PR China Agrees to Stop Preferential Tax Treatment for Domestic Producers of Integrated Circuits

7/9. The Office of the U.S. Trade Representative (USTR) announced in a release [2 pages in PDF] that the U.S. and the People's Republic of China (PRC) "have agreed on a resolution to their dispute at the World Trade Organization (WTO) regarding China's tax refund policy for integrated circuits."

On March 17, 2004 the U.S. filed a complaint with the World Trade Organization (WTO) against the PRC stating that the PRC's preferential tax treatment of integrated circuits produced in the PRC is discriminatory, and a violation of the PRC's WTO obligations. See, story titled "US Complains to WTO About PR China's Tax Preference for Domestic Producers of Integrated Circuits" in TLJ Daily E-Mail Alert No. 859, March 19, 2004. See also, story titled "Japan Joins US in Complaining to WTO About China's Discriminatory Tax on Integrated Circuits" in TLJ Daily E-Mail Alert No. 869, April 5, 2004.

The USTR release states that "The resolution will ensure full market access and national treatment for U.S. integrated circuits in China, the world's fastest growing semiconductor market and an export market worth over $2 billion to American manufacturers and workers. Today's agreement resolves the first WTO case filed against China by any WTO Member."

It adds that "Effective immediately, China will not certify any new semiconductor products or manufacturers for eligibility for VAT refunds. China will no longer offer VAT refunds that favor semiconductors designed in China. And, by April 1 of next year, China will stop providing VAT refunds on Chinese-produced semiconductors to current beneficiaries. Under China's tax policy, U.S. exporters of integrated circuits to China paid up to five times as much tax as local Chinese manufacturers. These policies disadvantaged U.S. manufacturers as well as U.S. firms that design integrated circuits."

Robert Zoellick (at right) stated at a press conference that "In March of this year President Bush authorized us to file the first ever case against China in the World Trade Organization, charging that China was unfairly providing special tax treatment to semiconductors produced in China and discriminating against U.S-made integrated circuit chips. Today, less than four months after filing this case I am pleased to announced that effective immediately China will not certify any new semi-conductor products or manufacturers for eligibility for the value added tax or VAT refunds. China will no longer offer VAT tax refunds that favor semiconductors designed in China and, by April 1 of next year, China will stop providing VAT tax refunds on Chinese produced semi-conductors to current beneficiaries." See, transcript [PDF].

William Archey, P/CEO of the American Electronics Association (AeA), stated in a release that "The importance of today's announcement is two-fold for the high-tech industry ... First, it will bring this particular tax regime into compliance with WTO obligations, as it is critical that the country with the fastest growing tech sector abide by those obligations.

He added that "more broadly, with the rapid evolution in recent years in both China's economy and economic policy, it is inevitable that China might occasionally adopt policies aimed at conferring special benefits on domestic production. When that occurs, it is important that every attempt be made to bring such a large and important trading partner back into compliance with international obligations. That's exactly what the SIA petition and Ambassador Zoellick and his team have successfully accomplished."

FCC Settles With AT&T in Proceeding Regarding Do Not Call Registry Violations

7/9. The Federal Communications Commission (FCC) released an Order and Consent Decree regarding AT&T's non-compliance with the Do-Not-Call requirements of Section 227 of the Communications Act.

AT&T agreed to pay a fine (which is defined as a "voluntary payment") of $490,000. AT&T also agreed to dismiss its related lawsuit against the FCC. AT&T also agreed to inform its telemarketing employees, and the employees of its vendors, of their legal obligations with respect to the Do Not Call Registry. The FCC agreed to close its investigation of AT&T.

The FCC's November 3, 2003 Notice of Apparent Liability for Forefeiture [12 pages in PDF] had sought a $780,000 fine. The FCC alleged that AT&T made telephone solicitation calls to 29 consumers on 78 separate occasions after those consumers had requested that AT&T not call them again. See, story titled "FCC Fines AT&T For Violation of FCC Do Not Call Rules" in TLJ Daily E-Mail Alert No. 771, November 4, 2003.

AT&T contested the NAL. It denied placing telemarketing calls to some of the named subscribers but admitted having placed calls in error to many of the complaining customers. AT&T also filed a complaint in the U.S. District Court (DC) against the FCC alleging violation of the Freedom of Information Act, which is codified at 5 U.S.C. § 552. AT&T had submitted a FOIA request for information about the consumer complaints. This case is AT&T Corp. v. FCC, D.C. No. 1:04CV00249.

This Order and Consent Decree is FCC 04-169. See also, FCC release [PDF].

8th Circuit Rules in False Designation of Origin of Book Case

7/9. The U.S. Court of Appeals (8thCir) issued its opinion [PDF] in Mid-List Press v. Nora. While intellectual property disputes over literary works often involve claims by authors and copyright holders that publishers stole their works, this case involves the opposite. A publisher claimed that an author stole its name and ISBN number. Hence, it is a Lanham Act false designation of origin case.

James Nora wrote, printed, and sold via Amazon a book of poetry. The book stated that it was published by Mid-List Press (MLP), a small publisher based in the state of Minnesota. The book also used the International Standard Book Number (ISBN) of MLP. While Nora was an officer and director of MLP, he had no authority to publish the book as a MLP book.

MLP filed a complaint in U.S. District Court (DMinn) against Nora alleging, among other things, violation of the Lanham Act. The District Court held that Nora falsely designated the origin of the book, and granted MLP an injunction. The Appeals Court affirmed.

15 U.S.C. § 1125 provides, in part, that "Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which (A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, ... shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act."

Nora argued on appeal that MLP had not presented evidence of actual consumer confusion. The Appeals Court held that actual confusion need not be proved. The plaintiff need only prove likely confusion, and this may be shown by circumstantial evidence.

The Court wrote that "MLP proved likelihood of confusion given the circumstances present in this case. Typical Lanham Act claims involve situations where the alleged wrongdoer uses a mark or name so similar to the plaintiff's the public is likely to be deceived. This case involves a situation where the wrongdoer used the plaintiff's actual mark, not merely a similar mark, to pass off his product as the plaintiff's."

The Court added that "It is difficult to imagine how the public would not be confused about the origin of" the book "when the book actually bore the MLP trade name and ISBN number."

This case is Mid-List Press, Inc. v. James Nora, U.S. Court of Appeals for the 8th Circuit, App. Ct. No. 03-3229, an appeal from the U.S. District Court for the District of Minnesota.

People and Appointments

7/9. Paul Clement became the acting Solicitor General, upon the resignation of Ted Olson.

More News

7/9. The Office of the U.S. Trade Representative (USTR) released a state by state summary of U.S. exports to Australia.

7/9. The AEI-Brookings Joint Center for Regulatory Studies published a paper [56 pages in PDF] titled "The Impact of Driver Cell Phone Use on Accidents". It was written by Robert Hahn and James Prieger. See also, brief summary.

7/9. Microsoft, the Department of Justice (DOJ), and all of the state plaintiffs (except Massachusetts and West Virginia) filed a pleading [14 pages in PDF] titled "Joint Status Report on Microsoft's Compliance with the Final Judgments" with the U.S. District Court (DC) in the government antitrust case against Microsoft.

7/9. President Bush gave a campaign speech in Lancaster, Pennsylvania. One of the many topics that he covered was the PATRIOT Act. He stated that "We've now got the FBI and the CIA sharing information. We've got divisions within the FBI sharing information. Before September the 11th, we couldn't have the criminal division and the intelligence division of the FBI even talking to each other about certain cases. No wonder information slipped through the net. That's why we passed what they call the Patriot Act." He added, "let me say something about the Patriot Act. Nothing happens without court order. The same rules that we're using to catch drug lords is now -- we're finally starting to apply to terrorists. It's essential that these tools stay in place if we expect to be safe."

7/9. The Senate passed HR 1303 by unanimous consent. This bill would amend § 205(c) of the E-Government Act of 2002 (Public Law No. 107-347) by striking paragraph (3) and inserting the following: "(3) PRIVACY AND SECURITY CONCERNS--The Judicial Conference of the United States may promulgate rules to protect privacy and security concerns relating to the electronic filing of documents, and the public availability of documents filed electronically, pursuant to this subsection." Currently, paragraph (3) provides that the "The Supreme Court shall prescribe rules, in accordance with sections 2072 and 2075 of title 28, United States Code, to protect privacy and security concerns relating to electronic filing of documents and the public availability under this subsection of documents filed electronically." The House passed this bill by voice vote on October 7, 2003.

FCC Adopts Second Secondary Markets Report and Order

7/8. The Federal Communications Commission (FCC) adopted, but did not release, a report and order in its proceeding on secondary markets for spectrum usage rights.

FCC staff briefly summarized the item at the FCC's July 8 meeting. Commissioners made brief comments, and released brief written statements. The FCC issued a short press release [PDF] describing this item.

This item, titled "Second Report & Order, Order on Reconsideration, and Second Further Notice of Proposed Rulemaking", is FCC 04-167 in Docket No. 00-230.

The FCC opening this proceeding on November 9, 2000 with its original NPRM [61 pages in PDF]. See, TLJ story titled "FCC Discusses Secondary Markets for Wireless Spectrum", and TLJ news analysis titled "Mobile Internet Access Devices and the Internet", both dated November 10, 2000.

On May 15, 2003 the FCC announced that it adopted a R&O and a Further Notice of Proposed Rulemaking (FNPRM) which allows certain FCC spectrum licensees to enter into leasing arrangements with third parties. See, FCC release [4 pages in PDF] and story titled "FCC Adopts Order Allowing Some Secondary Leasing of Spectrum" in TLJ Daily E-Mail Alert No. 663, May 16, 2003. However, the FCC did not release this R&O and FNPRM [198 pages in PDF] until October 7, 2003. See, story titled "FCC Finally Releases R&O and FNPRM in Secondary Spectrum Markets Proceeding" in TLJ Daily E-Mail Alert No. 755, October 8, 2003.

The FCC's July 8 release offers this summary. "In this proceeding’s First Report & Order, adopted in 2003, the Commission implemented rules to introduce spectrum leasing in many wireless services and reduce the review time for transfer/assignment applications. Today, the Commission further streamlined the processing of certain spectrum leasing and transfer/assignment filings by providing for immediate processing of applications and notifications where the parties certify that the proposed transaction meets specific criteria indicating the absence of potential public interest concerns relating to eligibility, use restrictions, foreign ownership, designated entity policies, and competition. Lease filings and transfer/assignment applications that meet these criteria will be eligible for overnight electronic processing, while transactions that do not meet these criteria will be subject to further review under specified timetables, or may be offlined for more detailed review if they raise potentially serious public interest issues.

The release states that the FCC "established a new regulatory option of ``private commons´´ as part of its leasing rules. This option will be available to licensees who wish to provide spectrum access to individual users or groups of users that may not fit squarely within the current options for spectrum leasing or within traditional end-user arrangements."

The release also states that the Second Further NPRM portion of this item seeks "comment on what additional policies could facilitate the deployment of advanced technologies through secondary market arrangements such as spectrum leasing and private commons."

FCC Chairman Michael Powell wrote in a separate statement [PDF] that this item "further enhances these secondary markets by removing unnecessary regulatory roadblocks."

FCC Commissioner Kathleen Abernathy wrote in a separate statement [PDF] that "an open, market-based regulatory approach is the best way to ensure the health of our industry and the robustness of its consumer offerings. Already, we have seen promising activity in the secondary markets for spectrum; in less than five months, at least 54 spectrum leasing applications have been filed. As the markets mature – and as we continue to maintain an open, market-based regulatory approach – I anticipate even greater reliance on our secondary-markets system."

FCC Commissioner Michael Copps, who also dissented from the 2003 R&O, wrote in a separate statement [PDF] that "In Section 310(d), Congress makes clear that no ``station license or any rights thereunder shall be transferred, assigned or disposed of in any manner ... except upon application to the Commission and upon finding by the Commission that the public interest, convenience, and necessity will be served thereby.´´ But the Commission’s ever-expanding secondary market’s policies allow licensees to transfer a significant right -- the right to control the spectrum on a day-to-day basis -- without applying to the Commission and without the requirement of any Commission finding that such transfer serves the public interest." (Emphasis in Copps' written statement.)

See also, separate statement [PDF] of FCC Commissioner Kevin Martin, and separate statement [PDF] of FCC Commissioner Jonathan Adelstein dissenting from the immediate approval provisions for certain transfers.

Steve Largent, P/CEO of the Cellular Telecommunications and Internet Association (CTIA), wrote in a release that the "CTIA fully supports the Commission’s efforts to further facilitate a robust secondary market by enabling wireless carriers to lease spectrum they are not using to other companies." He added that "Allowing wireless carriers the option to enter into secondary market transactions with private parties increases carrier flexibility and reduces costs, resulting in lower prices and improved services for consumers".

Private Commons. The FCC release elaborated that this option "might be attractive to users of advanced devices that are capable of dynamic spectrum access but do not necessarily require use of a licensee’s network architecture. The private commons option enables licensees to make licensed spectrum available for use by these advanced technologies in a manner similar to that by which unlicensed users gain access to unlicensed spectrum under Part 15 of the Commission’s rules, and to do so without the necessity of entering into individual spectrum leasing arrangements."

The release added that the "establishment of a private commons option is not intended to, and does not, affect the rights of users of unlicensed devices or limit the Commission's ability to authorize unlicensed use under Part 15 of its rules."

Gregory Rosston of Stanford University (and a former Deputy Chief Economist at the FCC) testified at a Senate Commerce Committee hearing on March 6, 2003 about the concept of a private commons. He wrote in his prepared testimony [PDF] that "An alternative to the use of lobbying to get additional spectrum set aside for different uses would be to stick to and increase the use of the auction mechanism. In fact, a commons model is consistent with private ownership, competition and auctions. There is no reason why, if there is such a huge demand for unlicensed devices, a single operator or consortium of operators and equipment manufacturers could not bid in an auction for spectrum and then operate a ``private commons.´´ The licensee could sublicense equipment manufacturers and users to operate in the band and try to maximize the use of the band. This would lead to a marketplace solution to the determination of how much spectrum should be available for commons use."

FCC Adopts Report and Order Regarding Unlicensed Devices

7/8. The Federal Communications Commission (FCC) adopted, but did not release, a report and order concerning changes to several technical rules for unlicensed radiofrequency devices contained in Parts 0, 2, and 15 of its rules for unlicensed devices and equipment.

FCC staff briefly summarized the item at the FCC's July 8 meeting. The FCC issued a short press release [PDF] describing this item. This item is FCC 04-165 in ET Docket No. 03-201.

The FCC release states that this R&O "adopts rules to foster introduction of smart antenna technology that can operate at higher power levels without causing increased interference. Smart antennas will allow service to be offered over larger areas with reduced infrastructure costs. Smart antennas also permit a greater number of users to be served within the same spectrum by reusing frequencies in several directions simultaneously."

It adds that the R&O "makes modifications to rules that will facilitate deployment of next-generation Bluetooth devices, which operate at data rates up to three times faster than current devices. The new devices will be backward compatible with existing devices and will not present an interference risk to these devices."

The release also states that "The rule changes will also enable manufacturers and system operators to mix various antennas and radio transmitters without the need to obtain a separate equipment authorization for every combination. This will allow systems to be customized to meet the specific needs of each particular installation, without added costs or delays for additional equipment authorization."

FCC Chairman Michael Powell wrote in a separate statement [PDF] that "Newly-authorized smart antennas provide for increased spectrum efficiency because they allow for greater re-use of the same radio frequencies. They also will allow Wireless Internet Service Providers to pattern their coverage areas in a way that will best suit the needs of their customers in both rural and high-density areas."

The FCC adopted its NPRM on September 10, 2003. See, FCC release [PDF]. See also, story titled "FCC Announces NPRM Regarding Unlicensed Devices" in TLJ Daily E-Mail Alert No. 739, September 15, 2003. The FCC released the NPRM [35 pages in PDF] on September 17, 2003. This NPRM is FCC 03-223. See also, story titled "FCC Announces Deadlines for Comments on Unlicensed Devices NPRM" in TLJ Daily E-Mail Alert No. 800, December 16, 2003.

FCC Eliminates Pick and Choose Rule

7/8. The Federal Communications Commission (FCC) adopted, but did not release, a report and order that replaces the FCC's pick and choose rule, for negotiating interconnection agreements, with an all or nothing rule.

The FCC announced that the FCC had approved this item at the FCC meeting of July 8. However, the five Commissioners did not discuss this item, and FCC staff refused to answer questions about it at press conference following the meeting. The FCC merely released a one page press release with only two substantive paragraphs; four Commissioners released statements.

This Second Report and Order is FCC 04-164 in Docket No. 01-338. This is also the proceeding in which the FCC issued its triennial review order [576 pages in PDF], which was released on August 21, 2003.

This release states that the FCC "adopted an all-or-nothing rule that requires a requesting telecommunications carrier seeking to adopt terms in another carrier's interconnection agreement to adopt the agreement in its entirety, taking all rates, terms, and conditions from the adopted agreement."

The release elaborates that the FCC "based its decision on two key determinations. First, the Order concludes that the current pick-and-choose rule is not compelled by the language of section 252(i) of the Communications Act. Second, the Order finds that the new all-or-nothing rule will promote more give and take in negotiations, which will produce mutually beneficial agreements that will be better tailored to meet carriers' individual needs. In addition, the new rule is expected to reduce negotiation time, expenses, and possible areas of dispute, while at the same time providing adequate protection against potential discrimination. Based on these determinations, the Order concludes that the benefits of adopting the all-or-nothing rule outweigh the burdens, and therefore replaces the pick-and-choose rule."

47 U.S.C. § 252(i) provides that "A local exchange carrier shall make available any interconnection, service, or network element provided under an agreement approved under this section to which it is a party to any other requesting telecommunications carrier upon the same terms and conditions as those provided in the agreement."

The FCC adopted the "pick and choose" rule eight years ago. The Supreme Court upheld it in AT&T v. Iowa Utilities Board, 525 U.S. 366 (1999).

FCC Chairman Michael Powell wrote in a separate statement [PDF] that "One of the Commission's most important goals is to advance competition that is meaningful and sustainable, and that will eventually achieve Congress' goal of reducing regulation and promoting facilities-based competition. As carriers continue their migration away from unbundled network elements and toward increased reliance upon network elements they own and control, they will require more specialized interconnection agreements with incumbent LECs. Today's decision removes a rule that has thwarted those individualized agreements."

FCC Commissioner Kathleen Abernathy wrote in a separate statement [PDF] that "we have endured eight years of pitched regulatory battles and resource-draining litigation, and industry participants of all stripes agree that incumbent LECs and new entrants almost never engage in true give-and-take negotiations." She continued that "the “pick and choose” rule impedes marketplace negotiations and is not necessary to prevent discrimination."

Abernathy (at right) also wrote that "By requiring that competitors opt into interconnection agreements on an ``all or nothing´´ basis, we ensure that third parties take the bitter with the sweet. In doing so, I am optimistic that we will promote more meaningful negotiations. Given the almost-complete dearth of marketplace deals, this change can only improve negotiations, notwithstanding claims that it will diminish competitors' leverage."

FCC Commissioner Michael Copps wrote in a separate statement [PDF] that "I am not convinced that dismantling the pick-and-choose rule and replacing it with an all-or-nothing approach will usher in a new era of negotiation and unique commercial deals. While statements about enhancing give-and-take negotiation have intuitive appeal, their logic here is thin."

See also, separate statement [PDF] of FCC Commissioner Jonathan Adelstein.

Incumbent local exchange carriers (ILECs) are please with this report and order. Walter McCormick, P/CEO of the U.S. Telecom Association (USTA), wrote in a release that this R&O "will help bring the telecom industry closer to a market-driven environment because it will encourage companies to negotiate commercial agreements in good faith instead of allowing some carriers to exploit the system and will help promote further investment in the nation's communications infrastructure and speed the deployment of innovative services to consumers."

Similarly, BellSouth's Herschel Walker wrote in a release that "The reinterpretation of 'pick and choose' will reduce gamesmanship and thus foster more productive negotiations." He added that "The new regime will allow CLECs and BellSouth to reach interconnection agreements that better meet the unique needs of each CLEC."

In contrast, Russell Frisby, CEO of CompTel/ASCENT complained in a release that "The FCC has once again revised its rules to further limit the choices available to competitive carriers. The FCC's action is an overly broad prohibition on small carriers' ability to opt in to portions of interconnection agreements that have already been determined to be in compliance with the law." He added that "the elimination of 'pick and choose' does nothing to promote commercially negotiated agreements between small competitors and the Bells, which continually wield their control over last-mile facilities in an effort to lock alternative providers out of the market."

FCC Adopts Report and Order Regarding Interference in the 800 MHz Band

7/8. The Federal Communications Commission (FCC) adopted, but did not release, a report and order that addresses the problem of interference to 800 MHz public safety communications systems from Commercial Mobile Radio Services (CMRS) providers operating systems on channels in close proximity.

FCC staff briefly summarized the item at the FCC's July 8 meeting. Four Commissioners wrote separate statements. The FCC issued a press release [4 pages in PDF] describing this item.

FCC Chairman Michael Powell explained the nature of the problem in a separate statement [PDF]. "Because of the interleaved nature of the band and the close proximity of incompatible technologies, over the years, these systems have encountered escalating amounts of interference from commercial cellular systems." See also, press statement of Chairman Powell.

The FCC release states that the report and order provides that Nextel will return its interference causing spectrum, and in return, will be given 10 megahertz of spectrum, located at 1910–1915 MHz and 1990-1995 MHz, subject to further conditions.

The FCC release provides this explanation. "To accomplish the reconfiguration, the Commission will require Nextel to give up rights to certain of its licenses in the 800 MHz band and all of its licenses in the 700 MHz band. In exchange, the Commission will modify Nextel’s licenses to provide the right to operate on two five-MHz blocks in a different part of the spectrum -- specifically 1910–1915 MHz and 1990-1995 MHz -- conditioned on Nextel fulfilling certain obligations specified in the Commission's decision."

It continues that "The Commission determined that the overall value of the 1.9 GHz spectrum rights is $4.8 billion, less the cost of relocating incumbent users. In addition, the Commission concluded that it would credit to Nextel the value of the spectrum rights that Nextel will relinquish and the actual costs Nextel incurs for to relocate all incumbents in the 800 MHz band. To the extent that these combined credits total less than the determined value of the 1.9 GHz spectrum rights, Nextel will make an anti-windfall payment to the United States Department of the Treasury at the conclusion of the relocation process equal to the difference".

It further states that "To ensure that the band reconfiguration process will be completed, the Commission will require Nextel to establish certain escrow accounts and a letter of credit in the amount of $2.5 billion specifically to ensure adequate funding of relocation costs for other 800 MHz incumbents. Similarly, as a new entrant in the 1.9 GHz band, Nextel is also obligated to fund the transition of incumbent users to comparable facilities."

The Commission vote was 5-0.

Nextel's wireless competitors are not pleased. Moreover, Chairman Powell, who spoke with reporters after the meeting, conceded that the report and order may be challenged in court.

Steve Largent, P/CEO of Cellular Telecommunications and Internet Association (CTIA), criticized the FCC's report and order. He wrote in a release that "The FCC clearly didn’t keep its eye on the ball. Its primary responsibility in this case is to look out for Public Safety and the American public and that didn’t happen ... It is unfortunate that the Commission’s plan does less to solve the Public Safety interference problem than other alternatives that were available. Among all of the FCC's choices, this one provides Public Safety with the fewest assurances of success."

Largent also wrote that "Giving up such valuable spectrum without a public auction means the U.S. Treasury is losing billions of dollars. Those funds could’ve been used to provide Public Safety with money to make much-needed improvements in the vital care it provides all of us".

FCC Commissioner Kathleen Abernathy wrote in a separate statement [PDF] that "the rebanding plan is costly, complex and, in some respects, controversial", but, "it is the only the solution that adequately addresses the needs of public safety while realigning other uses of the 800 MHz band."

See also, separate statement [PDF] of FCC Commissioner Michael Copps and separate statement [PDF] of FCC Commissioner Jonathan Adelstein supporting the report and order.

Mark Cooper, of the Consumer Federation of America, praised the FCC's report and order. He wrote in a release that "Adoption of this plan not only solves the public safety interference issue without any cost to taxpayers or governmental entities, it does so while maintaining a platform for strong, independent competition among wireless providers. I support the FCC decision to resolve the 800 MHz issue for the same reasons I oppose the AT&T Wireless merger with Cingular: the continuing need for strong, independent competitors. Competition is imperative in the wireless industry, especially as the Baby Bells attempt to lock down as much spectrum as they can."

Cooper added that "I believe this action provides for that long-awaited solution, and urge an immediate end to the anti-competitive tactics from companies who have sought to thwart and delay this result. Any attempt to further delay implementation of this decision comes at the expense of emergency services personnel, and the public they protect.  I urge Verizon and others, who seemingly wants to continue to stand in the way of the interests of public safety and competition, to continue their battle in the marketplace and not in the courtroom."

John Muleta answered questions from reporters at a press conference after the meeting. He was asked when the FCC will release the report and order. Muleta stated that "our expectation is to work on this as expeditiously as possible". He offered no guidance as to when the FCC would release the report and order.

Chairman Powell also wrote in his press statement that "The proceeding has seen some of the most ruthless lobbying I have ever encountered." The characterization "ruthless" may be an understatement. See, for example, comments and ex parte communications submitted to the FCC, and published in the FCC's web site. These may be accessed via the FCC's web page titled "Search for Filed Comments". Enter the proceeding number: 02-55.

For example, William Barr, EVP and General Counsel of Verizon, wrote in a letter [32 pages in PDF with attachments] to Chairman Powell that "adopting either plan would contravene the requirements of the Communications Act of 1934, as amended, concerning the Commission's disposition of public spectrum. More than that, proceeding on this course would place the Commission's members themselves in direct violation of federal laws governing the personal accountability of federal officials for the disposition of federal resources. While the Commission is familiar with the Communications Act, I believe it may not be as well acquainted with these latter proscriptions, some of which are criminal in nature."

See also, American Bar Association Formal Opinion 92-363 relating to the Use of Threats of Prosecution in Connection with a Civil Matter.

This item is titled "Report and Order, Fourth Report and Order, Memorandum Opinion and Order, and Order". It is FCC 04-168 in WT Docket No. 02-55, ET Docket No. 00-258, RM-9498, RM-10024, ET Docket No. 95-18, and IB Docket No. 01-185.

Monti Addresses Competition Policy and New Media

7/8. Mario Monti, the European Commissioner for Competition Policy, gave a speech in Brussels, Belgium titled "Access to content and the development of competition in the New Media market- the Commission’s approach".

Monti (at right) said that "one concern of competition authorities should be to ensure that media content can be provided over new networks and not just the traditional ones. I am not only thinking about the new 3G mobile networks but also broadband DSL and cable connections to the Internet."

He concluded that "the Media sector is, and will remain, on the top of the agenda for the application of European competition policy. Across Europe the Commission will carefully monitor market developments and act wherever we detect foreclosure of markets. Availability of attractive content - notably sports (football) rights but also music, film rights and anything that will be considered as an attractive content in the future – will continue to be kept under close scrutiny using all the powerful legal instruments that the recent modernisation of the antitrust rules has put at our disposal. This is of course even more true for the new media whose rapid and undisturbed development is one of the major goals for the Commission in the next years. We are doing and will do all that is in our power to achieve this goal."

Senate Democrats Block Class Action Fairness Act

7/8. The Senate failed to pass a motion to invoke cloture on S 2062, the "Class Action Fairness Act of 2004", on a vote of 44-43. See, Roll Call No. 154. This effectively blocks Senate passage of the bill.

The vote broke down largely along party lines, with Republicans supporting the motion, and Democrats opposing it. Senate Democrats lack the votes to defeat this bill on an ordinary majority vote. So, they have utilized a filibuster. Filibusters can be terminated by a cloture vote. However, cloture motions required a three fifths majority to pass. See, Senate Rule No. 22.

Senate Democrats also defeated a cloture motion last year. On October 22, 2003, the Senate rejected a motion to invoke cloture on S 1751, the "Class Action Fairness Act of 2003", by a vote of 59-39. See, Roll Call No. 403. See also, story titled "Senate Rejects Class Action Fairness Act" in TLJ Daily E-Mail Alert No. 764, October 23, 2003.

On June 12, 2003, the House passed its version of the bill, HR 1115, also titled the "Class Action Fairness Act", by a vote of 253-170. See, Roll Call No. 272. See also, stories titled "House Passes Class Action Fairness Act" in TLJ Daily E-Mail Alert No. 680, June 13, 2003, and "Reps. Goodlatte and Boucher Re-Introduce Class Action Fairness Act" in TLJ Daily E-Mail Alert No. 619, March 10, 2003.

Stanton Anderson, of the U.S. Chamber of Commerce and the Class Action Fairness Coalition, stated in a release that "Although we are disappointed at the procedural gimmicks that continue to stymie an up-or-down vote on the bill, we remain committed to passing this reasonable and vital piece of legislation this year."

House Commerce Subcommittee Holds Hearing on Stock Options Bill

7/8. The House Commerce Committee's Subcommittee on Commerce, Trade and Consumer Protection held a hearing titled "FASB Proposals on Stock Option Expensing". Members of the Subcommittee disagreed about the merits of the bill, but were in agreement that the House Commerce Committee should aggressively assert jurisdiction on this issue.

This was neither a legislative hearing on HR 3574, the "Stock Option Accounting Reform Act", which was overwhelmingly approved by the House Financial Services Committee last month, nor a markup of the bill. The House Commerce Committee has asserted jurisdiction, but not yet received a referral by the House Parliamentarian.

See, full story.

House Passes CJS Appropriations Bill

7/8. The House passed HR 4754, the "Commerce, Justice, State and the Judiciary Appropriations Act, 2005" by a vote of 397-18. See, Roll Call No. 346.

The House rejected an amendment offered by Rep. Bernie Sanders (S-VT) pertaining to Section 501 of the Foreign Intelligence Surveillance Act (FISA), which was amended by the USA PATRIOT Act. The amendment failed on a vote of 210-210-1. See, Roll Call No. 339. The vote broke down largely on party lines, with Republicans opposing the amendment, and Democrats supporting it.

The amendment would have added a new Section 801 to the appropriations bill providing that "None of the funds made available in this Act may be used to make an application under section 501 of the Foreign Intelligence Surveillance Act of 1978 (50 U.S.C. 1861) for an order requiring the production of library circulation records, library patron lists, library Internet records, book sales records, or book customer lists."

§ 215 of the PATRIOT Act rewrote § 501 of the FISA, which is codified in Title 50 as § 1861. It pertains to "Access to Certain Business Records for Foreign Intelligence and International Terrorism Investigations". § 215 (of the PATRIOT Act) replaced §§ 501-503 (of the FISA) with new language designated as §§ 501 and 502.

Currently, § 501 (as amended by § 215) requires that an application to a judge or magistrate "shall specify that the records concerned are sought for an authorized investigation conducted in accordance with subsection (a)(2) to obtain foreign intelligence information not concerning a United States person or to protect against international terrorism or clandestine intelligence activities." While the statute does not expressly include library records, it is not disputed that library records could be obtained under § 501.

Also, Rep. Butch Otter (R-ID) offered, but later withdrew, an amendment to the appropriations bill that would have amended 18 U.S.C. § 3103a, which pertains to delayed notification of search warrants, which critics refer to as "sneak and peak". This is another provision that was amended by the PATRIOT Act.

More Capitol Hill News

7/8. The House Judiciary Committee's Subcommittee on Courts, the Internet, and Intellectual Property amended and approved HR 4586, the "Family Movie Act of 2004", by a vote of 11-5. This bill would permit home viewers of DVDs to use software that filters out certain types of content. The Subcommittee made minor technical changes to the bill as introduced. The vote roughly followed party lines. Republicans and Rep. Zoe Lofgren (D-CA) voted for the bill. Rep. Howard Berman (D-CA), the ranking Democrat on the Subcommittee, and other Democrats, voted against the bill.

7/8. The House Ways and Means Committee approved HR 4759 by voice vote. The House is scheduled to consider HR 4759 on either July 14 or 15. See, Republican Whip Notice.

7/8. The American Electronics Association (AeA) wrote a letter to members of the House urging them to vote for HR 3574, the "Stock Option Accounting Reform Act". The Republican Whip Notice for the week of July 12-16  does not list this bill. The House Commerce Committee, which is seeking jurisdiction over the bill, held a hearing on stock options accounting on July 8, 2004. See, story titled "House Commerce Subcommittee Holds Hearing on Stock Options Bill" in TLJ Daily E-Mail Alert No. 934, July 9, 2004. On June 15, 2004, the House Financial Services Committee approved the bill by a vote of 45-13. See, story titled "House Financial Services Committee Approves Stock Options Bill" in TLJ Daily E-Mail Alert No. 919, June 16,  2004. See also, story titled "Capital Markets Subcommittee Approves Stock Options Bill" in TLJ Daily E-Mail Alert No. 897, May 13, 2004.

FTC Reports on Marketing of Violent Games, Movies and Music to Children

7/8. The Federal Trade Commission (FTC) released a report [100 pages in PDF] to the Congress titled "Marketing Violent Entertainment to Children" and subtitled "A Fourth Follow-up Review of Industry Practices in the Motion Picture, Music Recording & Electronic Game Industries".

The FTC's original report, released in 2000, found that "these entertainment industries had engaged in widespread marketing of violent movies, music, and electronic games to children that was inconsistent with the cautionary messages of their own parental advisories and that undermined parents’ attempts to make informed decisions about their children’s exposure to violent content." It also found that "advertisements for such products frequently failed to contain rating information."

This latest report states that "For the electronic game industry, the Commission’s ongoing ad monitoring and its review of company marketing documents found substantial, but not universal, compliance with industry standards limiting ad placements for M-rated games where children under 17 constitute a certain percentage of the audience – 35 percent for television and 45 percent for print. Nonetheless, these standards do not prevent the placement of ads in television programs and in game enthusiast magazines with substantial teen audiences. Advertising for M-rated games continues to appear in such media."

For the movie industry, the FTC's latest report states that the FTC's "review of internal marketing documents and ad placements for selected R-rated films showed that studios did not target advertising for those films at children under 17, and, for the most part, did not advertise those films in media with an under-17 audience share over 35%. The studios continue to advertise violent, R-rated films and DVDs on programs with large teen viewership, however. In addition, some studios have conducted promotions for R-rated films in venues likely to attract significant numbers of young teens, an apparent resurgence of a practice that previously had decreased."

For the music industry, the FTC's latest report states that the FTC's "review of ad placements for parental advisory-labeled music showed that the music industry has substantially curtailed advertising in print media popular with teens but continues to place ads on television shows with substantial teen audiences, primarily on cable music channels." It adds that the FTC "found improvement in the music industry's disclosure of labeling information in print and television advertising, the industry’s compliance with labeling requirements for product packaging has improved only slightly since September 2000."

See also, FTC release.

People and Appointments

7/8. Steve Burke was named Chief Operating Officer of Comcast Corporation. He has been President of Comcast Cable since 1998. He previously worked for Walt Disney Company. In addition, Dave Watson was named EVP, Operations at Comcast Cable, and Mike Tallent was named EVP, Finance and Administration at Comcast Cable. See, Comcast release.

7/8. Derek Harrar was named VP of Business Development at Comcast Cable. See, Comcast release. Alexandra Soumbeniotis was promoted to National Director, Partnership Sales, at Comcast Cable. See, Comcast release.

7/8. The Software & Information Industry Association (SIIA) announced the election of new members of its Content Division's Board of Directors. See, release [PDF].

7/8. William Deere was named VP -- Government Affairs of the U.S. Telecommunications Association (USTA). He was previously Deputy Assistant Secretary in the State Department's Bureau of Legislative Affairs. See, USTA release.

More News

7/8. The Department of Justice (DOJ) filed its Plaintiffs' Proposed Findings of Fact [long download, redacted, PDF] and Plaintiffs' Proposed Conclusions of Law in the federal government's antitrust action against Oracle to block its proposed acquisition of PeopleSoft. This case is U.S. v. Oracle, U.S. District Court for the Northern District of California, San Francisco Division, D.C. No. C 04-0807 VRW, Judge Vaughn Walker presiding.

7/8. At the Federal Communications Commission's (FCC) July 8, 2004 meeting, Dane Snowden, Chief of the FCC’s Consumer & Governmental Affairs Bureau, presented a report [23 pages in PDF] on an FCC program titled "Lands of Opportunity: Building Rural Connectivity". He discussed FCC efforts in Appalachia, in the Mississippi valley, in rural Alaska, and in Indian country in the western states. See, FCC release [PDF].

FTC Rules Noerr-Pennington Doctrine Does Not Block Antitrust Action for False Representations Regarding Patents During Standards Setting Process

7/7. The Federal Trade Commission (FTC) issued an order [2 pages in PDF] titled "Order Reversing and Vacating the Initial Decision and Order and Remanding for Further Proceeding" in the FTC's proceeding titled "In the Matter of Union Oil Company of California". The full Commission reversed an administrative law judge's decision that the Noerr-Pennington doctrine prevents the FTC from pursing an antitrust enforcement action against Union Oil Company of California (Unocal) in connection with its making false representations to a government standards setting body regarding its patent rights.

The FTC also issued an opinion [56 pages in PDF] explaining its order. See also, FTC release.

This is an oil industry action. However, this will also affect the application of antitrust laws to technology companies that engage in misrepresentation regarding their patents and patent applications in standards setting processes.

See, full story.

Rep. Cox Urges Bush to Instruct IRS Not to Expand Excise Tax on Phones

7/7. Rep. Chris Cox (R-CA) wrote a letter to President Bush regarding the Internal Revenue Service's (IRS) efforts to expand the existing excise tax on telephones to apply to new technologies, such as voice over internet protocol (VOIP). Rep. Cox urged the President "to direct the IRS immediately to affirm that this 100-year-old tax does not apply to the Internet, but only to traditional analog voice services".

On July 2, 2004 the Internal Revenue Service (IRS) published a vaguely worded and short notice in the Federal Register which it identified as an "advance notice of proposed rulemaking". This notice stated that the IRS seeks comments on expanding the current three percent excise tax on telephone service to new "communications services" to "reflect changes in technology".

The notice reveals that the IRS may be considering promulgating a rule that expands the tax to include any or all voice over internet protocol (VOIP) services, applications, or technologies, or any other IP based communications. See, story titled "IRS Publishes Advance NPRM Regarding Expanding the Excise Tax on Telephones to Include New Technologies" in TLJ Daily E-Mail Alert No. 931, July 6, 2004.

26 U.S.C. § 4251 provides that "There is hereby imposed on amounts paid for communications services a tax equal to ... 3 percent".

The IRS notice asserts that "Since 1965, numerous communications services have been developed and marketed, the methods of transmission have expanded, and the industry has been deregulated. As a result of these changes, questions have arisen concerning the application of section 4251 to certain communications services that were not available in 1965. In response to these questions, Treasury and the IRS are considering proposing regulations that would revise the existing regulations to reflect changes in technology."

The IRS's notice adds that the purpose of the notice is "to solicit information from the public on how present technology should be treated within the description of telephonic or telephonic quality communication in the definitions of local and toll telephone service under section 4252." See, Federal Register, July 2, 2004, Vol. 69, No. 127, at Page 40345.

Rep. Cox (at right), who is the Chairman of the Homeland Security Committee, and a senior member of the House Commerce Committee, and its Subcommittee on Telecommunications and the Internet, wrote to President Bush that "Your advocacy of a permanent ban on Internet access taxes and your determination to remove regulatory obstacles to broadband deployment are critical ingredients in America’s continued economic success. Yet as clear as your clarion call for freedom and innovation has been, it appears that some in the administration still aren't getting the message."

Rep. Cox wrote that "The attached story from News.com describes an IRS decision to consider putting new taxes on the Internet -- specifically, by extending to the Internet the Spanish-American War Tax on telephone service enacted more than one hundred years ago." See, story by Declan McCullagh titled "IRS eyes Net phone taxes".

Rep. Cox added that "Ironically, Republicans in Congress have been working hard to abolish this tax completely. When it comes to consumer excise taxes, only alcohol and tobacco are taxed more heavily at the federal level than phone service. Telephone customers are then hit with state and local tax rates that can run up to three times the rates paid on other goods."

He concluded that "I can think of few initiatives that would do more to impede the Bush broadband agenda than extending the Spanish-American War Tax to Internet telephony. I urge you to direct the IRS immediately to affirm that this 100-year-old tax does not apply to the Internet, but only to traditional analog voice services."

Michael Powell Starts a Web Log

7/7. Federal Communications Commission (FCC) Chairman Michael Powell commenced the publication of a web log on July 7, 2004 on the Always On web site.

In his first posting, Powell argued for minimal regulation of new technologies, and encouraged the high tech community to become engaged in policy debates that affect it.

Powell's web log provides an opportunity for readers to post responses. The responses as of July 10 were notably pro regulatory, with most commentors urging the FCC to increase its regulation.

Powell (at right) wrote that "Traditionally, the economic justification for government regulation of an industry was market failure such as monopoly, negative externalities, or unmet social goals. Government's role in the marketplace should be limited because markets and entrepreneurs develop innovative solutions far more efficiently than regulators can. This is the principle behind opening the communications sector to competition. I am particularly mindful of this principle as new competitive services -- VoIP, for example -- become viable alternatives for customers."

He continued that "Un- or less-regulated competition has been a hard pill to swallow for most incumbents (as well as many regulators) who legitimately question the regulatory disparity between themselves and startups. But the correct answer is not to regulate new firms the same way incumbents have traditionally been regulated. The answer is to ``regulate down´´ as markets become competitive. Specific market failures that arise, if any, should be addressed with targeted and specific remedies. My policy toward regulating nascent communications services is thus self-reinforcing: for example, a light regulatory touch can bring VoIP services to market faster and the competitive effects, in turn, allow us to deregulate traditional service providers."

Powell also wrote that "The high-tech community traditionally shied away from regulatory debates at the FCC and state regulatory commissions", but that "it is critical that the high-tech community understand the issues and engage them."

Powell also explained that "One reason I am participating in AlwaysOn Network's blog is to hear from the tech community directly and to try to get beyond the traditional inside the Beltway Washington world where lobbyists filter the techies. I am looking forward to an open, transparent and meritocracy-based communication -- attributes that bloggers are famous for! Regulated interests have about an 80 year head start on the entrepreneurial tech community when it comes to informing regulators what they want and need, but if anyone can make up for that, Silicon Valley can."

Numerous persons have posted comments on Powell's web log. These comments may not be representative of the readers of his web log, or the high tech community that Chairman Powell seeks to engage. Nevertheless, the comments are notable to the extent that most urge the FCC to expand regulation.

For example, one person wrote that "Regulation is necessary to the extent that we should protect the interests of small business over big business, mainly because smaller companies need the protection from larger more powerful companies."

Another wrote that "My diagnostic is that the USA is blindsighted by this ideology of the deregulated markets apparently opened to the benefits of the entrepreneurs. The reality as you well know is money and lobbyes with deep pockets and lots of lawyers. Spectrum bullies and likes. The myth of the entrepreneurs is just a myth when you start dealing with real complex problems like deploying broadband, VOIP or HDTV. I sincerely hope you have learnt your mistakes on this BPL crap in regards to the dangers of deregulated markets." (All errors in spelling, syntax and usage in original.)

Another person wrote about the Regional Bell Operating Companies. "Market failure such as monopoly is the justification for government regulation. Therefore, there was a need for government regulation in 1984, 1996 and still today."

Several commentors opposed spectrum markets and/or spectrum auctions. Wrote one person, "Unregulated airways produce chaos."

There were numerous comments opposing relaxation of the regulation of media ownership.

Some argued that the FCC must prohibit broadband over powerline (BPL) services.

Several commentors expressed their distain for the property rights of service providers and content producers. For example, one commentor wrote that "WiFi is a God-given right, it should be free". Another wrote that the FCC should "Create opportunities for independent broadcasting, tiny web radio stations (without the crippling from CARP fees)". (Parentheses in original.)

Many of the suggestions transcended any proposals currently pending in Washington DC. For example, one person suggested that the FCC regulate software. He wrote that "There is high quality inovation, and then there is low quality inovation. The FCC should set standards for the inovation process for communications systems. Software for these inovations should be developed under a process like RTCA DO-178B. The programs should have well written development plans. Standards should be set for documentation of new inovation submittals. Hardware should go through a formal development planning, design, and qualification process with formal documentation. Without these steps, the process is much less likely to be repeatable, and more likey to be error prone. A formal safety analysis of the new system should be done as well."

The Department of Justice has proposed that the FCC pre-approve new communications technologies in the FCC's CALEA proceeding. However, almost all commentors in that proceeding that addressed this subject roundly criticized the proposal, except companies that stand to profit from selling surveillance products.

Another commentor wrote that the FCC should " 'force' these telcos into turning on their fiber and thereby lowering the costs of bandwidth."

Another commenter wrote that "Perhaps the FCC could come up with a formula that rewards the established carriers based on service levels and pricing advantages -- in other words, providers who meet or exceed meaningful thresholds for affordability and customer service would have to subsidize new competitors less."

Very few commentors argued for minimal regulation. However, there was one area where many commentors supported less regulation. They do not want the FCC to fine Howard Stern.

FCC Proposes That Broadcasters Retain Recordings To Facilitate Enforcement of Smut Ban

7/7. The Federal Communications Commission (FCC) released a notice of proposed rulemaking (NPRM) [11 pages in PDF] that proposes rules that would "require that broadcasters retain recordings of their programming for some limited period of time (e.g., 60 or 90 days)".

The purpose of this is to facilitate investigations in enforcement proceedings against licensees that broadcast indecent, obscene or profane material, in violation of 18 U.S.C. § 1464. This statute provides that "Whoever utters any obscene, indecent, or profane language by means of radio communication shall be fined under this title or imprisoned not more than two years, or both".

Broadcast of material that may violate § 1464 often comes to the attention of the FCC via outraged viewers and listeners, who submit complaints, but not recordings or transcripts, to the FCC. Licensees then often offer defenses based upon there being no recording or transcript in the proceeding record.

The NPRM states that "we seek comment on enhancing our enforcement processes through proposed program recording retention requirements for broadcast stations in order to improve the adjudication of complaints." The FCC seeks comments on issues such as the duration of the retention of recordings, whether First Amendment rights are implicated, and whether requiring recordings would result in the infringement of any copyrights.

Commissioner Michael Copps wrote in a separate statement [PDF] that "The process by which the FCC has enforced the indecency laws has for too long placed inordinate responsibility upon the complaining citizen. When someone sends in a complaint, he or she is usually told to supply a recording of the program or a transcript of the offending statement, or the complaint will be dismissed. This policy ignores that it is the "Commission’s responsibility to investigate complaints that the law has been violated, not the citizen’s responsibility to prove the violations."

Public comments are due by July 30, 2004. Reply comments are due by August 30, 2004.

The FCC adopted this NPRM on June 21, 2004, but did not announce or release it until July 7. This is FCC 04-145 in MB Docket No. 04-232.

FTC Charges Web Site Operator with Violation of Privacy Policy

7/7. The Federal Trade Commission (FTC) filed an administrative complaint [6 pages in PDF] against Gateway Learning Corporation alleging violation Section 5(a) of the Federal Trade Commission Act (FTCA) in connection with its alleged violation of a privacy policy that it published in its web site. The FTC and Gateway also simultaneously entered into an Agreement Containing Consent Order [7 pages in PDF].

While the FTC does have limited statutory authority to regulate privacy practices in the context of the operation of web sites, such as that contained in the Children's Online Privacy Protection Act (COPPA), there is no general statute regulating the privacy practices all web site operators. The FTC, however, does consider it to be an unfair and deceptive trade practice within the meaning of Section 5(a) of the FTCA if a web site operator publishes a privacy policy in its web site, and then violates that privacy policy.

Section 5(a) of the FTCA, which is codified at 15 U.S.C. § 45, provides, in part, that "Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful."

The complaint states that Gateway sells products under the name "Hooked on Phonics". It also maintains a web site, in which it published a privacy policy. This policy stated that "We do not sell, rent or loan any personally identifiable information regarding our consumers with any third party unless we receive a customer’s explicit consent. We do share information with third parties that help us run our operations or provide services to customers (e.g., credit card processing and shipping companies), but only to the extent necessary to provide these services."

The complaint continues that subsequently Gateway "began renting personal information provided by consumers on the Gateway Learning Web site, including first and last name, address, phone number, and purchase history, without seeking or receiving any form of consent from such consumers."

The complaint continues that still later Gateway amended to privacy policy to disclose that it did share personal information, and that web site users could opt out of this sharing by providing a request to Gateway.

The FTC stated in a release that "This is the first FTC case to challenge deceptive and unfair practices in connection with a company's material change to its privacy policy."

GAO Finds Error Prone IT Environment at DOD

7/7. The General Accounting Office (GAO) released its prepared testimony [pages in PDF] titled "Department of Defense: Long-standing Problems Continue to Impede Financial and Business Management Transformation".

This report states that "DOD has little or no assurance that current business systems investments are being spent in an economically efficient and effective manner. DOD's current systems funding process has contributed to the evolution of an overly complex and error-prone information technology environment containing duplicative, nonintegrated, and stovepiped systems. Given that DOD spends billions of dollars annually on business systems and related infrastructure, it is critical that actions be taken to gain more effective control over such business systems funding." (See, page 33.)

This prepared testimony also examines a range of other problems with the DOD's business management systems. It was prepared for the House Committee on Government Reform.

House Begins Consideration of CJS Appropriations Bill

7/7. The House began its consideration of HR 4754, the "Commerce, Justice, State and the Judiciary Appropriations Act, 2005" shortly after noon. Shortly before midnight, it postponed further consideration until Thursday, July 8.

Many of the agencies that are responsible for technology related matters are funded by this CJS bill. These include the Federal Communications Commission (FCC) and the Federal Trade Commission (FTC).

Also covered are the Department of Commerce (DOC), and its National Telecommunications and Information Administration (NTIA), U.S. Patent and Trademark Office (USPTO), National Institute of Standards and Technology (NIST), and Bureau of Industry and Standards (BXA/BIS). Also covered are the Department of Justice (DOJ), and its Federal Bureau of Investigation (FBI), Antitrust Division and Computer Crimes and Intellectual Property Section (CCIPS).

The USPTO section provides, in part, that "For necessary expenses of the United States Patent and Trademark Office provided for by law, including defense of suits instituted against the Under Secretary of Commerce for Intellectual Property and Director of the United States Patent and Trademark Office, $1,314,653,000, which shall be derived from offsetting collections assessed and collected pursuant to 15 U.S.C. 1113 and 35 U.S.C. 41 and 376, and shall be retained and used for necessary expenses in this appropriation: Provided, That the sum herein appropriated from the general fund shall be reduced as such offsetting collections are received during fiscal year 2005, so as to result in a fiscal year 2005 appropriation from the general fund estimated at $0: Provided further, That during fiscal year 2005, should the total amount of offsetting fee collections be less than $1,314,653,000, this amount shall be reduced accordingly:"

The FTC section provides that $203,430,000 is appropriated for expenses. It also contains language regarding the telemarketing sales rule (TSR). It states that "Provided further, That $21,901,000 in offsetting collections derived from fees sufficient to implement and enforce the Telemarketing Sales Rule, promulgated under the Telephone Consumer Fraud and Abuse Prevention Act (15 U.S.C. 6101 et seq.), shall be credited to this account, and be retained and used for necessary expenses in this appropriation".

More Capitol Hill News

7/7. The House amended and passed HR 4218, the "High-Performance Computing Revitalization Act of 2004", by voice vote.

7/7. The House amended and passed HR 4516, "Department of Energy High-End Computing Revitalization Act of 2004", by voice vote.

7/7. The House Judiciary Committee's Subcommittee on Courts, the Internet and Intellectual Property amended and approved by voice vote HR 4518, the "Satellite Home Viewer Extension and Reauthorization Act of 2004".

7/7. The House Ways and Means Committee held a hearing on implementation of the United States-Morocco Free Trade Agreement. See, opening statements and prepared testimony.

People and Appointments

7/7. President Bush nominated Keith Starrett to be a Judge of the U.S. District Court for the Southern District of Mississippi. This is the Judgeship previously held by Judge Charles Pickering. Bush made a recess appointment on January 16, 2004 of Judge Pickering to the U.S. Court of Appeals for the 5th Circuit. See, story titled "Bush Gives Judge Pickering a Recess Appointment" in TLJ Daily E-Mail Alert No. 818, January 19, 2004. See also, White House release of July 7, 2004.

7/7. President Bush met with, and gave a speech in support of, three men nominated by him for federal judgeships in North Carolina -- Judge Terrence Boyle, Robert Conrad, and Magistrate Judge Jim Dever. Senate Democrats are blocking consideration of their nominations. Judge Boyle, who is the Chief Judge of the U.S. District Court for the Eastern District of North Carolina, has been nominated to be a Judge of the U.S. Court of Appeals for the 4th Circuit. Conrad and Dever have been nominated to be U.S. District Court Judges. Bush stated that "Their nominations are being held up, and it's not right and it's not fair. The people of North Carolina deserve better. These judges deserve better treatment in the United States Senate. A minority of senators apparently don't want judges who strictly interpret and apply the law. Evidently, they want activist judges who will rewrite the law from the bench. I disagree. Legislation should come from the legislative branch, not from the judiciary." Bush also gave numerous speeches, particularly in Southern states, during the 2002 midterm elections, in which he raised the issue of judicial nominations. See also, White House release.

7/7. President Bush met with, and gave a speech in support of, six persons nominated by him to for federal judgeships in Michigan. Judge David McKeague, Henry Saad, Susan Neilson, and Richard Griffin have been nominated to be Judges of the U.S. Court of Appeals for the 6th Circuit. Judge McKeague is a Judge of the U.S. District Court for the Western District of Michigan. Thomas Ludington and Daniel Ryan have been nominated to be a Judges of the U.S. District Court for the Eastern District of Michigan. Senate Democrats are blocking consideration of their nominations.

More News

7/7. The Business Software Alliance (BSA) released a report on global software piracy. See, BSA release.

Rep. Stearns and Rep. Boucher Introduce VOIP and Internet Regulation Bill

7/6. Rep. Cliff Stearns (R-FL) and Rep. Rick Boucher (D-VA) introduced HR 4757, the "Advanced Internet Communications Services Act of 2004".

Rep. Boucher (at right) stated that "Our goal is to treat all advanced IP applications, including VoIP, with a light regulatory touch. Since every Internet user who is equipped for advanced services will have a broad choice of service providers, the services will be highly competitive. Accordingly, the regulations which have governed monopoly telephone networks should not apply to new competitive Internet-based technology." See, transcript and Rep. Boucher's summary of the bill.

The bill defines two types of services. First, it creates the class of "advanced Internet communications service", or AICS. It defines this as "an IP network and the associated capabilities and functionalities, services, and applications provided over an Internet protocol platform or for which an Internet protocol capability is an integral component, and services and applications that enable an end user to send or receive a communication in Internet protocol format, regardless of whether the communication is voice, data, video, or any other form."

Second, it creates the subclass of "advanced Internet communications voice service", or AICVS. It defines this as "an advanced Internet communications service that is offered to the public for a fee, and that provides real-time voice communications, and in which that voice component is the primary function of the service."

The bill then specifies the regulatory treatment of AICS and AICVS. First, it provides that an AICS (and hence an AICVS) "shall be considered an interstate service". This would have the effect of prevented states from regulating these services.

Second, the bill provides that an AICS "shall be considered neither a telecommunications service nor an information service for purposes of the Communications Act of 1934". Telecommunications services and information services are existing regulatory categories that are addressed in the Communications Act, FCC orders, and court opinions. The effect of this bill would be to remove an AICS from these regulatory categories.

The bill then goes on to provide how an AICS is to be regulated. First, the bill provides that, except as provided in the bill, neither the FCC nor any state "may regulate the rates, charges, terms, or conditions for, or entry into, or exit from, the provision of, any advanced Internet communications service."

The bill then limits the regulation of an AICS to four areas -- E–911 services, disabilities access, universal service taxation, and providing "just and reasonable compensation for use of the public switched telephone network", that is, intercarrier compensation.

This list notably omits reference to modification of technologies to facilitate surveillance by law enforcement entities, or the Communications Assistance for Law Enforcement Act (CALEA).

The bill also omits reference to privacy and consumer protection. However, Rep. Boucher stated that "The bill does not prohibit the states or the federal government from assuring consumer protections incident to the offering of Internet-based communications services."

The bill further provides that the FCC, which is given rule making authority, shall ensure that in applying these four types of regulation, that the requirements and obligations "apply equally to all providers of advanced Internet communications voice services".

The bill also provides that neither the FCC nor any state "may regulate the underlying Internet Protocol transmission networks, facilities, or equipment that support or transmit any advanced Internet communications voice service in a manner that results in the unequal application of regulation to any Internet Protocol network, facilities, or equipment as compared to any other such network, facilities, or equipment."

Rep. Stearns stated in a release that "In 2003, the State of Florida chose to allow VOIP to develop free from unnecessary regulation. The Legislature felt that such action was in the public interest and I believe it was the proper course of action ... This bill goes a step further by removing Advanced Internet Communications Services from debate that exists in whether to classify AICS as an information service or telecommunications service. Furthermore, by establishing that AICS are interstate services, we eliminate the regulatory uncertainty of a myriad of different state regulatory approaches which would impede investment in these new services".

The bill was referred to the House Commerce Committee. Both Rep. Stearns and Rep. Boucher are senior members of the Committee.

The end of the current session of the Congress is near. It is highly unlikely that this bill, or any related bill, would be enacted in the little remaining time of the 108th Congress.

Indeed, Rep. Boucher stated that "Mr. Stearns and I are seeking to frame the debate on advanced Internet communications regulation, including VoIP regulation, in anticipation of a broader telecommunications overhaul in the Congress beginning in 2005. By suggesting basic ground rules today, we are hoping to make a substantial contribution to the rewriting of the 1996 Telecommunications Act."

Other bills that would address some of the same issues addressed by this bill include S 2281, the "VOIP Regulatory Freedom Act of 2004", sponsored by Sen. John Sununu (R-NH), and HR 4129, also titled the "VOIP Regulatory Freedom Act of 2004", sponsored by Rep. Chip Pickering (R-MS).

See, story titled "Sununu and Pickering Introduce VOIP Regulatory Freedom Bills" and story titled "Summary of VOIP Regulatory Freedom Bills", both published in TLJ Daily E-Mail Alert No. 872, April 8, 2004.

DC Circuit Uphold's FCC's $6 Million Fine of SBC for Violating Unbundling Provision in SBC/Ameritech Merger Approval Order

7/6. The U.S. Court of Appeals (DCCir) issued its opinion [PDF] in SBC v. FCC, denying a petition for review of the Federal Communications Commission's (FCC) $6 Million fine of SBC Communications for violating the terms of the order of the FCC approving of the merger of SBC and Ameritech.

The FCC released its Forfeiture Order on October 9, 2002. It fined SBC $6 Million for "violating a competition related condition that the FCC imposed when it approved the 1999 merger of SBC and Ameritech Corporation". It fined SBC for violating a provision pertaining to unbundling requirements of incumbent local exchange carriers (ILECs) under 47 U.S.C. § 251.

This is EB-01-IH-0030. See also, story titled "SBC Fined $6 Million for Failing to Provide Shared Transport" in TLJ Daily E-Mail Alert No. 527, October 10, 2002.

SBC argued in its petition for review that the forfeiture order violates the Fifth Amendment due process clause because SBC was not on fair notice of the duties under the merger agreement that the FCC accuses it of violating. SBC also argued that the forefeiture order is arbitrary and capricious. The Court of Appeals rejected these arguments, and denied the petition.

This case is SBC Communications v. FCC and USA, respondents, and CoreComm Communications and Z-Tel Communications, intervenors, U.S. Court of Appeals for the District of Columbia, App. Ct. No. 03-1118, a petition for review of a final order of the FCC.

USAO in Northern District of California Prosecutes Unauthorized Access to Protected Computer Cases

7/6. A grand jury of the U.S. District Court (NDCal) returned an indictment [redacted, PDF] on July 2 against Laurent Chavet that charges one count of unauthorized access to a protected computer in violation of 18 U.S.C. § 1030(a)(4) and one count of reckless damage to a protected computer in violation 18 U.S.C. § 1030(a)(5).

The indictment alleges that Laurent Chavet "was employed by AltaVista as a computer engineer from approximately June 1999 to approximately February 2002" and that "On or about March 28, 2002, in the Northern District of California ... did knowingly and with intent to defraud, access a protected computer belonging to AltaVista, to wit, the computer know as ``respository2´´, without authorization and by exceeding authorized access, and by means of such conduct did further the intended fraud and obtain something of value, to wit, source code belonging to AltaVista."

AltaVista was an internet search company that has since been acquired.

A release of the U.S. Attorney's Office (USAO) states that FBI agents arrested Chavet in Seattle, Washington, and that Chavet lives in Kirkland, Washington. Microsoft, which also develops search products, is based in Redmond, Washington.

Also in the Northern District of California, Yan Ming Shan plead guilty on July 6 to a one count indictment [PDF] charging him with unauthorized access to a protected computer in violation of 18 U.S.C. § 1030(a)(4) in connection with his accessing the computers of 3DGeo Development, Inc. to fraudulently obtain proprietary software programs and source code. See also, USAO release.

§ 1030(4) provides that "Whoever ... knowingly and with intent to defraud, accesses a protected computer without authorization, or exceeds authorized access, and by means of such conduct furthers the intended fraud and obtains anything of value, unless the object of the fraud and the thing obtained consists only of the use of the computer and the value of such use is not more than $5,000 in any 1-year period".

CDT Writes Senators Regarding Inducement of Infringement Bill

7/6. Jerry Berman, President of the Center for Democracy and Technology (CDT), wrote a letter [2 pages in PDF] to Sen. Orrin Hatch (R-UT) and Sen. Patrick Leahy (D-VT), the Chairman and ranking Democrat on the Senate Judiciary Committee, regarding S 2560, the "Inducing Infringement of Copyrights Act of 2004".

Sen. Hatch, Sen. Leahy and others introduced this bill on June 22, 2004. It would create a new cause of action for "intentional inducement of infringement". The bill does not enumerate any specific technologies. It is technology neutral. However, the wording of the bill suggests, and Sen. Hatch and Sen. Bill Frist (R-TN) stated in the Senate, that the intended target of the bill is the distributors of the peer to peer systems that are used to infringe copyrighted music.

See, story titled "Senators Introduce Bill to Amend Copyright Act to Ban Inducement of Infringement" in TLJ Daily E-Mail Alert No. 925, June 24, 2004.

The CDT's Berman wrote that "there appears to be a great deal of confusion as to just what activities by a technology developer might give rise to potential inducement liability. Might the makers of high-capacity music players or DVD-burners be liable under the bill? Could Internet service providers or computer manufacturers be potential targets for use of their products and services for illegal infringement? Will this new private right of action, available to millions of copyright holders, create litigation risks that chill innovation in valuable new technologies, undermining the important principles laid out in Sony? There appears to be a great deal of uncertainty about whether the bill, as drafted, is sufficiently limited in its impact to the file-sharing applications at which we understand it is aimed."

The Senate Judiciary Committee has not yet held or scheduled a hearing on this bill.

More Capitol Hill News

7/6. The House Rules Committee adopted a rule for consideration of HR 4754, the "Commerce, Justice, State and the Judiciary Appropriations Act, 2005".

7/6. Rep. Tom Delay (R-TX) and Rep. Charles Rangel (D-NY) introduced HR 4759, and Sen. Charles Grassley (R-IA), Sen. Max Baucus (D-MT), and Sen. Bill Frist (R-TN) introduced S 2610, bills to implement the United States-Australia Free Trade Agreement.

People and Appointments

7/6. Bill Huber was named Associate Division Chief of the Federal Communications Commission's (FCC) Wireless Telecommunications Bureau's (WTB) Auctions and Spectrum Access Division (ASAD). He went to work for the FCC in 2000. Before that, he worked for the law firm of Wilkinson Barker & Knauer. Erik Salovaara was named Deputy Associate Division Chief of the ASAD. He went to work for the FCC in 2001. Before that, he worked for the law firm of Ross Dixon & Bell. Brian Carter was named Special Counsel in the ASAD. Rita Cookmeyer was named Financial Policy Analyst in the ASAD. See, FCC release [PDF].

7/6. The Senate confirmed Leon Holmes to be a Judge of the U.S. District Court for the Eastern District of Arkansas by a vote of 51-46. See, Roll Call No. 153.

More News

7/6. The Internet Corporation for Assigned Names and Numbers (ICANN) filed a motion to dismiss [32 pages in PDF] VeriSign's amended complaint for failure to state a claim upon which relief can be granted, and a renewed motion to strike [7 pages in PDF]. This case is Verisign, Inc. v. ICANN, U.S. District Court for the Central District of California, D.C. No. CV 04-1292 AHM (CTx), Judge Howard Metz presiding. See also, stories titled "ICANN Demands That VeriSign Cease Wildcard Feature" in TLJ Daily E-Mail Alert No. 753, October 6, 2003; "VeriSign Refuses to Suspend Deployment of Wildcard Service" in TLJ Daily E-Mail Alert No. 744, September 23, 2003; "ICANN Asks VeriSign to Suspend Wildcard Service" in TLJ Daily E-Mail Alert No. 743, September 22, 2003; and "ICANN Moves to Dismiss Most of VeriSign's Wildcard Complaint" in TLJ Daily E-Mail Alert No. 871, April 7, 2004.