprise architectures is limited, with much work remaining. Since our 2001 assessment of agencies' enterprise architecture management maturity, the percentage of agencies that have established at least a foundation for enterprise architecture management (i.e., they perform management practices that provide the basis for effectively managing the development, maintenance, and use of architectures) is virtually unchanged, decreasing from 53 to 48 percent. Further, the percentage of agencies performing the full complement of management practices that are necessary for effective enterprise architecture management is the same (about 4 percent)." (Parentheses in original.)

In addition, the report states that "when agencies are assessed against the recent update of our maturity framework (Version 1.1), the percentage that have established at least a foundation for enterprise architecture management drops to 21 percent; only one agency (1 percent), the Executive Office of the President, reported performing all of the management practices that are indicative of effective enterprise architecture management.

The report concludes that "This limited progress can be attributed in part to long-standing enterprise architecture challenges that have yet to be addressed. In particular, since 2001, more agencies now report that agency executive understanding of enterprise architecture and the scarcity of skilled architecture staff are significant challenges. Until agencies have and use well-defined enterprise architectures, their ability to effectively leverage IT in transforming mission operations will be impaired."

People and Appointments

12/18. Timothy Donahue, P/CEO of Nextel Communications, will be the chairman of the newly re-chartered Network Reliability and Interoperability Council (NRIC VII). See, FCC release [PDF].

12/18. The Members of the Federal Election Commission (FEC) elected Bradley Smith as Chairman and Ellen Weintraub as Vice Chair for 2004. See, FEC release. Smith is best known for taking seriously First Amendment protections of political speech. Before his appointment to the FEC in 2000, Smith was a law professor at Capital University Law School in Columbus, Ohio.

12/18. Howard Griboff was named Assistant Chief of the Policy Division of the International Bureau (IB) of the Federal Communications Commission (FCC). The FCC stated in a release that Griboff will "manage projects and provide policy and legal expertise, including regarding spectrum policy rulemaking items. He also will oversee certain licensing activities, including mergers." Griboff has worked in the IB since 1998. From 1996-1998, he worked in the Wireless Telecommunications Bureau. Before that, he worked for the law firm of Fisher Wayland Cooper Leader & Zaragoza.

12/18. Paul Locke was named Assistant Chief -- Engineering of the Policy Division of the International Bureau (IB) of the Federal Communications Commission (FCC). The FCC stated in a release that he will "provide engineering management expertise and contribute to the technical aspects of spectrum policy rulemaking items". He has worked for the FCC since 2000.

12/18. Intel announced the appointment of 14 new Vice Presidents: Robert Bruck (VP of the Technology and Manufacturing Group and director of Fab Capital Equipment Development), (Sophia) Lee Fang Chew (VP of the Sales and Marketing Group and general manager of the Reseller Channel Operation), Kevin Corbett (VP of the Desktop Platforms Group and director of Marketing and Strategic Planning), Douglas Davis (VP of the Intel Communications Group and general manager of the Network Processor Division), Anthony Gosden (VP of Finance and Enterprise Services and assistant treasurer and director of Corporate Credit), Timothy Hendry (VP of the Technology and Manufacturing Group and plant manager of Fab 11X), Gerald Holzhammer (VP of the Desktop Platforms Group and co-general manager of the Platform Architecture and Solutions Division), Renee James (VP of the Sales and Marketing Group and general manager of the Microsoft Program Office), John Johnson (VP of Finance and Enterprise Services and director of Information Technology Customer Services), Donald MacDonald (VP of the Sales and Marketing Group and director of Worldwide Branding and Campaigns), Thomas Macdonald (VP of the Enterprise Platforms Group and general manager of the Advanced Components Division), Clemente Russo (VP of the Technology and Manufacturing Group and general manager of Systems Manufacturing), Babak Sabi (VP of the Technology and Manufacturing Group and co-director of the Corporate Quality Network), and Shane D. Wall (VP of the Corporate Technology Group and director of the Systems Technology Lab). See, Intel release.

12/18. John Pistole was named Executive Assistant Director (EAD) for Counterterrorism and Counterintelligence at the Federal Bureau of Investigation (FBI). He has been Assistant Director for Counterterrorism since September 2003. He has worked for the FBI since 1983. See, FBI release.

More News

12/18. Real Networks filed a complaint in U.S. District Court (NDCal) against Microsoft alleging violation of federal and state antitrust laws. Real stated in a release that Microsoft has "illegally used its monopoly power to restrict competition, limit consumer choice and attempt to monopolize the growing field of digital media". Microsoft responded in a release that "this is a case where a leading firm is seeking to use the antitrust laws to protect and increase its marketplace share and to limit the competition it must face". Microsoft added that "These issues are a rehash of the same issues that have already been the subject of extensive litigation and a tough but fair resolution of the government antitrust lawsuit."

12/18. Microsoft filed six complaints on December 17, 2003 in King County Superior Court in the state of Washington against numerous individuals, corporations, and unknown parties, alleging violation of anti-spam laws of the states of New York and Washington by sending deceptive spam messages that contained forged sender names, false subject lines, fake server names, inaccurate and misrepresented sender addresses, or obscured transmission paths. See, Microsoft release and list of cases. Much of the spam was routed through compromised internet protocol (IP) addresses located in the state of New York. Eliot Spitzer (Attorney General of New York), Brad Smith (SVP/GC of Microsoft), and Tim Cranton (Senior Corporate Attorney for Microsoft) held a press conference on December 18 to announce the lawsuits. See, transcript.

12/18. The Department of Justice's (DOJ) Antitrust Division and the Federal Trade Commission (FTC) announced that they will jointly hold a three day workshop on February 17-19, 2004 on application of the Horizontal Merger Guidelines. Also, February 10, 2004 is the deadline to submit comments to the DOJ and FTC regarding this workshop. See, notice. The DOJ and FTC also released a report titled "Merger Challenges Data, Fiscal Years 1999-2003". See also, DOJ release.

12/18. Daniel Jeremy Baas pled guilty in U.S. District Court (SDOhio) to a one-count information charging him with exceeding authorized access to a protected computer and obtaining information, in violation of 18 U.S.C. §§ 1030(a)(2) and (c)(2)(B)(iii), in connection with his theft of data from Acxiom, a company that manages customer information for credit card issuers, banks, automotive manufacturers, retailers and others. See, DOJ release.

Bush Signs Critical Infrastructure Protection Directive

12/17. President Bush signed a directive titled "Homeland Security Presidential Directive/Hspd-7". It pertains to "Critical Infrastructure Identification, Prioritization, and Protection". It replaces former President Clinton's directive on this subject, titled "Presidential Decision Directive/NSC-63", and dated May 22, 1998. The Clinton directive is also know as "PDD 63". See, full story.

USTR Announces Central American FTA

12/17. The Office of the U.S. Trade Representative (USTR) announced, but did not release, a Central American Free Trade Agreement (CAFTA). The USTR stated in a release [4 pages in PDF] that "The draft text of the agreement will be released in January". The CAFTA contains provisions pertaining to electronic commerce and protection of intellectual property rights.

The parties to the FTA are the U.S., El Salvador, Guatemala, Honduras, and Nicaragua. The USTR stated that Costa Rica "said it needs to undertake further consultations at home before being able to move forward to finalize its participation in CAFTA".

Pursuant to trade promotion authority, the FTA must be approved by the House and Senate. However, it cannot be amended.

Robert ZoellickUSTR Robert Zoellick (at right) stated that "The United States is committed to opening markets around the world because American farmers, workers, consumers and businesses want to sell our world class goods and services. CAFTA will streamline trade; promote investment; slash tariffs on goods; remove barriers to trade in services; provide advanced intellectual property protections; promote regulatory transparency; strengthen labor and environmental conditions; and, provide an effective system to settle disputes, ... Step by step, country by country, region by region, the United States is opening markets with top-notch, comprehensive FTAs that set the standard."

The USTR release states that "State-of-the-art protections and non-discriminatory treatment are provided for digital products such as U.S. software, music, text, and videos. Protections for U.S. patents, trademarks and trade secrets are strengthened." It adds that "The Central American countries will accord substantial market access across their entire services regime, offering new access in sectors such as telecommunications, express delivery, computer and related services, ..."

In addition, the USTR released a summary [8 pages in PDF] of the CAFTA.

E-Commerce. The USTR's summary states that "Central America and the United States agreed to provisions on e-commerce that reflect the issue's importance in global trade and the importance of supplying services by electronic means as a key part of a vibrant e-commerce environment."

Also, "All Parties committed to non-discriminatory treatment of digital products; agreed not to impose customs duties on such products and to cooperate in numerous policy areas related to e-commerce."

Cybersquatting. The USTR's summary states that the CAFTA "Requires a system to resolve disputes about trademarks used in Internet domain names, which is important to prevent ``cyber-squatting´´ with respect to high-value domain names."

Copyright. The USTR's summary states that "Copyright owners maintain rights over temporary copies of their works on computers, which is important in protecting music, videos, software and text from widespread unauthorized sharing via the Internet."

It also states that the CAFTA "Establishes that only authors, composers and other copyright owners have the right to make their work available on-line", "Ensures extended terms of protection for copyrighted works, including phonograms, consistent with emerging international trends", and "Establishes strong anti-circumvention provisions to prohibit tampering with technologies (like embedded codes on discs) that are designed to prevent piracy and unauthorized distribution over the Internet".

It also states that the CAFTA "Ensures that governments use only legitimate computer software, thus setting a positive example for private users", "Requires rules to prohibit the unauthorized receipt or distribution of encrypted satellite signals, thus preventing piracy of satellite television programming", and "Provides rules for the liability of Internet Service Providers (ISPs) for copyright infringement, reflecting the balance struck in the U.S. Millennium Copyright Act between legitimate ISP activity and the infringement of copyrights".

Enforcement of IPR. The USTR's summary states that the CAFTA "Criminalizes end-user piracy, providing strong deterrence against piracy and counterfeiting".

It also states that it "Requires all Parties to authorize the seizure, forfeiture, and destruction of counterfeit and pirated goods and the equipment used to produce them. Also provides for enforcement against goods-in-transit, to deter violators from using ports or free trade zones to traffic in pirated products. Ex officio action may be taken in border and criminal cases, thus providing more effective enforcement."

Finally, it states that the CAFTA "Mandates both statutory and actual damages for copyright infringement and trademark piracy. This serves as a deterrent against piracy, and ensures that monetary damages can be awarded even when it is difficult to assign a monetary value to the violation."

Patents. The USTR's summary states that the CAFTA "Provides for the extension of patent terms to compensate for delays in granting the original patent, consistent with U.S. practice" and "Limits the grounds for revoking a patent, thus protecting against arbitrary revocation".

Reaction. Sen. Charles Grassley (R-IA), the Chairman of the Senate Finance Committee stated in a release that "I'm pleased that the CAFTA negotiations were concluded successfully" and "I look forward to working with my colleagues to move the CAFTA through the U.S. Senate."

Robert Holleyman, P/CEO of the Business Software Alliance (BSA), praised the CAFTA. He stated in a release that "The BSA applauds Ambassador Zoellick for his continued commitment to negotiation trade agreements that include strong copyright enforcement. Ambassador Zoellick and his team recognize how important such protections are to the continued growth of the high-tech industry and the future growth of global electronic commerce".

He continued that "More than 50 percent of our industry's revenues come from sales abroad. To continue our positive contributions to the U.S. economy, it is imperative that we develop new markets for American information technology products and services and implement free trade agreements that ensure an open and competitive environment for IT exports".

Mitch Bainwol, Ch/CEO of the Recording Industry Association of America (RIAA), stated in a release that "This new agreement is another important milestone in the efforts of Bob Zoellick and his team to significantly improve protection of the intellectual property rights of America’s composers, performers and sound recording producers in other countries. We thank the trade representative's dedicated negotiators for what they have achieved in this agreement. They have worked tirelessly and with great skill to enhance our country’s ability to fuel creativity and promote our economic competitiveness."

FCC News

12/17. The Federal Communications Commission (FCC) announced that it has adopted a Notice of Proposed Rulemaking and Order that contains proposals, and seeks comments, regarding the use and applications of cognitive, or smart, radio systems. This item is FCC 03-322 in ET Docket No. 03-108 and ET Docket No. 00-47. The FCC issued only a press release [PDF] describing the NPRM and Order. It states that "The Notice seeks comment on the ways in which the Commission can encourage and remove regulatory impediments to continued development and deployment of smart radio technologies, including, for example, facilitating the ability of licensed spectrum users to deploy them for their own use to increase spectrum efficiency, and to facilitate secondary markets, allowing licensees to lease their spectrum access to third parties using such technologies. The Notice also seeks comment on ways in which smart radios can facilitate opportunistic use of the spectrum by unlicensed devices, while protecting incumbents from harmful interference." See also, separate statement [PDF] of Chairman Michael Powell, separate statement [PDF] of Commissioner Kevin Martin, separate statement [PDF] of Commissioner Michael Copps, and separate statement [PDF] of Commissioner Jonathan Adelstein.

12/17. The Federal Communications Commission (FCC) announced that it has adopted a Report and Order regarding intelligent transport systems. This item adopts licensing and service rules for the 5.850-5.925 GHz band for Dedicated Short-Range Communications (DSRC) in the Intelligent Transportation Systems (ITS) Radio Service. This item is FCC 03-324 in WT Docket No. 01-90. See, FCC press release [PDF] describing this item. See also, separate statement [PDF] of Chairman Michael Powell, and statement [PDF] of Commissioner Jonathan Adelstein.

12/17. The Federal Communications Commission (FCC) announced that it has adopted a Third Report and Order and Second Further Notice of Proposed Rulemaking pertaining to the administration of the FCC's e-rate subsidy program for schools and libraries. This item is FCC 03-323 in Docket No. 02-6. The FCC issued a press release [PDF] describing this item.

People and Appointments

Rep. David Vitter12/17. Rep. David Vitter (R-LA) (at right) announced that he will run for the Senate seat of retiring Sen. John Breaux (D-LA). He was first elected to the Congress in a special election in 1999 to replace former Rep. Robert Livingston (R-LA). He first was assigned to the House Judiciary Committee, but latter moved to the House Appropriations Committee. He also sits on the Commerce, Justice, State and the Judiciary Subcommittee (CJS). The Appropriations Committee and its CJS Subcommittee have long diverted U.S. Patent and Trademark Office (USPTO) fees to subsidize other government programs. However, on the one roll call vote on the House floor on this issue, Rep. Vitter voted for more funding for the USPTO (while he was still a Judiciary Committee member). On June 23, 2000, the House voted on an amendment to a CJS appropriations bill offered by Rep. Howard Coble (R-NC) to increase the FY 2001 funding for the USPTO by $134 Million. It failed on a roll call vote of 145-223. This would have reduced the size of the diversion. See, Roll Call No. 321. See also, story titled "House Rejects Coble Amendment on USPTO Funding", June 25, 2000, and story titled "Analysis of House Vote on Coble Amendment", June 25, 2000.

12/17. Jon Cody was named legal advisor for media and broadband issues for Federal Communications Commission (FCC) Chairman Michael Powell. He has worked at the FCC since 2001 as an Attorney-Advisor in the Office of Strategic Planning. Before that, he worked for the law firm of Mintz Levin. See, FCC release.

12/17. The Direct Marketing Association (DMA) announced that Robert Wientzen, its P/CEO since 1996, will retire on July 1, 2004. The DMA is searching for a successor.

Tech Crime

12/17. The Department of Justice (DOJ) announced that it charged Alfred P. Censullo, a former employee of Micron Technology Inc., with violation of 18 U.S.C. § 1503 in connection with his "altering and concealing documents containing competitor pricing information, which were requested in a federal grand jury subpoena". See, DOJ release. The DOJ also stated that he "has agreed to plead guilty to obstructing the grand jury investigation of a suspected conspiracy to fix the price of dynamic random access memory (DRAM) products sold in the United States". Micron Ch/CEO Steve Appleton stated in a release that "The charges against Mr. Censullo relate to his personal actions in the course of the Department of Justice investigation and do not pertain to Micron. Micron takes compliance with the law very seriously and requires all employees to follow instructions with respect to legal proceedings. Mr. Censullo's actions were contrary to the company's instructions. We have fully and actively cooperated with the Department of Justice since the inception of their investigation and will continue to do so." The grand jury investigation, and the charge against Censullo, are pending in the U.S. District Court (NDCal).

12/17. A grand jury of the U.S. District Court (EDCal) returned an indictment charging Darryl Scott Poll and Carlo Mireles with various federal crimes in connection with a cable piracy scheme. The thirteen count indictment charges conspiracy to assist in the unlawful interception and reception of communications services offered over a cable system and to commit mail fraud, mail fraud, assisting in the unlawful interception and reception of communications services offered over a cable system, and conspiracy to commit money laundering. The U.S. Attorneys Office stated in a release [PDF] that the scheme "resulted in the sale and distribution of approximately fifty thousand cable descramblers designed to illicitly obtain cable programming, and that resulted in gross sales of over $10 million."

Bush Signs Spam Bill

12/16. President Bush signed S 877, the "Controlling the Assault of Non-Solicited Pormography and Marketing Act of 2003", also known as the "CAN-SPAM Act of 2003". See, White House release and summary.

Court Holds That FOIA Does Not Require FTC to Produce Unredacted Copies of Consumer Complaints

12/16. The U.S. Court of Appeals (7thCir) issued its opinion [PDF] in Lakin Law Firm v. FTC, a Freedom of Information Act (FOIA) case in which a plaintiffs personal injury law firm sought copies of consumer complaints about credit card cramming, including the names of the individual complainants. The FTC produced copies of complaints, with the names and addresses redacted. The District Court dismissed. The Appeals Court affirmed.

The FOIA is codified at 5 U.S.C. § 552. Section 552(b)(6), which the Courts relied upon, provides that "This section does not apply to matters that are ... personnel and medical files and similar files the disclosure of which would constitute a clearly unwarranted invasion of personal privacy".

The Lakin Law Firm is a plaintiffs personal injury law firm based in southern Illinois, outside of St. Louis. The Appeals Court wrote that when people complain to the FTC "they probably think their names and addresses will not be released to a firm of private lawyers seeking fuel to propel a possible class-action lawsuit." Tom Magg of the Lakin Law Firm told TLJ that it has sought the names of complainants because it seeks witnesses in lawsuits against credit card companies.

The Appeals Court wrote that "The FOIA has a noble goal: it contemplates a policy of broad disclosure of government documents to serve the ``basic purpose of ensuring an informed citizenry, vital to the functioning of a democratic society.´´ ... Stated another way, the FOIA’s central purpose is to guarantee ``that the Government’s activities be opened to the sharp eye of public scrutiny, not that information about private citizens that happens to be in the warehouse of the Government be so disclosed.´´" (Emphasis in original. Citations omitted.)

The Court applied FOIA exemption 6. It wrote that "Exemption 6 requires a balancing of individual privacy interests of consumer complainants against the public interest in disclosure to determine whether disclosure is ``clearly unwarranted.´´ The Supreme Court has repeatedly held that the only public interest that is relevant to this balancing test is the shining of a light on an agency’s performance of its statutory duties." It added that "Compelling disclosure of the identity of consumers' complaints about cramming would not further the core purpose of the FOIA."

Judge Evans wrote the opinion, in which Judges Rovner and Williams joined.

This case is The Lakin Law Firm v. Federal Trade Commission, U.S. Court of Appeals for the 7th Circuit, No. 03-1689, an appeal from the U.S. District Court for the Southern District of Illinois, D.C. No. 02-CV-1121-DRH, Judge David Herndon presiding.

There have also been numerous other FOIA requests for information about consumer complaints to federal agencies.

For example, in September of 2003, the American Teleservices Association (ATA), which is also contesting the national do not call registry, filed a complaint in the U.S. District Court (DC) against the Federal Communications Commission (FCC) alleging violation of the FOIA in connection with the ATA's efforts to obtain from the FCC personally identifying information about the over 10,000 consumers who have complained to the FCC about telemarketing practices.

That is, the ATA, which represents telemarketers, wants names and other personal information about everyone who has complained to the FCC about telemarketers. That case has been briefed and is pending a decision by the District Court.

See also, story titled "Telemarketers Sue FCC To Get Names, Addresses, and Phone Numbers of Consumers Who Complained to FCC" in TLJ Daily E-Mail Alert No. 741, September 17, 2003.  That case is American Teleservices Association v. FCC, D.C. No. 03-CV-1848, Judge Richard Leon presiding.

Also, the Electronic Privacy Information Center (EPIC) has obtained redacted copies of one hundred consumer complaints to the FCC regarding telemarketing practices. The EPIC has not sought personally identifying information. Rather, it sought and obtained copies of a sample of complaints, with names and contact information blacked out, which it has published in its web site. Its purpose has been to provide information to the public regarding the nature of consumer complaints about telemarketing practices. See, the EPIC's web page titled "Telemarketing Complaints".

FCC Receives Comments on Regulation of VOIP Services

12/16. The Federal Communications Commission (FCC) has not yet initiated a notice of proposed rulemaking (NPRM) or notice of inquiry (NOI) proceeding regarding voice over internet protocol (VOIP) services. However, the FCC held a one day roundtable meeting on VOIP issues on December 1, 2003.

At that event the FCC asked that brief public comments be submitted within "two weeks". See, story titled "FCC Holds VOIP Forum" in TLJ Daily E-Mail Alert No. 790, December 2, 2003.

On December 16, Marc Rotenberg and Chris Hoofnagle of the Electronic Privacy Information Center (EPIC) wrote a letter to the FCC Chairman Michael Powell urging the FCC to extend privacy protections to users of VOIP services, but not to apply Communications Assistance to Law Enforcement Act (CALEA) requirements to VOIP services.

They argued that "a central requirement of a functional and trustworthy communications network is the assurance of privacy protection for users of the network" and that the FCC "must take affirmative steps to ensure strong privacy protections for users of VoIP service".

They also wrote that the "EPIC maintains our strong reservations regarding the application of the Communications Assistance to Law Enforcement Act (CALEA) requirements to this service. It is simply not coherent to argue that VOIP services should be free of government regulation and then for the government to require that communication service providers, hardware manufacturers, and network developers incorporate the most extreme communications surveillance requirements of the Federal Bureau of Investigation. CALEA, if applied to VOIP, would establish unprecedented regulation for new communications services."

In contrast, the Federal Bureau of Investigation (FBI), Department of Justice (DOJ) and Drug Enforcement Administration (DEA) submitted a comment [9 pages in PDF] in which they argued that "As the Commission drafts its VoIP notice of proposed rulemaking, Law Enforcement strongly urges the Commission to require VoIP providers to comply with CALEA to ensure that no new loophole is created that allows criminals, terrorists, and spies to use VoIP services to avoid lawfully authorized surveillance."

This is not the FBI's first communication to the FCC on this matter. It has made a number of ex parte presentations. See, story titled "FBI Wants Broadband Internet Access Classified As A Telecommunications Service So That CALEA Will Apply", in TLJ Daily E-Mail Alert No. 707, July 30, 2003.

There are currently three petitions pending at the FCC pertaining to VOIP: an AT&T petition, a petition (WC Docket No. 03-34), and a Vonage petition (WC Docket No. 03-211).

On December 11, 2003, Cisco Systems submitted a comment [PDF] regarding's petition pertaining to its Free World Dialup (FWD) service. Cisco wrote that the FWD is neither "telecommunications" nor a telecommunications service", and that it is "interstate". The gist of Cisco's argument is that FWD should not be subject to state by state regulation.

On December 10, Vonage submitted a comment [PDF] comparing its VOIP service to that of It argues that it should not be subject to state regulation.

Vonage already has won one court case on this issue. On October 16, 2003, the U.S. District Court (DMinn) issued its Memorandum and Order [PDF] in Vonage v. Minnesota Public Utilities Commission, holding that Vonage is an information service provider, and that the Minnesota Public Utilities Commission (MPUC) cannot apply state laws that regulate telecommunications carriers to Vonage. The Court wrote that "State regulation would effectively decimate Congress's mandate that the Internet remain unfettered by regulation." See also, story titled "District Court Holds that Vonage's VOIP is an Information Service" in TLJ Daily E-Mail Alert No. 760, October 17, 2003.

Solicitor General Files Brief in COPA Case

12/16. The Department of Justice's (DOJ) Office of the Solicitor General (OSG) filed its brief on the merits with the U.S. Supreme Court in Ashcroft v. ACLU, a case regarding the constitutionality of the Child Online Protection Act (COPA).

This will be the second time for the Supreme Court to consider the COPA, which bans sending to minors over the web material that is harmful to minors. On March 6, 2003 the U.S. Court of Appeals (3rdCir) issued its opinion [59 pages in PDF] holding the COPA unconstitutional on First Amendment grounds.

The COPA provides, in part, that "Whoever knowingly and with knowledge of the character of the material, in interstate or foreign commerce by means of the World Wide Web, makes any communication for commercial purposes that is available to any minor and that includes any material that is harmful to minors shall be fined not more than $50,000, imprisoned not more than 6 months, or both."

The COPA further provides that "It is an affirmative defense to prosecution under this section that the defendant, in good faith, has restricted access by minors to material that is harmful to minors ... by requiring use of a credit card, debit account, adult access code, or adult personal identification number ... by accepting a digital certificate that verifies age; or ... by any other reasonable measures that are feasible under available technology." The COPA is now codified at 47 U.S.C. § 231.

The OSG argues that the COPA "is narrowly tailored to further the government's compelling interest in shielding minors from material that is harmful to them. It therefore does not violate the First Amendment."

This case is John Ashcroft v. American Civil Liberties Union, Supreme Court of the U.S., No. 03-218, on petition for writ of certiorari to the U.S. Court of Appeals for the 3rd Circuit.

Europeans Agree to Transfer of Airline Passenger Data to DHS

12/16. The Department of Homeland Security (DHS) issued a release that states that Secretary of Homeland Security "Tom Ridge and European Commissioner Frits Bolkestein have reached an agreement regarding the legal transfer of Passenger Name Record (PNR) data to Homeland Security. The agreement finds that Homeland Security’s handling of the PNR data is sufficient for an ``adequacy finding.´´"

The agreement does not require passengers consent to release of their personal information.

The DHS release continues that "This finding by the European Commission affirms under European law that protections to be implemented by Homeland Security are appropriate to guard passenger privacy.  By using 34 key elements of PNR data at borders and ports of entry, U.S. Customs and Border Protection (CBP) officers will be able to better screen passengers for the purposes of preventing and combating terrorism and transnational crimes.  The PNR data will be generally retained for no longer than three and one-half years."

Also on December 16, Frits Bolkestein, the member of the European Commission in charge of the Internal Market, Taxation and Customs, gave a speech in Strasbourg, France regarding airline passenger data.

Frits BolkesteinBolkestein (at right) spoke to the European Parliament Committees on Citizens' Freedoms and Rights, Justice and Home Affairs and Legal Affairs and the Internal Market.

He called this agreement a "political judgement".

The DHS release states that the DHS "will continue to negotiate with the European Commission to reach a permanent agreement for the transfer of PNR data to the Transportation Security Administration (TSA) for operational use by the Computer Assisted Passenger Prescreening System II (CAPPS II), which will identify high-risk passengers for additional screening."

Bolkestein stated that "the arrangement will not cover the US Computer Assisted Passenger Pre-Screening System (CAPPS II). The latter will only be considered in a second round of discussions yet to come. In any case, such discussions can only conclude once Congress' privacy concerns have been met, and so far they have not."

OMB Issues Memorandum on E-Authentication

12/16. Joshua Bolten, Director of the Office of Management and Budget (OMB), wrote a memorandum [17 pages in PDF] to the heads of all executive departments and agencies titled "E-Authentication Guidance for Federal Agencies".

Bolten wrote that "This guidance takes in account current practices in the area of authentication (or e-authentication) for access to certain electronic transactions and a need for government-wide standards and will assist agencies in determining their authentication needs for electronic transactions. This guidance directs agencies to conduct "e-authentication risk assessments" on electronic transactions to ensure that there is a consistent approach across government."

He added that "It also provides the public with clearly understood criteria for access to Federal government services online. Attachment B summarizes the public comments received on an earlier version of this guidance."

This memorandum is numbered M-04-04.

More News

12/16. The Center for Democracy and Technology (CDT) released a report [39 pages in PDF] titled "Implications of the Broadcast Flag: A Public Interest Primer".

12/16. The Federal Communications Commission's (FCC) Wireline Competition Bureau (WCB) announced that it approved the application of OCMC, Inc. to acquire certain telecommunications assets of One Call Internet, Inc. (formerly know as One Call Communications, Inc.). See, FCC release [PDF].

12/16. The European Union (EU) published a document [10 pages in PDF] titled "Council Regulation (EC) No. 2193/2003", and dated December 8, 2003. This addresses the U.S. Foreign Sales Corporation (FSC) and Extraterritorial Income (ETI) tax regimes. The World Trade Organization (WTO) has found that both constitute illegal export subsidies, and has authorized the EU to impose retaliatory tariffs on U.S. exports. The attached annex lists the products on which retaliatory tariffs apply. See also, story titled "EU Adopts Resolution on FSC/ETI Retaliatory Tariffs" in TLJ Daily E-Mail Alert No. 796, December 10, 2003.

12/16. The U.S. Court of Appeals (DCCir) issued its opinion [11 pages in PDF] in BDPCS v. FCC, a spectrum auction case. This case is BDPCS, Inc., v. FCC and USA, U.S. Court of Appeals for the District of Columbia, No. 00-1369, a petition for review of a final order of the FCC.

Go to News from December 11-15, 2003.