News from January 26-31, 2005

SBC to Acquire AT&T

1/31. SBC Communications and AT&T announced that the two companies have agreed that SBC will acquire AT&T and that they expect the deal to close by the first half of 2006.

They stated in a release that "Under terms of the agreement, approved by the boards of directors of both companies, shareholders of AT&T will receive total consideration currently valued at $19.71 per share, or approximately $16 billion."

Their release adds that "AT&T shareholders will receive 0.77942 shares of SBC common stock for each common share of AT&T. Based on SBC's closing stock price on Jan. 28, 2005, this exchange ratio equals $18.41 per share. In addition, at the time of closing, AT&T will pay its shareholders a special dividend of $1.30 per share. The stock consideration in the transaction is expected to be tax-free to AT&T shareholders."

The acquisition requires approvals by AT&T's shareholders, and regulators.

The two companies described their assets as "complimentary". Edward Whitacre, Ch/CEO of SBC, stated that "We are combining AT&T's national and global networks and expertise with SBC's strong platforms and skills in local exchange service, wireless and broadband".

Ray Gifford, President of the Progress and Freedom Foundation (PFF), offered this analysis. "The antitrust analysis will focus on the horizontal aspects of the merger in the enterprise market ... This once would have been a vertical merger for SBC into the long distance market, but that market is rapidly disappearing altogether. Instead, for antitrust purposes, it appears to be a simple horizontal merger in the enterprise market -- and this is a market with multiple players and even more potential players as VoIP gains a foothold."

Gifford added that "the vertical aspects in the long distance market seem unproblematic at first glance because this is a market in decline and indeed only exists because of legacy regulatory mandates in any event."

The PFF's Kyle Dixon, who previously worked for Federal Communications Commission (FCC) Chairman Michael Powell, stated that "An SBC-AT&T merger proposal should come as no surprise ... These combinations can bring consumers benefits, encouraging companies to provide better bundles of services more cheaply. And a huge goal of the 1996 Act under section 271 was to promote competition by removing restrictions on phone companies that existed when the government broke up Ma Bell."

See, PFF release. The PFF is a Washington DC based, market oriented, think tank.

Robert Sachs, the outgoing P/CEO of the National Cable Telecommunications Association (NCTA), stated in a release that "The proposed combination of the largest and second largest telephone providers in SBC's 13-state region raises obvious antitrust concerns that regulatory authorities will have to scrutinize carefully. Cable companies, other phone competitors, consumers and business users alike have a vital interest in ensuring that this new telco behemoth does not act anticompetitively to thwart emerging phone competition. We will work closely with federal and state regulatory authorities as they examine the proposed SBC-AT&T transaction."

Walter McCormick, P/CEO of the U.S. Telecom Association (USTA) stated in a release that this "is an historic announcement that will translate into new services and products for consumers. While AT&T has receded from the residential market, consumers will reap the benefits of SBC’s commitment to serving the residential consumer. AT&T’s investment in advanced networks will also speed the nation’s transition from legacy technologies to advanced IP services. This is a classic example of a union that is greater than the sum of its parts."

McCormick added that "This news, and recent announcements from other companies of all sizes, indicates how important it is for Congress to begin its work on updating the nation’s telecom laws."

The usual critics of telecom industry mergers and acquisitions criticized this acquisition. Gene Kimmelman stated in a release that "The imminent acquisition of AT&T by SBC is a symbolic reminder that the Telecommunications Act of 1996 has failed to produce the vigorous competition that was promised ... For most consumers, the communications market is rapidly deteriorating into a duopoly dominated by two firms because of the failure of new entrants to gain a foothold in the market."

Kimmelman, whose group is the Consumers Union, added that "It is time for Congress to reconsider the deregulation experiment of the 1996 Act and give consumers the protection that market forces are failing to provide."

Similarly, Mark Cooper stated that "Consumers have only two choices -- a single cable company that dominates video and high speed Internet or a regional Bell operating company that dominates local, long distance and wireless telecommunications ... Two companies are not enough to provide serious price competition or strong incentives to innovate." Cooper's group is named Consumer Federation of America.

See also, SBC brochure [4 pages in PDF] regarding the acquisition.

Joint Committee on Taxation Offers Recommendations for Expanding Excise Tax on Phones to IP Services

1/31. The Congressional Joint Committee on Taxation released a report [435 pages in PDF] titled "Options to Improve Tax Compliance and Reform Tax Expenditures". It includes a listing and analysis of three options for expanding the scope of the current excise tax on phone service.

It is a huge report that covers many topics. Section X addresses "Excise Taxes". Subsection A of Section X its titled "Modify the Federal Excise Tax on Communications Services". This is at pages 368-378 (PDF pages 373-383).

The report offers three options for expanding the existing three percent excise tax on telephone service to other services and new technologies. The broadest proposal would expand the excise tax "to include all data communications services to end-users. The taxable base includes local and long distance voice services, VOIP, analog and digital cellular and satellite telephone services, cable and satellite television services (to the extent the charge is for communications), broadband and dial-up Internet access services, paging services, and other data communications services." (Parentheses in original.)

While this report offers proposals for expanding the tax, there is also a long running effort to eliminate the tax altogether. There were substantial efforts in the 105th, 106th, 107th and 108th Congresses to repeal this tax. See, for example, HR 3648 in the 105th Congress, HR 3916 in the 106th Congress, HR 236 in the 107th Congress, and HR 2957 in the 108th Congress.  The House passed HR 3916 on a roll call vote of 420-2, on May 25, 2000. See, Roll Call No. 233. However, the full Senate did not pass the bill. HR 236 had 149 sponsors.

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

§ 4251(b) provides that the term ''communications services'' means "(A) local telephone service; (B) toll telephone service; and (C) teletypewriter exchange service".

26 U.S.C. § 4252 provides further definition of these three terms. It defines "local telephone service" as "(1) the access to a local telephone system, and the privilege of telephonic quality communication with substantially all persons having telephone or radio telephone stations constituting a part of such local telephone system, and (2) any facility or service provided in connection with a service described in paragraph (1)".

§ 4252 defines ''toll telephone service'' as "a telephonic quality communication for which ... there is a toll charge which varies in amount with the distance and elapsed transmission time of each individual communication ..."

JCT Report. The report states that "There is no compelling policy argument for imposing taxes on communications services". Rather, it "raises a significant amount of revenue. According to the IRS, the communications excise tax raised approximately $5.8 billion in 2003." However, the report does not estimate how much more would be collected if the tax were expanded.

The report states that "The present communications excise tax provisions were enacted before the development of most modern technology -- the growth of computers and new electronic means of communication. The proliferation of wireless communications technology and the Internet, and in particular broadband access, has blurred the lines between “data” and “voice” and between the functions of transmission and application."

It also asserts that "service providers have found it increasingly difficult to determine which services are taxable communications services and which are nontaxable information services."

The report then proposes three options. The first options does not address new VOIP or other IP enabled services. Rather, it only expand the tax to "both local and nonlocal (long distance) voice telephone services, regardless of whether the charges are fixed or vary with distance, elapsed transmission time, both, or some other criteria. Definitions are clarified to remove any distinction between the calculation of taxes on local and long distance telephone services, and to clarify that the tax is intended to apply to landline and wireless (including satellite) voice communications services."

The second proposal includes the first proposal, and adds other types of voice communications services, including "digital wireless, satellite and VOIP, or any combination".

The third proposal includes the first and second proposals, and also "all data communications services".

The report also states that "Extending the tax to all communications requires taxing Internet access, bandwidth capacity, and the transmission of cable and satellite television, as these are close substitute means for delivery of information and other content."

See also, related 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.

EU Adopts Regulation Regarding FSC/ETI Duties

1/31. The Council of the European Union stated in a release [PDF] that "The Council adopted today a Regulation suspending additional EU customs duties on imports of certain products from the United States that it imposed in December 2003, under Regulation 2193/2003, in response to illegal subsidies granted by the US under its legislation on Foreign Sales Corporations (FSCs)."

The 108th Congress enacted, and the President signed, HR 4520, the "American Jobs Creation Act of 2004", or Jobs Act. The primary and original purpose of this bill was to repeal the extraterritorial income (ETI) tax regime, which in turn replaced the foreign sales corporation tax regime. To compensate for this, the Jobs Act also reduced the top corporate tax rate from 35% to 32%, over several years, for domestic manufacturers, producers, farmers, and small corporations. The bill also included numerous unrelated provisions.

The impetus for repealing FSC/ETI was that the World Trade Organization (WTO) ruled that the FSC/ETI tax regime constituted illegal export subsidies, and authorized the EU to impose up to $4 Billion in retaliatory tariffs. See also, story titled "EU Imposes FSC/ETI Sanctions" in TLJ Daily E-Mail Alert No. 847, March 2, 2004.

The EU added that "The new Regulation provides for suspension of the duties until 1 January 2006 or 60 days after the World Trade Organisation's Dispute Settlement Body has confirmed the incompatibility with its rules of certain aspects of the FSC successor legislation, the American Jobs Creation Act. It is aimed at encouraging the United States to comply fully with WTO rules and remove the remaining trade distortion created by subsidies granted since adoption of the FSC Act."

It also stated that "The EU considers that, although it repeals the FSC legislation, the American Jobs Creation Act adopted last year contains transitional provisions and safeguard clauses that could still be incompatible with WTO rules. The WTO's Dispute Settlement Body is due to rule later this year on the compatibility of certain aspects of the Jobs Act."

FCC Releases NPRM on Regulatory Framework to Apply to Price Cap LECs for Interstate Special Access Services

1/31. The Federal Communications Commission (FCC) released a document [49 pages in PDF] titled "Order and Notice of Proposed Rulemaking" in its proceeding titled "In the Matter of: Special Access Rates for Price Cap Local Exchange Carriers: AT&T Corp. Petition for Rulemaking to Reform Regulation of Incumbent Local Exchange Carrier Rates for Interstate Special Access Services".

This NPRM starts an examination of the regulatory framework to apply to price cap local exchange carriers' (LEC) interstate special access services after June 30, 2005, when the CALLS plan expires.

The NPRM states that "Although we typically do not examine a single interstate access charges basket (e.g., special access) separate from the other baskets (e.g., common line, switched access, transport), we find that the increased importance of special access services relative to other access services warrants the initiation of a rulemaking proceeding specific to interstate special access charges. Notably, business customers, commercial mobile radio service (CMRS) providers, interexchange carriers (IXCs), and competitive LECs all use special access services as a key input in many of their respective service offerings." (Parentheses in original.)

This item also states that the FCC "commenced a comprehensive rulemaking proceeding in 2001 to reform intercarrier compensation, including an examination of the appropriate rate levels and rate structures for, inter alia, interstate switched access services. In 2004, numerous industry groups and other interested parties submitted intercarrier compensation reform proposals in that proceeding, and we will issue a further notice seeking comment on those proposals in the near future." (Footnotes omitted.)

This item also denies AT&T's request to re-initialize special access rates and to impose a moratorium on consideration of further pricing flexibility applications.

Initial comments will be due 60 after publication in the Federal Register. This has not yet occurred. Reply comments will be due 90 after publication in the Federal Register.

The FCC adopted this item on January 19, 2005, but did not announce or release it until January 31, 2005. This item is FCC 05-18 in WC Docket No. 05-25.

Zoellick Discusses IPR and WTO Accession with Russian Trade Rep

1/31. U.S. Trade Representative (USTR) Robert Zoellick and Russian Federation Minister of Economic Development and Trade German Gref held a joint news conference in Zurich, Switzerland in which they discussed their lengthy meeting regarding Russia's accession to the World Trade Organization (WTO).

Robert ZoellickZoellick said that "We also reviewed the need to have effective enforcement in the intellectual property rights area." However, Zoellick was not more specific. See, transcript.

He added that "To keep progress moving quickly, our teams will be meeting in Geneva [on WTO] in mid-February to try to follow up on some of these items. Of course our Presidents are scheduled to see each other, I think on February 23. And so we will both report to our Presidents. And we’ve agreed to try to set up another Ministerial meeting in late March or early April to keep an intense focus on this effort." (Brackets in original.)

People and Appointments

1/31. President Bush nominated Michael Chertoff to be Secretary of Homeland Security. Bush previously announced his intent to make this nomination. See, White House release. See also, story titled "Bush to Nominate Chertoff to be Secretary of Homeland Security" in TLJ Daily E-Mail Alert No. 1054, January 12, 2005. Also, on February 2 at 10:00 AM, the Senate Committee on Homeland Security and Government Affairs will hold a hearing a hearing on his nomination. The Committee is scheduled to vote on the nomination on February 3.

1/31. Tom Bartlett was named SVP and Treasurer of Verizon Communications. He was previously SVP -- Investor Relations. He replaces Bill Heitmann, who was named SVP -- Finance last month. In addition, Cathie Webster will replace Bartlett as SVP -- Investor Relations. She was previously VP -- Finance for Enterprise and Wholesale Markets.

1/31. The Senate confirmed Sam Bodman to be Secretary of Energy. See, Congressional Record, January 31, 2005, at Page S680.

1/31. Sen. Orrin Hatch (R-UT) named Jace Johnson his legislative director for his Washington DC office. Before joining Sen. Hatch's staff two years ago, Johnson worked for Corvis Corporation, which has since changed its name to Broadwing Corporation. It is a telecommunications service provider and maker of optical networking equipment. See, Sen. Hatch's release.

More News

1/31. The Federal Communications Commission (FCC) adopted and released an Order on Reconsideration [2 pages in PDF] in its proceeding regarding the children's television obligations of digital television broadcasters. This order extends the effective date of the rules pertaining to the display of internet web site addresses during programs directed to children ages 12 and under. The effective date was February 1, 2005. The new effective date is January 1, 2006. The FCC adopted a Report and Order and Further Notice of Proposed Rule Making on September 9, 2004. See, story titled "FCC Adopts Report and Order Re Children's Programming Obligations of DTV Broadcasters" in TLJ Daily E-Mail Alert No. 975, September 13, 2004. This September report and order is FCC 04-221 in MM Docket No. 00-167.

New Bills

1/31. Rep. Hillary Clinton (D-NY), and others, introduced S 211, a bill that would create a federal grant program to pay for 2-1-1 telephone service for information and referral on human services. The related bills that were introduced in the 108th Congress were S 1630 and HR 3111, sponsored by then Rep. Richard Burr (R-NC). He is now a member of the Senate, and a cosponsor of S 211.

Federal Circuit Addresses Jurisdictional Issues

1/28. The U.S. Court of Appeals (FedCir) has issued several opinions that relate to various jurisdictional issues in patent litigation. In one case, Silicon Images v. Genesis Microchip, the Court addressed the subject of when, in a settled patent infringement case, there is an appealable final order. In CEA v. CMO and Trintec v. Pedre Promotional Products the Court addressed personal jurisdiction. In CEA the issue is when a company that makes parts that end up in computers can be sued for patent infringement in the jurisdictions where those computers are sold. In Trintec the issue is where can a manufacturer be sued for patent infringement when it sells its products on the web. However, in both of these cases the Court of Appeals sent the cases back to the District Court for further development of the facts relevant to jurisdiction.

Some of these cases may be back to the Court of Appeals after further proceedings in the District Court. Moreover, the jurisdictional issues involved in the CEA and Trintec cases are unsettled. With respect to personal jurisdiction based on e-commerce activities, there are conflicting interpretations. This issue may ultimately end up before the Supreme Court.

On January 28, the Court of Appeals issued its opinion [12 pages in PDF] in Silicon Images v. Genesis Microchip, a patent case in which the Court of Appeals dismissed the appeal for lack of jurisdiction because there is no final judgment from which to appeal.

Silicon Images is the holder of U.S. Patent No. 5,974,464 and U.S. Patent No. 5,905,769. As a member of the Digital Display Working Group (DDWG), which developed a Digital Visual Interface (DVI) specification, it agreed to grant a royalty free license limited to those claims of its patents that would necessarily be infringed by anyone practicing the standards set forth in the DVI Specification. The remaining claims of any patent that were not necessary claims remained outside the terms of the license.

Genesis Microchip signed a DVI Adopters Agreement and began developing DVI receiver technology. But, Silicon Images asserted that it infringed non necessary claims of its patents.

Silicon Images filed a complaint in U.S. District Court (EDVa) alleging patent infringement. Genesis filed various counterclaims.

The District Court held a Markman hearing, but before issuing an opinion on cross motions for summary judgment, the two parties entered into a Memorandum of Understanding (MOU) to settle the case. However, while preparing a Definitive Agreement, they subsequently disputed the meaning of their MOU. Pursuant to a clause in the MOU, the MOU became a binding settlement agreement. And, the parties filed cross motions for summary judgment regarding the construction of their MOU. The District Court issued an order, in which it incorporated the terms of the MOU.

However, this order, as described by the Court of Appeals, "requires Silicon to certify that it received the payment stipulated by the terms of the MOU as a precondition to the dismissal, with prejudice, of the underlying infringement cause of action. Thus, Genesis's payment and Silicon’s stipulation to the court that it had received such payment are conditions precedent to dismissal of the underlying infringement claims. The conditions precedent were never satisfied. As a result, the underlying claims were never dismissed."

Genesis appealed to the Federal Circuit. The Court of Appeals did not address the merits of the appeal. Rather, it dismissed for lack of jurisdiction pursuant to 28 U.S.C. § 1295(a)(1).

The Court of Appeals reasoned that "The final judgment rule cannot be satisfied by stipulation of the parties. Regardless of whether a case is resolved by being fully adjudicated on its merits or by a settlement between the parties, the final judgment rule remains a precursor to an appeal as of right before this court. Thus, even in a settled case, a final judgment must obtain. In order to satisfy this requirement, the trial court must dismiss, with or without prejudice, all of the claims as a predicate to a final judgment before appellate jurisdiction may lie to challenge any matter relating to the settlement. Final dismissal of all claims with prejudice acts as a full adjudication on the merits ..."

The Court wrote that "the underlying claims were never dismissed. At the time the defendants appealed to this Court, the plaintiff’s claims regarding infringement remained pending in the district court, meaning that the district court’s order was not final." Hence, there is no appealable final judgment, and the appeal must be dismissed.

The Court of Appeals noted that "Genesis could have sought permission under 28 U.S.C. § 1292(b) and (c)(1) to immediately appeal the interlocutory judgment and order of the district court, or Genesis could have made the required payment pursuant to the MOU with the appropriate certification of receipt by Silicon." But, it did neither of these.

This case is Silicon Images, Inc. v. Genesis Microchip Incorporated and Genesis Microchip (Delaware) Inc., U.S. Court of Appeals for the Federal Circuit, No. 04-1207, an appeal from the U.S. District Court for the Eastern District of Virginia.

On January 19, the U.S. Court of Appeals (FedCir) issued its opinion [17 pages in PDF] in CEA v. CMO, a patent case in which the Appeals Court vacated the District Court's dismissal of a Taiwanese defendant for lack of personal jurisdiction. CMO is a company that makes LCDs that are incorporated in products that are sold in the forum jurisdiction, Delaware. CEA thus argues that the District Court has personal jurisdiction over CMO based on a stream of commerce theory. The Court of Appeals did little to clarify the law on this subject. It wrote that the law is unclear, declined to decide the legal issue, and sent the case back to the District Court for more factual discovery.

CEA is an acronym for Commissariat à l’Energie Atomique, a French government research agency that develops technologies for sale and license to the private sector for commercial use. Despite its name, it also conducts research on information technologies. The CEA owns U.S. Patent No. 4,701,028, titled "Liquid crystal cell which can have a homeotropic structure with compensated birefringence of said structure", and U.S. Patent No. 4,889,412, titled "Liquid crystal cell using the electrically controlled birefringence effect and a uniaxial medium of negative optical anisotropy usable therein".

CMO is Chi Mei Optoelectronics Corporation, based in the nation of Taiwan. It makes liquid crystal displays (LCDs). It sells these to original equipment manufacturers (OEMs), such as Dell, which incorporate them in their computer products sold around the world, including in the state of Delaware.

CEA filed a complaint in U.S. District Court (DDel) against CMO, Dell, Samsung, Sun Microsystems, and Viewsonic, alleging infringement of its two patents. The District Court has not yet disposed of the merits of the case. It has, however, granted CMO's motion to dismiss it for lack of personal jurisdiction.

The Court of Appeals vacated this dismissal, and remanded to the District Court, with instructions to allows CEA discovery on the issue jurisdiction.

The Court began its analysis by stating that "In order to establish personal jurisdiction in a patent infringement case over a non-resident defendant whose products are sold in the forum state, a plaintiff must show both that the state long arm statute applies and that the requirements of due process are satisfied."

First, the Court of Appeals addressed the factual findings. "Contrary to the district court's holding, the evidence already presented by plaintiff is sufficient to demonstrate that CMO sells a very large volume of LCDs to companies which incorporate these displays into their final product and that these products are likely sold in Delaware in substantial quantities. The district court found that because CEA failed to present evidence of pre-filing sales of CMO products in Delaware (although evidence was presented on pre-filing orders and post-filing sales), and only submitted nationwide data on CMO sales, as opposed to CMO sales specifically in Delaware, that CEA failed to demonstrate that CMO products entered the state, or that the company derived substantial revenue from the sale of its products in Delaware."

The Appeals Court wrote that the District Court "imposed too high a burden of proof on CEA. Based on the allegations in the complaint, the evidence submitted by CEA, and CMO's failure to rebut the factual inference that devices incorporating its LCDs were sold in Delaware, the district court should have found CEA’s showing sufficient to establish that substantial revenues could be derived by CMO from the sales of products in Delaware incorporating CMO's LCDs."

Then, Court of Appeals reviewed the constitutional requirements under the due process clause that there be minimum contacts with the forum. It stated that the "scope of the stream of commerce theory under Delaware law is not clear". The Court wrote that this case "presents a factual scenario which would require us to determine whether or not additional conduct, beyond a showing of use of established distribution channels, is required to meet the demands of due process under the stream of commerce theory of personal jurisdiction." The Court of Appeals declined to answer this question.

Rather, the Court of Appeals concluded that "there is substantial uncertainty concerning both the scope of the Delaware law and that of the due process clause, and that these issues should not be resolved on the present record because the district court declined to order jurisdictional discovery." The Court reversed and remanded for failure to grant a discovery request.

This case is Commissariat à l’Energie Atomique v, Chi Mei Optoelectronics Corporation, et al., U.S. Court of Appeals for the Federal Circuit, No. 04-1139, an appeal from the U.S. District Court for the Eastern District of Virginia, Judge Kent Jordan presiding. Judge Dyk wrote the opinion of the Court of Appeals, in which Judges Rader and Friedman joined.

On January 19, the U.S. Court of Appeals (FedCir) issued its opinion [15 pages in PDF] in Trintec v. Pedre Promotional Products, a patent case in which the Court of Appeals vacated the District Court's dismissal for lack of personal jurisdiction over the defendant.

Tritec filed a complaint in U.S. District Court for the District of Columbia against Pedre alleging patent infringement. Pedre, which makes watches in New York City and Rhode Island, wants the case to proceed in the Southern District of New York. It moved to dismiss for lack of personal jurisdiction. Pedre watches are sold in the District of Columbia by Pedre's sales representative. Moreover, Pedre sells its watches via an internet web site.

The District Court granted Pedre's motion to dismiss, and Trintec appealed.

The Court of Appeals reviewed at some length the body of case law on the question of when web based advertising and sales gives rise to personal jurisdiction over an online defendant. However, the Court of Appeals made no firm interpretation of the law. Rather, it found that the District Court had not sufficiently laid out the factual record, and hence, vacated and remanded to the District Court for further proceedings, including, perhaps, discovery on the issue of jurisdiction.

This case is Trintec Industries, Inc. and Time to Invent, LLC v. Pedre Promotional Products, Inc., U.S. Court of Appeals for the Federal Circuit, No. 04-1293, an appeal from the U.S. District Court of the District of Columbia, D.C. No. 1:03-CV-01267-RCL, Judge Royce Lamberth presiding. Judge Friedman wrote the opinion of the Court of Appeals, in which Judges Rader and Bryson joined.

People and Appointments

Peter Lichtenbaum1/28. President Bush announced his intent to designate Peter Lichtenbaum to be acting Under Secretary of Commerce for Export Administration. That is, he will head the Bureau of Industry and Security (BIS), which was previously named the Bureau of Export Administration (BXA). The BIS has regulatory authority over exports, for national security purposes, including exports of dual use items, such as computers, microprocessors, software and encryption products. Lichtenbaum (at left) is currently Assistant Secretary of Commerce for Export Administration. He was previously an attorney in the law firm of Steptoe & Johnson. He will replace Kenneth Juster, who is leaving the Department of Commerce. See, White House release.

1/28. Erica McMahon was named acting Chief of Staff of the Federal Communications Commission's (FCC) Consumer and Governmental Affairs Bureau.

1/28. Sen. Harry Reid (D-NV), the Senate Democratic Leader, designated Shara Aranoff for nomination to a Democratic position on the U.S. International Trade Commission (USITC). She is currently Senior International Trade Counsel on the Democratic staff of the Senate Finance Committee. She has also worked in the USITC's Office of General Counsel, and for the law firm of Steptoe & Johnson. Aranoff will, if nominated by President Bush and confirmed by the Senate, fill the seat of Marcia Miller, who term has expired. Sen. Max Baucus (D-MT), the ranking Democrat on the Senate Finance Committee, praised Aranoff in a release [PDF].

More Court Opinions

1/28. The U.S. Court of Appeals (6thCir) issued its opinion [19 pages in PDF] in BMI v. Roger Miller Music, a copyright royalties interpleader action in which the Appeals Court interpreted the copyright renewal language of 17 U.S.C. § 304. Interpleader is an action brought by a debtor, or one obligated to make a payment, who is uncertain as to which person or entity to make payment. Broadcast Music, Inc. (BMI) owes royalties as a result of the licensing of copyrighted music recordings of the late great Roger Miller (who wrote and recorded King of the Road, Dang Me and other songs). BMI does not know if the royalties are owed to Roger Miller Music, Inc. or Shannon Miller Turner, Roger's daughter. Hence, BMI filed an interpleader complaint in the U.S. District Court (MDTenn). The District Court granted summary judgment to the daughter. The Court of Appeals reversed. This case is Broadcast Music, Inc. v. Roger Miller Music, Inc. and Shannon Miller Turner, App. Ct. No. 02-5766, an appeal from the U.S. District Court for the Middle District of Tennessee, at Nashville, Judge Todd Campbell presiding, D.C. No. 01-00453.

1/28. The U.S. Court of Appeals (7thCir) issued its opinion [5 pages in PDF] in Woodhaven Homes & Realty v. Hotz, a copyright case involving the blueprints for a house in which the Court of Appeals applied the copyright attorneys fees language of 17 U.S.C. § 505. This case is Woodhaven Homes & Realty v. Hotz, U.S. Court of Appeals for the 7th Circuit, No. 03-4158, an appeal from the U.S. District Court for the Eastern District of Wisconsin, D.C. No. 01-C-778, Judge Rudolph Randa presiding.


1/27. The National Institute of Standards and Technology (NIST) published in its web site a document [PDF] titled "SP 800-65: Integrating Security into the Capital Planning and Investment Control Process".

1/26. The National Institute of Standards and Technology (NIST) published in its web site its final public draft of SP 800-53. This is "Special Publication 800-53 (Final Public Draft), Recommended Security Controls for Federal Information Systems". Comments are due by February 11, 2005. Send comments to

1/24. The National Institute of Standards and Technology (NIST) published in its web site its draft [PDF] of SP 800-76. This is "Special Publication 800-76, Biometric Data Specification for Personal Identity Verification". Comments are due by February 7, 2005. Send comments and questions to

More News

1/28. The Government Accountability Office (GAO) released a report [40 pages in PDF] titled "Telemarketing: Implementation of the National Do-Not-Call Registry".

1/28. The Federal Trade Commission (FTC) issued a release regarding its enforcement the Telemarketing Sales Rule (TSR), and a list of its recent enforcement actions.

1/28. The U.S. Patent and Trademark Office (USPTO) announced in a release that its Trademark Document Retrieval (TDR) portal is now in operation. The TDR enables users to review documents in the official trademark application file.

1/28. The U.S. District Court (WDWash) sentenced Jeffrey Lee Parson to serve 18 months in prison, 3 years of supervised release and 100 hours of community service for violation of 18 U.S.C. § 1030. He sent a variant of the MS B1aster computer worm back in August of 2003. See, U.S. Attorneys Office release of January 28, 2005, and Department of Justice (DOJ) release of August 29, 2003. See also, story titled "FBI Makes Arrest In Connection With Variant of B1aster Worm" in TLJ Daily E-Mail Alert No. 730, September 2, 2003.

Bush Promotes Electronic Medical Records

1/27. President Bush gave a speech in Cleveland, Ohio, in which he addressed information technology in health care. The White House Press Office also released a memorandum titled "Improving Care and Saving Lives Through Health IT".

The memorandum states that the Bush administration's plans include "fostering regional collaborations and demonstration projects that will test the effectiveness of Health IT and encourage widespread adoption" and "adopting uniform health information standards".

Bush said that "the fundamental question facing the country is, can we have a health care system that is available and affordable without the federal government running it? I mean, it really is a philosophical challenge. There's good well-meaning folks who believe that the best health care system is run where Washington, D.C. makes the decisions. I happen to believe the best health care system is one where the consumers, the patients, make the decisions."

He then reviewed at length many recent or proposed changes other than those related to information technology. Then, he discussed information technology.

"But we're here to talk about another way to save health -- save costs in health care, and that's information technology. Now, look, most industries in America have used information technology to make their businesses more cost-effective, more efficient and more productive, and the truth of the matter is, health care hadn't. I mean, health care has been fantastic in terms of technological change. I mean, you see these machines in these hospitals -- compared to what life was like ten years ago, things have changed dramatically."

He said that "we've got fantastic new pharmaceuticals that help save lives, but we've got docs still writing records by hand".

He cited the example of medical emergencies why traveling. "But you go to Florida, you get in an automobile accident, an electronic medical record means your data to the doc in the emergency room is transmitted just like that -- as opposed to calling somebody, getting them out of bed, could you please go find so-and-so's file, read somebody's file, and transmit the information."

Bush also said the electronic records must be private. "I don't want my medical records floating around ether, so somebody can pick them up. I presume I'm like most Americans -- I think my medical records should be private. I don't want people prying into them, I don't want people looking at them, I don't want people opening them up unless I say it's fine for you to do so."

He also participated in an exchange with health care professionals at the Intercontinental Cleveland Clinic Suite Hotel.

On the subject of information privacy, Dr. Martin Harris, a general internist and the Chief Information Officer for the Cleveland Clinic Foundation, made the point that electronic records can be more secure. He said that "We want to know that the record is secure and that it remains confidential. But information technology actually works perfectly to document that. If you left a medical record on paper in a room, how will you know who saw it. You can't know. When it's in electronic form, when anyone logs on to the system, we know. We know who they are, we know where they are, we know what they were looking at, and we can keep logs of all that information so that we can confirm for our patients that their information is secure."

Also, on April 27, 2004, President Bush gave a speech in Baltimore, Maryland in which he advocated the use of electronic records in the health care industry. He also issued an executive order regarding "the development and nationwide implementation of an interoperable health information technology infrastructure". See, stories titled "President Bush Advocates Conversion to Electronic Medical Records" and "Bush Addresses Privacy of Electronic Medical Records" in TLJ Daily E-Mail Alert No. 886, April 28, 2004.

FCC Releases Paper on Competition Between DBS & Cable

1/27. The Federal Communications Commission's (FCC) Media Bureau (MB) and International Bureau (IB) released a paper titled "Competition between Cable Television and Direct Broadcast Satellite -- It's More Complicated than You Think". See also, FCC release [PDF].

It was written by two FCC economists, Andrew Wise and Kiran Duwadi. The authors offer this summary. "Direct Broadcast Satellite (“DBS”) is often considered a substitute for basic cable service, but current cable subscribers may face substantial switching costs to move from cable to DBS services. We use aggregate firm-level price data and other related demographic variables to examine the cost of switching from cable to DBS and vice versa. We find some firm-specific attributes and demographic variables that influence consumer choice and switching costs that appear to affect consumers’ desire to switch from one service to another. We then use observation-specific dummy variables that stratify cable price based on changes in the level of cable prices between two periods to examine whether consumer behavior varies depending on the size of price change. We find that when quality-adjusted prices for basic cable services increase substantially, subscribers will switch from cable to DBS, presumably at the point at which the price change is larger than the cost of switching."

The paper is based on a multivariate regression analysis of DBS penetration in various markets. One independent variable that is included in the models, but is the subject of little discussion, is a dichotomous variable for whether the cable operator also offers high speed internet access. Notably, the estimated coefficient for this variable is not statistically significant. The paper thus suggests that "Internet access service is not an important factor in choosing between cable and DBS".

The authors then relegate to a footnote the following explanation. "We note that almost all consumers who can subscribe to cable Internet access service can do so without subscribing to the cable operator’s video service, although sometimes at a higher cost. Frequently, consumers also have the choice of DSL high-speed Internet access service. Therefore, it is perhaps not surprising that cable provision of high-speed Internet access service is not a significant factor for consumers in deciding which video service to subscribe to."

People and Appointments

1/27. Kenneth Ferree, Chief of the Federal Communications Commission's (FCC) Media Bureau, announced that he will resign, "effective in early March 2005". His replacement has not yet been named. See, FCC release [PDF].

1/27. Eric Bash was named interim Legal Advisor on media issues to Federal Communications Commission (FCC) Commissioner Jonathan Adelstein, pending selection of a permanent Legal Advisor. He replaces Johanna Shelton, who has been named minority counsel to the House Commerce Committee. Bash is currently Assistant Chief in the FCC's Enforcement Bureau's (EB) Investigations & Hearings Division. Before that, he was Special Counsel to the FCC's Localism Task Force. Since joining the FCC in 1996, he has also worked as an Attorney Advisor in the FCC's Media Bureau's (MB) Policy Division, in the former Mass Media Bureau's Policy & Rules Division, in the former Common Carrier Bureau, and in the former Wireless Telecommunications Bureau. He worked at the Federal Trade Commission (FTC) before joining the FCC. See, FCC release.

1/27. June Taylor was named acting Director of the Federal Communications Commission's (FCC) Office of Workplace Diversity (OWD). See, FCC release [PDF].

1/27. Rosemarie Straight will retire as Executive Director of the Federal Trade Commission (FTC). Judith Bailey, who is currently Deputy Executive Director, will become acting Executive Director. See, FTC release.

1/27. Brad Huther was named director of the U.S. Chamber of Commerce's new counterfeiting and piracy initiative. Huther was previously President and Chief Executive Officer of the International Intellectual Property Institute (IIPI), a Washington DC based organization committed to strengthening intellectual property systems around the world. He has also worked at the World Intellectual Property Organization (WIPO), and the U.S. Patent and Trademark Office (USPTO). See, IIPI biography.

More News

1/27. The Department of Justice's (DOJ) Office of the Solicitor General announced that it will not file a petition for writ of certiorari in Prometheus Radio Project v. FCC, a case regarding the Federal Communications Commission's (FCC) media ownership rules. The FCC announced its order on June 2, 2003. See, story titled "FCC Announces Revisions to Media Ownership Rules" in TLJ Daily E-Mail Alert No. 672, June 3, 2003. The U.S. Court of Appeals (3rdCir) issued its opinion [213 pages in PDF] on June 24, 2004, overturning some of the FCC's media ownership rules. FCC Commissioners Michael Copps and Jonathan Adelstein, who opposed the order, praised the decision not to seek certiorari. See, release [PDF].

1/27. The Federal Trade Commission (FTC) published a notice in the Federal Register announcing revised thresholds for interlocking directorates required by the 1990 amendment of Section 8 of the Clayton Act. See, Federal Register, January 27, 2005, Vol. 70, No. 17, at Page 3928.

1/27. The U.S. Patent and Trademark Office (USPTO) published a notice in the Federal Register that describes, recites, and sets the effective date (December 8, 2004) for it final rule regarding revisions to patent fees as a result of passage of the Consolidated Appropriations Act, 2005. See, Federal Register, January 27, 2005, Vol. 70, No. 17, at Pages 3880 - 3892. President Bush signed HR 4818, the omnibus appropriations bill, on December 8, 2004. HR 4818 provides appropriations totaling $1,540,000,000 for the USPTO for FY 2005. The Congress did not approve HR 1561, the "United States Patent and Trademark Fee Modernization Act of 2003", which is also known as the USPTO fee bill. The House passed this bill on March 2, 2004. See, story titled "House Passes USPTO Fee Bill", also published in TLJ Daily E-Mail Alert No. 849, March 4, 2004. The Senate did not pass it. HR 4818 contains the fee increases of HR 1561. However, the increases are only applicable for FY 2005 and 2006. See, story titled "Appropriations Bill Provides $1.54 Billion for USPTO, Temporary Fee Increases, But No End to Diversion" in TLJ Daily E-Mail Alert No. 1,023, November 22, 2004.

House Commerce Committee Holds Hearing on Spyware Bill

1/26. The House Commerce Committee held a hearing titled "Combating Spyware: HR 29, the SPY Act". Witnesses expressed support for, or did not oppose, the bill. No members of the Committee criticized or expressed opposition to the bill. Rep. Joe Barton (R-TX), the Chairman, stated that the full Committee will mark up the bill, probably in a few weeks. Said Barton, "this is on the fast track". See, full story.

FCC States That Unbundling Rules Will Be Released by February 4

1/26. The Federal Communications Commission (FCC) filed a pleading with the U.S. Court of Appeals (DCCir) in USTA v. FCC, a case pertaining to the FCC's unbundling rules. This pleading states that "Chairman Powell intends and expects that the order will be released no later than February 4, 2005."

On December 15, 2004, the FCC adopted, but did not release, an Order on Remand regarding incumbent local exchange carriers' (ILECs) obligations under 47 U.S.C. § 251 to make their network elements available on an unbundled basis. At that time, the FCC issued only a short release [2 pages in PDF]. This item is FCC 04-290 in WC Docket No. 04-313 and CC Docket No. 01-338. See also, story titled "FCC Adopts Unbundling Order" in TLJ Daily E-Mail Alert No. 1,039, December 16, 2004.

The Order on Remand that the FCC represents will be released on February 4, 2005, contains the rules that the Court last March directed the FCC to write. On March 2, 2004, the U.S. Court of Appeals (DCCir) issued its opinion [62 pages in PDF] in USTA v. FCC, overturning key parts of the FCC's 2003 triennial review order (TRO). See also, story titled "Appeals Court Overturns Key Provisions of FCC Triennial Review Order" in TLJ Daily E-Mail Alert No. 848, March 3, 2004.

Cisco Prevails in Corporate Raiding Case

1/26. The U.S. Court of Appeals (8thCir) issued its opinion [13 pages in PDF] in Storage Technology v. Cisco Sytems, a dispute over corporate raiding. The District Court granted summary judgment Cisco, whose predecessor had hired away engineers of Storage Technology. The Appeals Court affirmed.

NuSpeed Internet Systems was founded in late 1999 to develop a product to link computers at one location to data storage networks at other locations through the Internet or other Wide Area Network using Internet Protocols, and a new open Internet protocol, iSCSI, which is short for Internet Small Computer Systems Interface. In 1999 and 2000 NuSpeed hired 22 engineers employed by Storage Technology, which was also developing data storage networking products. Shortly thereafter, NuSpeed was acquired by Cisco Systems for $450 Million in a stock for stock transaction.

Storage Technology filed a complaint in U.S. District Court (DMinn) against Cisco alleging corporate raiding by hiring Storage Technology's engineers who had knowledge that Cisco used in developing its product, interference with contractual relations for hiring away persons with whom Storage Technology had employment contracts, inducing breach of contracts, conversion of confidential information, encouraging breach of fiduciary duties by former Storage Technology employees, and misappropriation of trade secrets.

Storage Technology argued that it was entitled to recover, as restitution, the alleged unjust enrichment of NuSpeed, which it claimed was the $450 Million acquisition price.

The District Court, exercising diversity jurisdiction, granted summary judgment to Cisco on all claims. The Court of Appeals affirmed.

The Appeals Court wrote the the claims fail because, under Minnesota state law, Storage Technology failed to produce evidence substantiating any amount of damages or restitution.

This case is Storage Technology Corporation v. Cisco Sytems, Inc., U.S. Court of Appeals for the 8th Circuit, App. Ct. No. 03-3673, an appeal from the U.S. District Court for the District of Minnesota, Judge Joan Ericksen presiding. Judge John Gibson wrote the opinion of the Court of Appeals, in which Judges Loken and Bye joined.

Copyright Office Initiates Inquiry on Orphan Works

1/26. The Copyright Office (CO) published a notice in the Federal Register that announces, describes, and sets comment deadlines for, a notice of inquiry (NOI) regarding orphan works. Orphan works are copyrighted works whose owners are difficult or impossible to locate.

The notice states that the CO seeks public comments on "whether there are compelling concerns raised by orphan works that merit a legislative, regulatory or other solution, and what type of solution could effectively address these concerns without conflicting with the legitimate interests of authors and right holders." See, Federal Register, January 26, 2005, Vol. 70, No. 16, at Pages 3739 - 3743.

Gigi Sohn, of Public Knowledge, stated in a release that "the evidence suggests that a large number of works may fall into the category of orphan works. We consider it extremely important, not only for the artists who are creating new work today, but also for the ideas created in years past, that orphan works be made as widely available as possible."

Initial comments are due by 5:00 PM on March 25, 2005. Reply comments are due by 5:00 PM on May 9, 2005.

On January 5, 2005, Sen. Orrin Hatch (R-UT) and Sen. Patrick Leahy (D-VT) wrote to the Register of Copyrights requesting that the CO study this issue and to report to the Senate Judiciary Committee by the end of the
year. Also, Rep. Lamar Smith (R-TX) and Rep. Howard Berman (D-CA), the Chairman and the ranking Democrat on the House Judiciary Committee's Subcommittee on Courts, the Internet and Intellectual Property, wrote similar letters to the Register of Copyrights.

Also, during the 108th Congress, the Senate, but not the House, passed a large composite intellectual property bill, S 3021, that included as its Title IV the "Preservation of Orphan Works Act". The entire substance of this title was as follows: "Section 108(i) of title 17, United States Code, is amended by striking ``(b) and (c)´´ and inserting ``(b), (c), and (h)´´." See, 17 U.S.C. § 108.

Sen. Hatch explained last November that this "ensures the preservation of valuable historic records by correcting a technical error that unnecessarily narrows a limitation on the copyright law applicable to librarians and archivists. This will strengthen the ability of librarians and archivists to better meet the needs of both researchers and ordinary individuals and will result in greater accessibility of important works."

Copps Addresses Media Concentration

1/26. Federal Communications Commission (FCC) Commissioner Michael Copps delivered a speech [6 pages in PDF], electronically, to the National Association of Television Program Executives regarding media concentration. He said that "Fewer companies own and control more media properties. Big companies already control radio, television, newspapers and cable – cable systems and cable channels. They own the production of programming. They own its distribution. Increasingly, they control creativity itself."

Michael Copps"I believe we have the opportunity to make a difference this year", said Copps (at right). "The Third Circuit Court of Appeals ruled last summer that the FCC's new rules were legally and procedurally flawed. ... That's the good news. The bad news is that these rules were sent back to -- guess where? -- the very Commission that dreamed them up in the first place. So an entirely plausible outcome of all this could be rules every bit as bad as the ones sent back to us. Maybe even worse."

Copps also stated that "this issue may also come up as the Commission considers the public interest obligations of DTV broadcasters, hopefully this year. As we make the transition to digital television, there is a crying need to update our rules on the public interest obligations of those who are granted the privilege to use the people’s spectrum for digital television, particularly those who will multi-cast up to six program streams. The potential of DTV to advance diversity is enormous and I believe its rewards, for everyone, can be enormous."

People and Appointments

1/26. The Senate Judiciary Committee voted to favorably report the nomination of Alberto Gonzales to be Attorney General by a vote of 10-8. It was a straight party line vote, with the Democrats on the Committee voting against confirmation.

1/26. The Senate voted to confirm Condi Rice to be Secretary of State by a vote of 85-13. See, Roll Call No. 2. She took the oath of office later in the day. Secretary Rice was previously President Bush's National Security Advisor. President Bush previously announced that he will nominate Robert Zoellick, the current U.S. Trade Representative (USTR), to be Deputy Secretary of State.

1/26. The House Judiciary Committee formally selected Subcommittee Chairmen for the 109th Congress. Rep. Lamar Smith (R-TX) will again chair the Subcommittee on Courts, the Internet, and Intellectual Property. Rep. Howard Coble (R-NC) will chair the Subcommittee on Crime, Terrorism, and Homeland Security. Rep. Chris Cannon (R-UT) will chair the Subcommittee on Commercial and Administrative Law. Rep. John Hostettler (R-IN) will chair the Subcommittee on Immigration, Border Security, and Claims. Rep. Steve Chabot (R-OH) will chair the Subcommittee on the Constitution. See, HJC release. Rep. Smith stated in a release that "From software developers to cyber security experts, it is vital that we encourage the continued growth and protection of intellectual property. This post will continue to give me a unique opportunity to shape national policy in an arena of real importance at home." Rep. James Sensenbrenner (R-WI) remains the Chairman of the full Committee, and Rep. John Conyers (D-MI) remains the ranking Democrat.

More News

1/26. President Bush held a long press conference. He did not discuss, and no one asked him about, any technology related issues. See, transcript.

1/26. The Copyright Office published a notice in the Federal Register requesting public comments on the question of whether the 2005 cable statutory license rate adjustment proceeding should take place under the auspices of the Copyright Arbitration Royalty Panel (CARP) system or the new Copyright Royalty Judge (CRJ) system. Comments are due by February 16, 2005. See, Federal Register, January 26, 2005, Vol. 70, No. 16, at Pages 3738 - 3739.

1/26. The Copyright Office published a notice in the Federal Register the announces, describes, and sets the comment deadline for, a notice of proposed rulemaking (NPRM) regarding a proposed settlement of royalty rates for analog television broadcast stations retransmitted by satellite carriers under statutory license. Comments and Notices of Intent to Participate must be submitted are due by February 25, 2005. See, Federal Register, January 26, 2005, Vol. 70, No. 16, at Pages 3656 - 3658.

Go to News from January 21-25, 2005.