News from February 16-20, 2004

Greenspan Addresses Outsourcing

2/20. Federal Reserve Board Chairman Alan Greenspan gave a speech in Omaha, Nebraska titled "The critical role of education in the nation's economy". He argued that the U.S. should focus on the education and retraining of U.S. workers, not on protectionist barriers to outsourcing.

Greenspan said that the U.S. has a "standard of living unparalleled for so large a population". He attributed this to factors such as entrepreneurial spirit, free trade, and protection of property rights. He also said that two consequences of the dynamic economy have been the movement of manufacturing jobs to "the lower-wage economies of Asia and Latin America" and outsourcing of services.

He stated that "concerns have arisen about the possibility that an increasing number of our better-paying white-collar jobs will be lost to outsourcing, especially to India and China. Many of these jobs are in the service sector, and they were previously perceived as secure and largely free from the international competition long faced in the manufacturing sector".

Alan GreenspanGreenspan concluded that the appropriate policy reaction is not to erect protectionist barriers, but to better educate and re-educate U.S. workers.

He elaborated that "In the debate that has ensued, a large gulf is often perceived between the arguments of economists, who almost always point to the considerable benefits offered over the long term by exposure to free and open trade, and the obvious stress felt by those caught on the downside of turbulence created by that exposure."

Greenspan, who is an economist, concluded that "our economy is best served by full and vigorous engagement in the global economy", and "the protectionist cures being advanced to address these hardships will make matters worse rather than better."

Greenspan also pointed out the the movement of manufacturing and service jobs abroad has not impacted overall employment in the long run. He stated that "Over the long sweep of American generations and waves of economic change, we simply have not experienced a net drain of jobs to advancing technology or to other nations. Since the end of World War II, the unemployment rate in the United States has averaged less than 6 percent with no apparent trend; and as recently as 2000, it dipped below 4 percent." He added that "real earnings of the average worker have continued to rise."

Greenspan identified the factors that contribute to economic growth. "Intensive research in recent years into the sources of economic growth among both developing and developed nations generally point to a number of important factors: the state of knowledge and skill of a population; the degree of control over indigenous natural resources; the quality of a country's legal system, particularly a strong commitment to a rule of law and protection of property rights; and yes, the extent of a country's openness to trade with the rest of the world."

He continued that "The loss of jobs over the past three years is attributable largely to rapid declines in the demand for industrial goods and to outsized gains in productivity that have caused effective supply to outstrip demand. Protectionism will do little to create jobs; and if foreigners retaliate, we will surely lose jobs. We need instead to discover the means to enhance the skills of our workforce and to further open markets here and abroad to allow our workers to compete effectively in the global marketplace."

"The capacity of workers, after being displaced, to find a new job that will eventually provide nearly comparable pay most often depends on the general knowledge of the worker and the ability of that individual to learn new skills", said Greenspan.

He added that "Generic capabilities in mathematics, writing, and verbal skills are key". And, he emphasized the importance of community colleges in teaching new skills.

He touched on the importance of curriculum. He said that "our secondary school system needs to serve the requirements of a changing economy in the same way that the expansion of high schools with a broad curriculum served us so well in the first half of the twentieth century. Early last century, technological advance required workers with a higher level of cognitive skills--for instance the ability to read manuals, to interpret blueprints, or to understand formulas."

However, he did not identify what the curriculum should be today. He said only that "We need to be forward looking in order to adapt our educational system to the evolving needs of the economy and the realities of our changing society. Those efforts will require the collaboration of policymakers, education experts, and -- importantly -- our citizens. It is an effort that should not be postponed."

Greenspan has also addressed education in past speeches. See, for example, speech of October 29, 2002, and story titled "Greenspan Addresses Education, Knowledge, Innovation and Technology" in TLJ Daily E-Mail Alert No. 540, November 1, 2002.

Greenspan did not expressly reference "intellectual property rights" in this speech. However, he did imply that protecting IPR, and investment in IPR, is important. He stated that "Only when property rights are adequately protected will the entrepreneurs willingly work a heroic eighteen hours a day in their garages or at their computer terminals, secure in the knowledge that they will own what they create. In addition, those workers who are fortunate to work in a nation that protects the property rights of investors, both foreign and domestic, will benefit from the low cost of capital associated with secure property rights. That protection has fostered a thriving venture capital industry to finance the nascent ideas of budding entrepreneurs and has motivated existing businesses to invest some of their profits in research development."

Nor did Greenspan offer anything about telecommunications regulation. However, his discussion of the importance of property rights may be relevant to policy debates regarding telecom regulation. He argued that "different degrees of property protection do apparently foster different economic incentives and outcomes". For example, "Someone who owns a piece of land, but is restricted to a specific use, does not have unequivocal ownership and will act accordingly."

He added that, "economic regulation, by its nature, impinges on the exercise of a property right. Continuous changes in regulations and, hence, in the consistency of property protection create a less certain environment, which undermines incentives to long-term investment and prevents the most productive use of our resources."

DHS Finds No Privacy Act Violation In Connection With JetBlue Transfer of Passenger Data

2/20. The Department of Homeland Security's (DHS) Privacy Office released a report [10 pages in PDF] titled "Report to the Public on Events Surrounding jetBlue Data Transfer". The report concludes that no violation of the Privacy Act by the Transportation Security Administration (TSA) occurred in connection with the transfer of airline passenger data by JetBlue.

Nuala KellyThe report was prepared by Nuala Kelly (at right), the Chief Privacy Officer of the DHS.

The report pertains to the transfer of passenger data, including names, addresses, phone numbers, itineraries, and other information, from JetBlue Airways Corporation to Torch Concepts. Torch is a company that sought the data to test a data analysis tool for assessing terrorist behavior. The TSA had an interest in the project, because it could benefit the TSA's CAPPS II program. The TSA therefore assisted Torch in obtaining airline passenger data. The TSA did not, however, receive the data.

CAPPS is an acronym for Computer Assisted Passenger Prescreening System. Before the terrorist attacks of September 11, 2001, the airlines conducted passenger screening, and administered the CAPPS I, subject to federal guidelines. In late 2001, the Congress passed the Aviation and Transportation Security Act, which created the TSA as a unit of the Department of Transportation (DOT). This Act gave the TSA responsibility for airport passenger screening. In late 2002, the Congress passed the Homeland Security Act, which, among other things, created the Department of Homeland Security (DHS), and transferred the TSA from the DOT to the new DHS. The new CAPPS II, the next generation passenger screening system, is intended to be a government (TSA) run system that replaces CAPPS I.

The DHS report concludes that "No Privacy Act violation by TSA employees occurred in connection with this incident. There is no evidence that any data were provided directly to TSA or its parent agency at the time, DOT. On the contrary, the evidence demonstrates that passenger data were transferred directly by jetBlue’s contractor, Acxiom, to Torch Concepts. As a result, the Privacy Act of 1974, which regulates the Federal Government’s collection and maintenance of personally identifiable data on citizens and legal permanent residents, does not appear to have been violated by TSA actions. Because TSA did not receive passenger data, no new system of records under the Privacy Act was established within TSA, nor was any individual’s personal data used or disclosed by TSA, its employees or contractors, in violation of the Privacy Act."

See also, story titled "EPIC Submits Privacy Complaint To FTC Regarding JetBlue", also published in TLJ Daily E-Mail Alert No. 744, September 23, 2003.

EPIC Seeks OMB Reversal of FBI Exemption of NCIC Database from Privacy Act Requirements

2/20. The Electronic Privacy Information Center (EPIC) wrote a letter [3 pages in PDF] to Joshua Bolten, Director of the Office of Management and Budget (OMB), regarding "the Justice Department’s decision to discharge the Federal Bureau of Investigation of its statutory duty to ensure the accuracy and completeness of criminal records maintained in the National Crime Information Center (NCIC) database". The letter urges the OMB to "exercise its power pursuant to 5 U.S.C. § 552(r) to review the FBI’s March 24, 2003 Privacy Act Notice published in the Federal Register and to revise the final rule to make the NCIC comply with crucial Privacy Act requirements."

The FBI published a notice in the Federal Register (March 24, 2003, Vol. 68, No. 56, at Pages 14140 - 14141) in which it concluded that "The Department of Justice (DOJ), Federal Bureau of Investigation (FBI), is exempting the FBI's National Crime Information Center (NCIC) ... to avoid interference with law enforcement functions and responsibilities of the FBI".

Subsection 552a(r) provides that "Each agency that proposes to establish or make a significant change in a system of records or a matching program shall provide adequate advance notice of any such proposal (in duplicate) to the Committee on Government Operations of the House of Representatives, the Committee on Governmental Affairs of the Senate, and the Office of Management and Budget in order to permit an evaluation of the probable or potential effect of such proposal on the privacy or other rights of individuals."

Meanwhile, subsection 552a(e)(5) provides that "Each agency that maintains a system of records shall ... maintain all records which are used by the agency in making any determination about any individual with such accuracy, relevance, timeliness, and completeness as is reasonably necessary to assure fairness to the individual in the determination". See, 5 U.S.C. § 552a.

The EPIC letter states that "The NCIC is the most extensive system of criminal history records in the United States, containing information on more than 52 million individuals".

The EPIC letter states that the NCIC is unreliable, and that its use is expanding, for example, to the US-VISIT program, the government's new border security program. The letter also states that "Another government initiative that may potentially make use of NCIC is the Computer Assisted Passenger Prescreening System (CAPPS II) currently under development by the Transportation Security Administration (TSA)."

"This action is urgently needed to ensure the integrity of criminal justice records and to protect the privacy of millions of individuals, particularly because NCIC access and functionality continue to expand", states the EPIC.

People and Appointments

2/20. President Bush gave a recess appointment to William Pryor to be a Judge of the U.S. Court of Appeals for the 11th Circuit. See, release. Pryor is currently the Attorney General of Alabama. Senate Democrats have filibustered a vote on his nomination.

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2/20. President Bush wrote letters to the Speaker of the House and the President of the Senate in which he formally notified the Congress of his intent to negotiate a free trade agreement (FTA) with the nations of Costa Rica, El Salvador, Honduras, Guatemala, and Nicaragua.

2/20. The Department of Homeland Security (DHS) published a notice in the Federal Register that recites, discusses and requests public comments upon an interim rule pertaining to receiving and protecting critical infrastructure information (CII). This rule pertains to the Homeland Security Act's exemption to the Freedom of Information Act (FOIA) for certain information about critical infrastructures, such as cyber security, that is voluntarily provided to the federal government. Public comments on this interim rule are due by May 20, 2004. See, Federal Register, February 20, 2004, Vol. 69, No. 34, at Pages 8073 - 8089. See also, story titled "DHS Announces Adoption of Rules Implementing the Critical Infrastructure Information Act" in TLJ Daily E-Mail Alert No. 840, February 19, 2004.

2/20. Federal Reserve Board (FRB) Governor Ben Bernanke gave a speech in Washington DC titled "The Great Moderation". He began by noting that "One of the most striking features of the economic landscape over the past twenty years or so has been a substantial decline in macroeconomic volatility.". He then proceeded to review three theories that have been offered as an explanation for this -- improved macroeconomic policies, structural changes in the economy, and good luck. With respect to structural change, he stated that "changes in economic institutions, technology, business practices, or other structural features of the economy have improved the ability of the economy to absorb shocks. Some economists have argued, for example, that improved management of business inventories, made possible by advances in computation and communication, has reduced the amplitude of fluctuations in inventory stocks, which in earlier decades played an important role in cyclical fluctuations." Macroeconomic policy is what the FRB does. He dismissed the theory of good luck. He also downplayed the role of structural changes.

2/20. Microsoft filed an answer [31 pages in PDF] with the U.S. District Court (NDCal) in RealNetworks v. Microsoft. RealNetworks filed a complaint on December 18, 2003 alleging violation of federal and state antitrust laws in connection with Microsoft's production of a digital media player. See, RealNetworks release of December 18, 2003. This case is RealNetworks, Inc. v. Microsoft Corporation, U.S. District Court for the Northern District of California, D.C. No. C 03-5717 (JW) (EAI).

2/20. Rep. John Dingell (D-MI), the ranking Democrat on the House Commerce Committee, wrote a letter to Federal Communications Commission (FCC) Chairman Michael Powell, and the other Commissioners, that propounds numerous questions regarding broadcast indecency.

2/20. The U.S. District Court (DUtah) ordered permanent injunctions from future violations of the antifraud, reporting and issuer books and records requirements of the federal securities laws against Frances M. Flood (former Chairman, CEO and President of ClearOne Communications, Inc) and Susie Strohm (former CFO of ClearOne). The Securities and Exchange Commission (SEC) filed its civil complaint on January 15, 2003. The SEC stated in a release that "Both Flood and Strohm consented to the entry of final judgments without admitting or denying any of the allegations of the complaint."

FCC Seeks Comment on National TV Ownership Cap

2/19. The Federal Communications Commission's (FCC) Media Bureau issued a Public Notice [PDF] stating that it requests public comments on the recently enacted consolidated appropriations bill's provisions pertaining to the national TV ownership cap.

This item is DA 04-320 in MB Docket No. 02-277. Comments will be due 21 days after publication in the Federal Register. Reply comments will be due 31 days after publication in the Federal Register. The FCC had not yet published this notice in the Federal Register as of the February 25, 2004 issue.

On June 2, the FCC announced rules changes that maintain, but relax, several FCC media ownership rules. Among other things, the FCC raised the national TV ownership cap from 35% to 45%. See, June 2, 2003 Report and Order and Notice of Proposed Rulemaking [257 pages in PDF]. See also, 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.

The Congress eventually passed legislation relating to this subject. President Bush signed HR 2673, a huge omnibus appropriations bill, on January 23, 2004. (It is now Public Law No. 108-199.) This act amends the Communications Act to provide a cap of 39 percent. Section 629 provides as follows:

"The Telecommunications Act of 1996 is amended as follows--
  (1) in section 202(c)(1)(B) by striking `35 percent' and inserting `39 percent';
  (2) in section 202(c) by adding the following new paragraphs at the end:
    `(3) DIVESTITURE- A person or entity that exceeds the 39 percent national audience reach limitation for television stations in paragraph (1)(B) through grant, transfer, or assignment of an additional license for a commercial television broadcast station shall have not more than 2 years after exceeding such limitation to come into compliance with such limitation. This divestiture requirement shall not apply to persons or entities that exceed the 39 percent national audience reach limitation through population growth.
    `(4) FORBEARANCE- Section 10 of the Communications Act of 1934 (47 U.S.C. 160) shall not apply to any person or entity that exceeds the 39 percent national audience reach limitation for television stations in paragraph (1)(B);'; and
  (3) in section 202(h) by striking `biennially' and inserting `quadrennially' and by adding the following new flush sentence at the end:
`This subsection does not apply to any rules relating to the 39 percent national audience reach limitation in subsection (c)(1)(B).'."

See also, story titled "Bush Signs Omnibus Appropriations Bill", and story titled "Summary of Technology Related Provisions of the Omnibus Appropriations Bill", both published in TLJ Daily E-Mail Alert No. 824, January 27, 2004.

On Thursday, February 19, 2004, the FCC issued a notice requesting public comment on this legislation. It references the passage of the appropriations bill. It then states that "Section 629(1) of the Appropriations Act amends Section 202(c) of the Telecommunications Act of 1996 ("Telecom Act"), and directs the Commission to modify the national television ownership limit to 39 percent. Pending petitions for reconsideration ask the Commission to reconsider its decision to retain the UHF discount, urging its immediate elimination. We are opening a limited comment period in order to afford petitioners and commenters an opportunity to update the record as to the effect, if any, of the Appropriations Act on our authority and decision in this area. We invite comment as to whether the enactment of the 39% national cap affects our authority to modify or eliminate the UHF discount. For example, does passage of the 39% cap signify congressional approval, adoption, or ratification of the 50% UHF discount?"

FCC Commissioners Michael Copps and Jonathan Adelstein criticized the issuance of the notice requesting public comments. They stated in a joint release [PDF] on Monday, February 23 that "We were surprised to learn last Friday that agency staff had released a Public Notice seeking comment on the UHF Discount. With an issue of this import, it appears to us to be a highly unusual and irregular step for the staff to take without input from members of the Commission. The timing of this move -- coming little more than a week after the oral argument in this case coupled with an immediate communication from the FCC General Counsel to the Third Circuit seeking to hold the issue in abeyance based on the staff Public Notice -- may lead to questions of whether this is an attempt to avoid a substantive court decision on an apparent weakness and inconsistency in the June 2nd media ownership order."

FBI Announces Anti-Piracy Seal

2/19. The Federal Bureau of Investigation (FBI) and groups representing some intellectual property owners announced an FBI anti-piracy seal. See, FBI release.

Jana Monroe, Assistant Director of the the FBI's Cyber Division, stated that "The FBI is also unveiling a new anti-piracy seal, which will be displayed prominently on digital and software intellectual properties. This anti-piracy seal should also serve as a warning to those who contemplate the theft of intellectual property, that the FBI will actually investigate cyber crimes, and will bring the perpetrators of these criminal acts to justice." See, statement.

Brad Buckles of the Recording Industry Association of America (RIAA) stated that "It is our hope that when consumers see the new FBI warning on the music they purchase, both physically and online, they will take the time to learn the do’s and don’ts of copying and uploading to the Internet."

Sea also, Software & Information Industry Association (SIIA) release.

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2/19. The U.S. District Court (DMass) issued its Memorandum and Order [PDF] in Comcast of Massachusetts v. Marco Naranjo, regarding damages to be awarded for using a statutorily prohibited electronic device unlawfully to intercept a cable television signal. Liability was not at issue. Naranjo defaulted. The Court awarded Comcast $2780 in statutory damages and $1320.36 in costs and attorneys' fees, which was much less than Comcast requested. The Court based its award on its estimate of Comcast's lost revenues, taking into consideration the length of time that Naranjo intercepted cable signals, the basic rate, and the rates and estimated quantity of pay per view items viewed by Naranjo. (For example, the Court estimated that he viewed four dirty movies per month.). This is D.C. No. 03-10066-REK.

FDA Supports Use of RFID to Combat Counterfeit Drugs

2/18. The Department of Health and Human Services' (HHS) Food and Drug Administration (FDA) released a report titled "Combating Counterfeit Drugs: A Report of the Food and Drug Administration". This lengthy report, among other things, endorses the use of radio-frequency identification (RFID) technology, and states that the FDA should regulate RFID use, but only after there is sufficient data and significant marketplace experience with RFID.

The report begins with the statement that "The counterfeiting of currency and consumer products are common problems that plague governments and manufacturers around the world, but the counterfeiting of medications is a particularly insidious practice. Drug counterfeiters not only defraud consumers, they also deny ill patients the therapies that can alleviate suffering and save lives."

The report finds that "Use of mass serialization to uniquely identify all drug products intended for use in the United States is the single most powerful tool available to secure the U. S. drug supply. Mass serialization involves assigning a unique number (the electronic product code or EPC) to each pallet, case, and package of drugs and then using that number to record information about all transactions involving the product, thus providing an electronic pedigree from the point of manufacture to the point of dispensing. This unique number would allow each drug purchaser to immediately determine a drug's authenticity, where it was intended for sale, and whether it was previously dispensed." (Parentheses in original.)

The report further finds that "It currently appears that the technology most likely to bring mass serialization into widespread commercial use by the pharmaceutical industry is RFID, although two-dimensional bar codes may be used for some products. RFID technology includes not only the silicon tags containing the EPC, but also antennas, tag readers, and information systems that allow all users to identify each package of drugs and its associated data. This data can be used not only to authenticate drugs but also to manage inventory, conduct rapid, targeted recalls, prevent diversion, and ensure correct dispensing of prescriptions."

Finally, the report addresses FDA regulation. It states that "In the long term, after there is significant market place experience with RFID, FDA plans to propose or clarify, as necessary and appropriate, policies and regulatory requirements relating to the use of RFID. Labeling, electronic records, product quality, and Current Good Manufacturing Practices (cGMP) requirements are issues that have arisen in connection with RFID. However, regulatory or policy determinations regarding these, or other, issues should not be made until they can be informed by sufficient data and significant marketplace experience with RFID."

DHS Announces Adoption of Rules Implementing the Critical Infrastructure Information Act

2/18. Department of Homeland Security (DHS) announced, but did not release, interim rules pertaining to receiving and protecting critical infrastructure information (CII). These rules pertain to the Homeland Security Act's exemption to the Freedom of Information Act (FOIA) for certain information about critical infrastructures, such as cyber security, that is voluntarily provided to the federal government.

The DHS issued a short press release describing a program which it named the "Protected Critical Infrastructure Information (PCII) Program". Also, DHS Assistant Secretary Bob Liscouski held a press conference.

The DHS release states, incorrectly, that "The rule establishing the procedures for PCII was published this week in the Federal Register." This publication has not yet occurred. Also, these regulations will be codified at 6 CFR 29.

The DHS was required by the Homeland Security Act (HSA) to conduct this rulemaking proceeding to implement the provisions of the HSA creating an exemption to the FOIA for certain information about critical infrastructures. The relevant statutory provisions are found at §§ 211-215 of HR 5005 (107th Congress). These sections are collectively named that "Critical Infrastructure Information Act of 2002". President Bush signed the HSA on November 25, 2002. It became Public Law No. 107-296. The FOIA is codified at 5 U.S.C. § 552.

The CII exemption to the FOIA was enacted to incent companies to share information with the government that they would not otherwise share because of fears that their competitors or critics could obtain it under the FOIA. The rationale for the CII exemption is that the government needs information from the private sector to be able to combat cyber terrorism and other threats to critical infrastructures.

Technology companies and some of the groups that represent them in Washington DC strongly supported creating this exemption. However, some other groups opposed creating the exemption, arguing that they would use the FOIA to obtain records regarding critical infrastructures, in furtherance of their watchdog functions.

The DHS release states that "Under provisions of the Critical Infrastructure Information Act of 2002 (CII Act), information that is voluntarily submitted per those provisions will be protected from public disclosure until and unless a determination is made by the PCII Program Office that the information does not meet the requirements for PCII. If validated as PCII, the information will remain exempt from public disclosure. The rule establishing the procedures for PCII was published this week in the Federal Register. The PCII Program Office is part of Homeland Security's Information Analysis and Infrastructure Protection (IAIP) Directorate and is charged with receiving submissions, determining if the information qualifies for protection and, if validated, sharing it with authorized entities for use as specified in the CII Act."

The release adds that "Initially, the PCII Program Office will limit the sharing of PCII to IAIP analysts. PCII may be used for many purposes, focusing primarily on analyzing and securing critical infrastructure and protected systems, risk and vulnerabilities assessments, and assisting with recovery as appropriate."

The DHS also published a web page for its PCII Program. It states that the DHS "recognizes the importance of receiving information from those with direct knowledge of the security of the critical infrastructure in order to help reduce the vulnerability of the critical infrastructure to acts of terrorism. The Department also recognizes that to best encourage industry to voluntarily submit information relating to the security of critical infrastructure -- much of which is not customarily within the public domain -- there must be assurance that such information will be utilized for securing the United States and will not be released to the general public."

This web page also states that "Submissions to the PCII Program Office must meet the following criteria to be certified for protection: The information must quality as Critical Infrastructure Information under the CII Act of 2002; it must include an Express Statement  requesting protection under the CII Act; and it must include a Certification Statement certifying that the material qualifies for protected status."

This web page also states that "The PCII Program Office has developed rigorous safeguarding and handling procedures to prevent unauthorized access to information submitted under this program. All information submitted in accordance with the procedures set forth in the regulations will be presumed to be and will be treated as Protected Critical Infrastructure Information (PCII) from the time the information is received by DHS. If the information does not subsequently qualify as protected critical infrastructure information, the submitter has the opportunity to provide supporting information or may withdraw the submittal up until the final determination is made, at which point the information either will be destroyed or maintained without the protections of PCII, depending on the preference of the submitter. The information submitted remains protected during this entire process."

See also, notice in the Federal Register (April 15, 2003, Vol. 68, No. 72, at Pages 18523 - 18529) announcing this rule making proceeding, and story titled "DHS Begins Rulemaking Proceeding on FOIA Exemption for Critical Infrastructure Information", also published in TLJ Daily E-Mail Alert No. 645, April 16, 2003.

SEC Commissioner Glassman Addresses ECNs

2/18. Securities and Exchange Commission (SEC) Commissioner Cynthia Glassman gave a speech in London, U.K. at the Eighth Annual Conference on The Practical Implications of SEC Regulation Outside the United States.

Cynthia GlassmanGlassman (at right) addressed a number of topics, including electronic communication networks.

She stated that "Advances in technology also require us to re-examine the fairness and effectiveness of our rules. Very shortly, the Commission is going to be considering a number of market structure proposals, including the controversial trade-through rule currently in effect in the listed markets. A broker is not supposed to execute a customer's order in one market when a better price is available in another market. But the emergence of automatic execution by electronic communication networks ("ECNs") competing with traditional manual markets has complicated the situation, to say the least."

She continued that "While the purpose of the rule was to protect limit orders, the problem is that the rule requires the ECN to wait the 30 seconds it takes the floor-based specialist to respond. That might not have seemed like a very long time in 1978 when the rule was adopted, but it's an eternity today. And if the market moves during that 30 seconds, the specialist may decide not to execute the order. Best execution has come to mean different things to different customers. Many customers value the split-second speed and certainty of execution offered by the ECNs over - not a certain better price, but simply the possibility of a better price -- on an exchange."

People and Appointments

2/18. The Federal Communications Commission (FCC) issued a release [PDF] announcing the appointment of Martin Perry as Chief Economist. He started back on January 1.

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2/18. The U.S. District Court (DC) issued a Memorandum Opinion and Judgment [20 pages in PDF] in Regency Communications v. Cleartel Communications, regarding the award of damages in this contract dispute involving pay telephones. This case is Regency Communications, Inc., et al. v. Cleartel Communications, Inc, et al., U.S. District Court for the District of Columbia, No. 98-1160, Judge Royce Lambeth presiding.

2/18. The Department of Justice's (DOJ) Antitrust Division announced that it will host a day long conference on March 18, 2004 titled "Developments in the Law and Economics of Exclusionary Pricing Practices: From Classroom to Courtroom". Judge Richard Posner (U.S. Court of Appeals for the 7th Circuit) will be the luncheon speaker. Reservations are required. The deadline to register is March 8. The event is free. See, notice.

2/18. Attorney General John Ashcroft gave a speech in Jefferson City, Missouri in which he referenced the role of information and the internet in deterring corporate and government corruption. He stated that "Information and transparency are keys to achieving a world in which corruption is not merely prosecuted, but prevented; not merely detected, but deterred." He continued that "with the explosive growth of the Internet and 500-channel digital satellite broadcasting, information has never moved more quickly, to more people, with more purpose. As our effort to deal with the corporate scandals has confirmed, information is the most therapeutic resource we have in achieving integrity in our markets and in our government." He has made similar remarks before. See, for example, January 22, 2004 speech at the World Economic Forum in Davos, Switzerland.

10th Circuit Upholds Constitutionality of Do Not Call Registry

2/17. The U.S. Court of Appeals (10thCir) issued its opinion [51 pages in PDF] in FTC v. Mainstream Marketing Services (and consolidated cases), the telemarketers' constitutional challenge to the Federal Trade Commission's (FTC) do not call registry. The District Court held that the do not call registry violates the First Amendment free speech rights of telemarketers. The Appeals Court reversed. See, full story.

Cingular Wireless Announces Deal to Acquire AT&T Wireless

2/17. Cingular Wireless announced an agreement to acquire AT&T Wireless. Cingular stated in a release that "Under the terms of the agreement approved by the boards of directors of Cingular and AT&T Wireless, shareholders of AT&T Wireless will receive $15 cash per common share or approximately $41 billion. The acquisition, which is subject to the approvals of AT&T Wireless shareholders and federal regulatory authorities, and to other customary closing conditions, is expected to be completed as soon as late 2004."

Cingular is a joint venture between BellSouth Corporation and SBC Communications.

SBC stated in a release that "The boards of Cingular and AT&T Wireless have approved the merger agreement. SBC Communications and BellSouth have committed funding to Cingular for the all cash deal." SBC added that "SBC's and BellSouth's proportionate equity stake in Cingular will remain unchanged following the transaction, with SBC holding 60 percent and BellSouth 40 percent of the equity. Management control will remain 50-50."

Vodafone is another wireless company that had sought to acquire AT&T Wireless. Vodafone stated in a release that "On 17 February 2004, Vodafone withdrew from the auction when it concluded that it was no longer in its shareholder's best interests to continue discussions." It added that "Vodafone remains committed to its existing position in the US market with its successful partnership in Verizon Wireless."

The proposed deal requires approval by both the Antitrust Division of the Department of Justice and the Federal Communications Commission (FCC).

Sen. Mike DeWine (R-OH) and Sen. Herb Kohl (D-WI) issued a joint release in which they stated that "With today's announcement of Cingular Wireless's plans to acquire AT&T Wireless, it appears that the much anticipated consolidation in the wireless telephone industry is now underway. For several years, consumers have benefited from vibrant competition in this industry with a choice of several national providers. We will closely monitor this deal, and any subsequent transactions in this industry, to insure that millions of consumers who rely on cell phones continue to realize the benefits of a competitive marketplace."

The two Senators are the Chairman and ranking Democrat on the Senate Judiciary Committee's Antitrust Subcommittee. The two usually work in a cooperative and bipartisan fashion on antitrust and competition issues.

Steve Largent, the P/CEO of the Cellular Telecommunications & Internet Association (CTIA), stated in a release that "Greater consolidation has long been expected in the wireless industry, and should bring important benefits to consumers. Industry consolidation began in 1986, and we have consistently delivered competitive prices, better service and new innovations to wireless customers."

Both Cingular and AT&T Wireless use GSM technology. GSM is an acronym for both Groupe Speciale Mobile, and Global System for Mobile communications.

ALJ Dismisses FTC Complaint Against Rambus

2/17. Stephen McGuire, Chief Administrative Law Judge, issued an Order [1 pages PDF scan] dismissing the Federal Trade Commission's (FTC) administrative complaint against Rambus, Inc.

The FTC released only a one page order that states merely that "Accordingly, Complaint Counsel having failed to sustain its burden of establishing liability for the violations alleged, the Complaint is DISMISSED." The FTC has not yet released the opinion of the ALJ.

The FTC stated in a release that "The judge's initial decision contains in camera material which must be redacted before it is publicly released. Release of the public version of that decision is expected early next week."

The page number of the order is 334, which suggests that the opinion is about 333 pages long.

On June 19, 2003, FTC filed an administrative complaint against Rambus alleging anti competitive behavior in violation of Section 5 of the Federal Trade Commission Act (FTCA) in connection with its participation in a standard setting body for dynamic random access memory products. See, story titled "FTC Files Administrative Complaint Against Rambus" in TLJ Daily E-Mail Alert No. 455, June 20, 2002.

This proceeding is titled "In the Matter of Rambus Incorporated". This is FTC Docket No. 9302. The FTC has published a web page with hyperlinks to pleadings in this proceeding.

The FTC stated in a release that "The Judge's initial decision is subject to review by the full Commission, either on its own motion or at the request of either party. The initial decision will become the decision of the Commission 30 days after it is served on the parties or 30 days after the filing of a timely notice of appeal (whichever is later), unless: (1) a party filing a notice of appeal perfects an appeal by the timely filing of an appeal brief, or (2) the Commission takes certain other actions detailed in its Rules." (Parentheses in original.)

John Danforth, SVP and General Counsel for Rambus, stated in a release that "Today's ruling dismissing the FTC case is a fundamentally important step for Rambus as we seek to be fairly compensated for the use of our intellectual property". He added that "The ruling adds to the powerful reasoning favoring Rambus that the Federal Circuit issued in January 2003. It is now time, we believe, for these issues to be set aside, and for Rambus patent claims to be resolved on their merits."

On January 29, 2003, the U.S. Court of Appeals (FedCir) issued its split opinion [MS Word] in Rambus v. Infineon, a patent infringement case involving dynamic random access memory (DRAM) products. The Court of Appeals vacated the District Court's judgment of non-infringement, as a matter of claim construction. It also reversed the District Court's denial of a motion to set aside a jury verdict of fraud based on failure to disclose patent and patent application information to a standard setting body. See, story titled "Federal Circuit Rules in Rambus v. Infineon", also published in TLJ Daily E-Mail Alert No. 594, January 30, 2003.

The complaint pertains to Rambus's participation in the JEDEC Solid State Technology Association, which was formerly known as the Joint Electron Device Engineering Council. JEDEC develops and issues technical standards for a form of computer memory known as synchronous dynamic random access memory (SDRAM).

The complaint alleges that Rambus "has illegally monopolized, attempted to monopolize, or otherwise engaged in unfair methods of competition in certain markets relating to technological features necessary for the design and manufacture of a common form of digital computer memory, known as dynamic random access memory, or ``DRAM.´´"

The FTC alleges that Rambus engaged in anticompetitive behavior in violation of Section 5 of the FTCA, which is codified at 15 U.S.C. § 45, by "participating in the work of an industry standard setting organization, known as JEDEC, without making it known to JEDEC or to its members that Rambus was actively working to develop, and did in fact possess, a patent and several pending patent applications that involved specific technologies proposed for and ultimately adopted in the relevant standards. By concealing this information -- in violation of JEDEC's own operating rules and procedures -- and through other bad faith, deceptive conduct, Rambus purposefully sought to and did convey to JEDEC the materially false and misleading impression that it possessed no relevant intellectual property rights."

USTR Zoellick Discusses US Outsourcing

2/17. U.S. Trade Representative (USTR) Robert Zoellick held a press conference in India at which he discussed outsourcing.

Robert ZoellickZoellick (at left), who began a trip last week to Japan, China, Singapore, India, and Europe, was asked, "what is the Administration's stand on outsourcing?"

"What a surprising question", said Zoellick. He then gave a long, but not responsive, answer to this and related questions. He emphasized that trade its two-way, that it benefits both countries, and suggested that if India wants to benefit from outsourcing from the US, it must also open its markets to US products. However, he did not articulate a clear statement of the Bush administration's position on outsourcing.

He said that "one of the things that has been striking about the progress of reforms in India is that I think it has created not only growth but an additional confidence and recognition of India's interests in the global and international trading system, and information technology and a series of service industries are definitely part of that."

But, he said trade is "two-way", and "that's what I think this is about for all our countries because trade involves change. And change can create jobs, but people also worry about its effect on jobs."

He said that US Congressional legislation regarding outsourcing reflects "an anxiety about job loss in the United States because of outsourcing."

He continued that "more broadly, what this involves is the whole question of services, telecommunications services, financial services, professional services, where again I think, and I hope this is changing, but India has been more reluctant to make those sort of commitments to openness."

He also stated that "Now, what that amounts to is the fact that it really brings us to the point of the visit, which is we want to keep our markets open, but to do so we need to be able to open markets abroad. We need to make, as the ``Business Standard´´ said, make it a two-way street, and that includes services, goods and agriculture."

"Now, our view is that trade should be ``win-win.´´" Zoellick added that "And that's exactly what we are about in the Doha Agenda, is that how we can create additional jobs in India, in the United States, increase incomes, and have both grow together."

Later, he responded that "if India wants to have the ability to have outsourcing and wants to have the ability to sell goods to the United States, well you can see India is also going to have to open up. And again, let's put this in a context. You know, the average bound tariff in agriculture for India -- that is the tariff that you could go up to, the current tariff is lower -- is 112 percent. That tariff is twice the level -- twice the level -- of the average in the world. It is 10 times the level of the United States."

Finally, he said that "India will be one of the prime beneficiaries of the international trading system. You can see, this country is vibrant, its growing, it has sensitivities you still need to deal with, but you've got talented people, you've got a very good university and technology system, the engineers -- you will be one of the major beneficiaries of what we are trying to make happen. My view is, my country will too, because I believe open markets keep prices lower and they also create productivity. But the key message is no one country can do it alone. And this is not just India, it is going to be China, its other major developing countries."

See, transcript of press conference.

NTIA Publishes Notice Regarding TOP Grants

2/17. The National Telecommunications and Information Administration (NTIA) published a notice in the Federal Register regarding the availability of Technology Opportunity Program (TOP) grants under fiscal year 2004 appropriations. The NTIA has about $12.9 Million in grants is available.

The notice states that "All funded projects must be interactive and foster the exchange and sharing of information among individuals and/or groups, as opposed to one-way or broadcast systems. These projects are expected to serve as national models, even though the applicant may propose to pilot the project at the local level. Funded projects must evidence a strong probability of replication in other communities throughout the United States. Accordingly, priority will be given to projects that address problems of national significance, expand economic opportunities, enhance productivity, increase worker skills, and create jobs for American workers."

It adds that "Priority also will be given to projects demonstrating the use of new telecommunications and information technologies. NTIA is especially interested in applications of wireless technologies including, but not limited to, WI-FI, unlicensed spectrum devices, and projects demonstrating the potential application of 3rd generation or Advanced Wireless Services. All projects are expected to advance the body of knowledge and expand service availability and effectiveness in their respective content areas."

Grant applications must be either postmarked no later than April 27, 2004, or hand-delivered no later than 5:00 PM EST on April 27, 2004.

See, Federal Register, February 17, 2004, Vol. 69, No. 31, at Pages 7452 - 7454. See also, the NTIA's TOP web page.

People and Appointments

2/17. Joseph Watson was named Associate Administrator of the National Telecommunications and Information Administration's (NTIA) Office of Policy Analysis and Development. He was previously legislative director to Sen. Peter Fitzgerald (R-IL). See, NTIA release.

2/17. Kay Wilkie was appointed chair of the U.S. Trade Representative's (USTR) Intergovernmental Policy Advisory Committee (IGPAC). This Committee provides advice on trade agreements from the perspective of state and local governments. She works for the New York State Department of Economic Development. See, USTR release [PDF].

2/17. Andrew Levin was named Executive Vice President for Law and Government Affairs and Chief Legal Officer at Clear Channel Communications, Inc. He has worked for Clear Channel since late 2002. Before that he was Democratic Counsel to the House Commerce Committee where he worked on matters before the Subcommittee on Telecommunications and the Internet. See, Clear Channel release [PDF]. Clear Channel operates about 1,200 radio stations in the U.S.

More News

2/17. The Federal Communications Commission (FCC) released its annual report [103 pages in PDF] titled "Telecommunications Provider Locator". The report was prepared by the Wireline Competition Bureau's (WCB) Industry Analysis and Technology Division. It lists 4,748 companies registered to provide interstate telecommunications as of October of 2003. There were 5,364 such companies as of November of 2002. See also, FCC release [PDF].

2/17.The Recording Industry Association of America (RIAA) announced that it filed, on behalf of its member companies, "lawsuits against 531 individual computer users offering substantial amounts of copyrighted music files for free on peer-to-peer networks". The complaints were filed on February 17 in federal courts in Philadelphia, Atlanta, Orlando and Trenton, New Jersey. The RIAA also stated that it "utilized the ``John Doe´´ litigation process -- which is used to sue defendants whose names aren't known". See, RIAA release and TLJ story titled "RIAA Shifts to John Doe Lawsuits Against P2P Infringers" in TLJ Daily E-Mail Alert No. 821, January 22, 2004.

Go to News from February 11-15, 2004.