TLJ News from August 1-5, 2005

FCC Classifies DSL as Information Service

8/5. The Federal Communications Commission (FCC) adopted, but did not release, an item titled "Report and Order and Notice of Proposed Rulemaking" that classifies wireline broadband internet access services as information services. This brings these services, including DSL service, out from under the Title II regulatory regime. This determination was sought by the incumbent local exchange carriers (ILECs), such as Verizon and BellSouth, that provide DSL service. See, full story.

Reaction to the FCC's Classification of DSL

8/5. The incumbent local exchange carriers (ILECs) that provide DSL service are pleased with the FCC's "Report and Order and Notice of Proposed Rulemaking", announced on August 5, regarding the classification of wireline broadband internet access services as information services.

Walter McCormick, P/CEO of U.S. Telecom Association (USTA), which represents ILECs, stated in a release that “The Commission’s vote today is the right move to bring consumers more choice for high-speed Internet service, speed broadband deployment and spur investment. After waiting several years for the courts to act, we appreciate Chairman Martin’s efforts to bring the rules for DSL service in line quickly with the rules for cable modem service.

He continued that "In crafting these new rules, the Commission weighed many important issues that affect all aspects of the communications business. We applaud the Commission for taking a flexible approach to establish workable rules for all providers. In addition, ensuring a sustainable universal service system is a high priority for USTelecom members and we will work closely with the Commission over the next several months to successfully achieve this critical objective."

Susanne Guyer, SVP for Federal Regulatory Affairs for Verizon, an ILEC, stated in a release that "This is an important step toward a national broadband policy that allows consumers to enjoy the full benefits of competition. At last, regulations are catching up to where consumers and technology have been for some time. This decision will help accelerate deployment of broadband networks, enabling greater choice and increased access for consumers. We commend Chairman Martin and the commission for acting quickly to move us closer to the president’s goal of broadband deployment to all Americans by 2007."

Similarly, Herschel Abbott, BellSouth's VP for Governmental Affairs, stated in a release that "Chairman Martin should be widely applauded for pushing to completion these sweeping changes that will allow BellSouth to move higher-speed products and services from the lab to the hands of American consumers in the very near future. The chairman's leadership has led to an order that is comprehensive and will result in greater innovation that will benefit every broadband consumer. It must be noted that this consensus was developed with commendable speed, a speed that is appropriate and necessary given the importance of rapid technology changes in today's marketplace."

Abbott added that "The transition periods that have been agreed to are workable. We look forward to reviewing the words of the final order and implementing the order quickly, so that consumers will be served by exciting new offerings in the very near future, including new and more efficient services to our wholesale customers."

The FCC had previously classifed cable modem service as an information service, and the Supreme Court upheld this classification in the Brand X case. Kyle McSlarrow, P/CEO of the National Cable and Telecommunications Association (NCTA), wrote in a release that "We applaud Chairman Martin for making broadband deployment a national priority, and support today's FCC decision to promote deregulatory policies that treat like services alike."

He also took this opportunity to advocate regulatory parity in video services. "We invite the telephone companies to take a similar approach to regulation of video services and drop their self-serving demands for special treatment by the government when entering the video marketplace. A competitive marketplace with a level regulatory playing field for all services, regardless of technology, is one that all industries should be prepared to compete in."

Earl Comstock, P/CEO of CompTel, stated in a release that "CompTel remains concerned that the regulatory classification decisions in this order will ultimately frustrate the Commission's stated goals and result in less innovation, higher prices, and fewer jobs for Americans".

Comstock is also an attorney with the law firm of Sher and Blackwell, in which capacity he represents Earthlink. He previously worked for Sen. Ted Stevens (R-AK), the Chairman of the Senate Commerce Committee.

He also wrote that "According to the FCC, today's action has no impact on CompTel's carrier members. CompTel appreciates in particular that the final order will include measures to ensure continued competitive access to facilities and provides a transition period for ISP access and USF funding. The Chairman and his Democratic colleagues worked hard to address issues of concern to CompTel members."

Michael Petricone of the Consumer Electronics Association (CEA) stated in a release that "We applaud today's action by the FCC creating regulatory parity among all broadband service providers."

Ed Black P/CEO of the Computer and Communications Industry Association (CCIA), stated in a release that "Today’s ruling should spur increased broadband penetration throughout the United States ... We are hopeful the FCC has set the stage for robust competition. In any case, we will watch how this ruling evolves."

Andrew Jay Schwartzman, P/CEO of the Media Access Project (MAP), a Washington DC based interest group, stated in a the MAP web site that "This is bad news for the people who use the internet. It means higher prices, less competition and disincentives for those entrepreneurs who have used the internet as a platform for innovation and economic growth. Even so, it could have been worse. By asserting its authority to stop the most flagrant kinds of abuse, the FCC has made it somewhat harder to block or impede access to information."

Michael Gallagher, head of the National Telecommunications and Information Administration (NTIA), released a statement. "Today's FCC action demonstrates Chairman Martin's leadership and represents an important step towards realizing the President's goal of universal, affordable access to broadband for all Americans by creating a level playing field for providers of broadband access and by removing regulatory obstacles to further investment in broadband infrastructure. I congratulate Chairman Martin and his fellow Commissioners for their foresight and their willingness to work in a bipartisan fashion."

FCC Amends CALEA Statute

8/5. The Federal Communications Commission (FCC) adopted, but did not release, an Order and Further Notice of Proposed Rule Making, that provides that facilities based broadband service providers and interconnected VOIP providers are subject to requirements under the 1994 Communications Assistance for Law Enforcement Act (CALEA).

The FCC issued a short release [PDF] that describes the unreleased order. It states that the FCC has determined that CALEA obligations extend to "facilities-based broadband Internet access service providers and VoIP providers that offer services permitting users to receive calls from, and place calls to, the public switched telephone network. These VoIP providers are called interconnected VoIP providers."

See, full story.

FCC Adopts a Policy Statement Regarding Network Neutrality

8/5. The Federal Communications Commission (FCC) adopted, but did not release, an item titled "Policy Statement". It relates to guaranteeing for consumers the freedom to use their internet connections to access any content, use any applications, and attach any devices, that they choose. It also relates to limitations upon these freedoms, imposed by their service providers, or by the government. Finally, it contains language regarding competition in a variety of industry sectors, and hints at the possibility of a broadening of FCC exercise of antitrust authority.

This item is merely a policy statement, without enforceable rules. It may also have been approved as a concession to its primary backer, Commissioner Michael Copps, in return for his support for other items adopted on August 5. If this is the case, there may be little enthusiasm for actually implementing its contents.

Finally, the FCC has not released the actual text of the policy statement. The FCC issued only a half page release [PDF]. The following is the entire substantive language of this release.

"The Federal Communications Commission today adopted a policy statement that outlines four principles to encourage broadband deployment and preserve and promote the open and interconnected nature of public Internet: (1) consumers are entitled to access the lawful Internet content of their choice; (2) consumers are entitled to run applications and services of their choice, subject to the needs of law enforcement; (3) consumers are entitled to connect their choice of legal devices that do not harm the network; and (4) consumers are entitled to competition among network providers, application and service providers, and content providers. Although the Commission did not adopt rules in this regard, it will incorporate these principles into its ongoing policymaking activities. All of these principles are subject to reasonable network management."

See, full story.

FCC Adopts Order Amending Service Rules for AWS

8/5. The Federal Communications Commission (FCC) adopted, but did not release, an Order on Reconsideration that amends the FCC's band plan, and licensing and service rules, for Advanced Wireless Service (AWS) spectrum in the 1710-1755 MHz and 2110-2155 MHz bands. This pertains to spectrum reallocated for use by third generation (3G) wireless services, which are intended to bring broadband internet access to portable and fixed devices.

The FCC adopted its original service rules on October 16, 2003. See, story titled "FCC Announces Services Rules for 3G Spectrum" in TLJ Daily E-Mail Alert No. 761, October 20, 2003. The just announced items makes changes to these rules.

The FCC issued only a press release describing these changes. It states that "The original band plan for this spectrum adopted by the FCC in October 2003 included a mixture of license sizes and geographic areas in order to accommodate the needs of wireless providers of various sizes serving a range of different geographic areas. Today’s Order maintains such a mixture but increases the amount of spectrum licensed on a small geographic area basis (Cellular Market Areas, or CMAs) from 10 MHz to 20 MHz in order to provide greater opportunities for smaller rural or regional providers to obtain access to this spectrum at auction. The Order also provides for an additional 10 MHz of spectrum licensed by Economic Areas (EAs)." (Parentheses in original.)

The FCC's release also states that "The new band plan splits the original 30 MHz E block at 1740-1755 MHz and 2140-2155 MHz into one 10 MHz block (new block E) and one 20 MHz block (new block F), in order to facilitate access to the spectrum by a wider array of new and existing wireless carriers seeking to deploy advanced services, improve service quality, augment existing networks, or expand coverage areas. Today’s Order also restructures the band plan by aligning the CMA, EA, and REAG spectrum blocks in order to enable operators to aggregate similarly-licensed spectrum more easily. For more information, please see the attached diagram depicting the old and new band plans for the 1710-1755 MHz and 2120-2155 MHz spectrum."

The FCC release also states that the order "affirmed its 2003 decision not to set aside a portion of the 1710-1755 MHz and 2110-2155 MHz bands exclusively for small businesses that meet certain eligibility criteria and its 2003 decision to provide two levels of bidding credits to small businesses that are winning bidders for licenses in those bands."

Finally, the FCC release states that "The Commission declined a request to add a third level of bidding credits and two proposals that would have amended its rules pertaining to eligibility for designated entity (“DE”) status and DE benefits such as bidding credits. The Commission also declined a third proposal to amend the DE rules in this proceeding, but stated that it would examine this issue further in a separate action."

FCC Commissioner Michael Copps wrote in a separate statement that "The Order also announces that the Commission will initiate a NPRM on the question of whether we should close a potentially troubling loophole in the designated entity program. The DE program is designed to create opportunities for smaller carriers to obtain the spectrum resources needed to bring new services to consumers. The program is often particularly useful in rural areas."

He added that "Our largest auction in many years is going to be held in June. We need to put this NPRM out immediately, compile the record, and develop whatever action plan may be necessary if it is determined that new protections are needed for the DE program -- well before the auction is held." (The FCC's release states that the auction will be held "as early as June 2006".)

FCC Commissioner Jonathan Adelstein wrote in a separate statement [PDF] that "it is unclear to me why the Commission allows large wireless companies to partner with DEs. This is even more important in the AWS auction where auction proceeds must be sufficient to cover government relocation costs."

"Do we want the nation's largest wireless carriers partnering with DEs to get a 25% discount so that auction revenues to the U.S. treasury could potentially be reduced by well over a billion dollars? How is the public interest served in that outcome?", asked Adelstein.

This item is FCC 05-149 in WT Docket No. 02-353.

People and Appointments

8/5. Bruce Franca was named acting Chief of the Federal Communications Commission's (FCC) Office of Engineering and Technology (OET). He has been Deputy Chief of the OET since 1987. He has worked for the FCC since 1974. See, FCC release.

8/5. Leslie Marx was named Chief Economist at the Federal Communications Commission (FCC). She is a game theoretical economists at Duke University's business school. See, FCC release.

More FCC News

8/5. The Federal Communications Commission's (FCC) agenda for its event of Friday, August 5, 2005 had included consideration of a Notice of Inquiry (NOI) concerning the effects of anticompetitive conduct and circuit disruption by foreign carriers on U.S. international routes. On Friday, August 5, the FCC deleted this item from its agenda.

8/5. The Federal Communications Commission's (FCC) agenda for its event of Friday, August 5, 2005 had included consideration of a Notice of Inquiry (NOI) that requests comments to assist it in preparing its 12th annual report on the status of competition in the market for the delivery of video programming. On Friday, August 5, the FCC deleted this item from its agenda.

8/5. The U.S. Court of Appeals (DCCir) issued its opinion [PDF] in Crawford v. FCC. Charles Crawford petitioned for review of the Federal Communications Commission's (FCC) dismissal of two of his proposals to amend the FCC's Table of Allotments for FM radio channels. The Court of Appeals denied the petition. This case is Charles Crawford v. FCC and USA, U.S. Court of Appeals for the District of Columbia Circuit, App. Ct. No. 04-1031, a petition for review of a final order of the FCC. Judge Garland wrote the opinion of the Court of Appeals, in which Judges Tatel and Randolph joined.

More News

8/5. The Department of Homeland Security's (DHS) Privacy Office will host a public workshop titled "Privacy and Technology: Government Use of Commercial Data for Homeland Security" on September 8 and 9, 2005. See, notice in the Federal Register, August 5, 2005, Vol. 70, No. 150, at Pages 45408 - 45409.

8/5. The General Services Administration (GSA) published a notice in the Federal Register that describes, and sets the comment deadline for, its proposal to establish a common infrastructure for electronically authenticating the identity of users of federal e-government services governmentwide. The GSA has named this the "E-Authentication Federation" and the "Service Component". Comments are due by September 6, 2005. See, Federal Register, August 5, 2005, Vol. 70, No. 150, at Pages 45391 - 45394.

8/5. The American Enterprise Institute (AEI) released a paper [54 pages in PDF] title "Expensing Employee Stock Options", by Charles Calomiris of the AEI. This paper argues that "there is no legitimate basis for the proposed expensing of employee stock options", and that "neither the granting nor the exercising of stock options results in any gross or net costs to the firm, using the definition of cost employed by financial economists".

8/5. The National Institute of Standards and Technology (NIST) released Draft Special Publication 800-85: NIST Special Publication 800-85 [111 pages in PDF] titled "PIV Middleware and PIV Card Application Conformance Test Guidelines (SP800-73 Compliance)". These guidelines provide an approach for development of conformance tests for personal identity verification (PIV) middleware and PIV card application products. The deadline to submit comments on this draft is 5:00 PM on August 26, 2005.

8/5. The National Institute of Standards and Technology (NIST) announced that ICAT vulnerability database has been completely rewritten and has become the National Vulnerability Database (NVD).

People and Appointments

8/4. Microsoft named Kevin Turner Chief Operating Officer. He previously was P/CEO of Sam's Club and EVP of WallMart Stores. See, Microsoft release.

More News

8/4. Chris Cox was sworn in a Chairman of the Securities and Exchange Commission (SEC) on August 3. See, SEC release. The SEC published an August 4 statement by Cox to SEC employees. He stated that the investors get information online. He said that "When a young worker starts putting away money for her retirement, and goes online to compare mutual funds -- should she have to be a detective in order to see how much the funds pay in brokerage fees each year? Or should she be able to comparison shop on the basis of clearly expressed and reliable information written in a language people actually speak?" Much of the current securities regulation regime dates back to 1933 and 1934, when communications were on paper, and investors were a small subset of the population. Perhaps Cox implies that securities regulation should take into consideration internet communications, and investment related use of the internet by a large group of individuals.

FCC Postpones Meeting from Thursday to Friday

8/3. The Federal Communications Commission (FCC) postponed its meeting of August 4 until August 5. See, original agenda [PDF] and notice of postponement [PDF].

Various published reports, citing unnamed sources, stated on Wednesday that the reason for the postponement is that the FCC may add a fourth item to the agenda. This item would be an order pertaining to digital subscriber line (DSL) service.

FCC Chairman Kevin Martin discussed this issue in a speech on July 26. He argued that "we should place all broadband providers on equal footing so that they can fairly compete in the marketplace -- not in front of regulators". He added that Supreme Court's June 26 opinion [59 pages in PDF] in NCTA v. Brand X, which pertains to the FCC's regulatory treatment of cable modem service, "provides us the opportunity to make this happen."

Martin also stated that "I have already shared with my colleagues a proposal that would give telcos the same deregulatory treatment as cable. It is my strong hope that this order will be adopted as soon as possible so that consumers can reap the benefits of continued infrastructure investment and the increased deployment of broadband services."

The three items already on the meeting agenda are (1) a Notice of Inquiry (NOI) concerning the effects of anticompetitive conduct and circuit disruption by foreign carriers on U.S. international routes, (2) a NOI that requests comments to assist it in preparing its 12th annual report on the status of competition in the market for the delivery of video programming, and (3) an Order on Reconsideration regarding its service rules for advanced wireless services in the 1710-1755 MHz and 2110-2155 MHz bands (WT Docket No. 02-353).

This event is now scheduled for 9:30 AM on Thursday, August 5, 2005 in the FCC's Commission Meeting Room, Room TW-C305, 445 12th Street, SW.

FCC and DOJ Approve the Merger of Sprint and Nextel

8/3. The Federal Communications Commission (FCC) announced, but did not release, a Memorandum Opinion and Order (MOO) in its antitrust merger review of the Sprint Nextel merger. It approved the merger, subject to conditions. In addition, the Department of Justice's Antitrust Division announced in a release that it has conducted an antitrust merger review, and "has closed its investigation".

The FCC did issue a short release [PDF] that describes this MOO. This release states that "the FCC believes this transaction is unlikely to result in collusive, anti-competitive behavior or create unilateral market power on the part of the merged entity. In addition, the FCC finds that there are no local markets where the post-merger competitive environment would require a divestiture of spectrum, networks, or customers."

It adds that "While the number of large nationwide carriers will be reduced from five to four as a result of the transaction, the FCC determined that carrier conduct will remain sufficiently competitive to ensure that market performance will not be impaired".

The FCC's release also addresses roaming. It states that the MOO "imposed a condition specifying that Sprint Nextel may not prevent its subscribers from reaching another carrier and completing calls via manual roaming, unless specifically requested to do so by a subscriber."

It adds that "Given the broad scope of the roaming concerns raised in this proceeding, the FCC has decided that roaming issues would be more appropriately addressed in a separate proceeding. As announced in the FCC’s Alltel-Western Wireless merger decision, the FCC plans to initiate a proceeding in the near future to examine whether the current roaming requirements applicable to mobile telephone carriers should be modified to address current market conditions and developments in technology."

The release also states that the MOO requires Spring Nextel "to meet certain milestones for offering service in 2.5 GHz band, unless circumstances beyond its control prevent the merged entity from reaching those milestones. In addition to other specific implementation requirements agreed to by Sprint Nextel, the first milestone requires Sprint Nextel to offer service using BRS/EBS spectrum to at least 15 million Americans within four years of the effective date of the order consenting to the merger, and the second milestone requires the company to serve an additional 15 million Americans within six years."

BRS is Broadband Radio Service. EBS is Education Broadband Services. This spectrum was previously known as MDS-ITFS.

Commissioner Michael Copps wrote in a separate statement [PDF] that "while this merger does not create market dominance in any particular market, it is part of a trend that merits close and continuing monitoring by the Commission. In less than a year mergers have reduced the number of national wireless competitors by one third. Only last year consumers could choose between six national carriers. There are now only four."

Commissioner Jonathan Adelstein wrote in his separate statement [PDF] that "I am somewhat troubled by the recent trend of consolidation among mobile wireless carriers". Nevertheless, he joined the other three in supporting this MOO.

See also, statement by FCC Chairman Kevin Martin, and statement [PDF] by Commissioner Kathleen Abernathy.

This FCC proceeding is nominally a license transfer proceeding. The FCC approved the transfer of licenses issued by the FCC that are associated with this merger. Its MOO is FCC 05-148 in WT Docket No. 05-63. The DOJ acted pursuant to statutory authority to conduct antitrust merger reviews.

The DOJ stated in its release that its review "focused on the proposed merger's potential effects on competition in the provision of mobile wireless voice and data services, including push-to-talk services. The Division also studied the potential impact on competition from the combination of Sprint's and Nextel's holdings of spectrum in the 2495-2690 MHz spectrum band."

The DOJ continued that "In analyzing mobile wireless voice and data services, the Division examined the extent to which Sprint and Nextel compete for the sale of such services in many areas throughout the United States. The Division focused its investigation on local and regional markets, because customers purchasing mobile wireless telecommunications services choose among providers that offer such services where they are located and travel on a regular basis".

The DOJ concluded that its evidence "indicates that the merger will not harm customers."

It elaborated that it "examined the shares of the two carriers, how closely positioned the two carriers' offerings are in depth and breadth of coverage, the service features they offer (including push-to-talk services), and local network quality. The Division also looked at evidence related to the choices customers make in the marketplace. Based on the extensive evidence collected, the Division concluded that it is unlikely that the merged company could unilaterally exercise market power to harm competition. Remaining carriers include large carriers such as Cingular and Verizon Wireless as well as smaller regional firms, and Sprint-Nextel will have robust competitors post-merger in every local area in which they compete. Moreover, although past customer choices indicate that Sprint and Nextel often closely compete with each other in some areas, rival carriers are perceived to offer alternatives that are sufficiently close to those of Sprint and Nextel to maintain competition."

Finally, it added that "Although Sprint-Nextel will be the largest holder of licenses in the 2495-2690 MHz spectrum band, the Division was unable to conclude that the merger's combination of this spectrum poses a competitive problem."

Sprint stated in a release that "This completes all required regulatory approvals for the merger, and the companies expect to close the merger shortly."

FTC Takes Action Against Deceptive Marketing of Adware

8/3. The Federal Trade Commission (FTC) issued an administrative Complaint [3 pages in PDF] against and John Ferber alleging violation of Section 5 of the FTC Act in connection with their deceptive marketing and installation of adware on consumers' computers. The parties simultaneously entered into an Agreement Containing Consent Order [7 pages in PDF].

The complaint alleges that "Respondents caused ads for SpyBlast to be served on consumers' computers" that "represented that because the consumer's computer was broadcasting an Internet IP address, it was at risk from hackers."

Then, "Consumers who clicked on this advertisement were shown an ActiveX ``security warning´´ installation box with a hyperlink describing SpyBlast as ``Personal Computer Security and Protection Software from unauthorized users´´ and telling them ``once you agree to the License Terms and Privacy Policy -- click YES to continue.´´"

The complaint continues that "If a consumer clicked ``Yes,´´ the software was installed, even if the consumer had not clicked on the hyperlink. Only if a consumer clicked on the hyperlink describing SpyBlast as ``Personal Computer Security and Protection Software from unauthorized users´´ before clicking ``YES,´´ did SpyBlast's End User Licensing Agreement (``EULA´´) appear. ... The EULA contained a statement that consumers agreed to receive marketing messages, including pop-up ads, in exchange for getting SpyBlast. It also stated that respondent collected information about SpyBlast users, including ``URLs of visited pages and [the user's] IP address,´´ and that this information allowed the company ``to send [a user] advertisements that might be of interest to [the user].´´" (Parentheses and brackets in original.)

The complaint further states that "The adware collected information about SpyBlast users, including URLs of visited pages and the user’s IP address, and this information allowed respondents to send users advertisements that respondents believed might be of interest to them. Consumers received a substantial number of pop-up advertisements as result of respondents’ installation of this adware onto their computers."

The complaint alleges that the respondents' failure "to disclose adequately that SpyBlast includes adware that causes consumers to receive pop-up advertisements" is a deceptive practice that violates the FTC Act.

The parties also settled. The Agreement Containing Consent Order requires, which is now owned by America Online, to disclose to consumers that its adware is bundled with its SpyBlast software. The agreement requires no fine or other monetary penalty or payment. The respondents admit no wrongdoing.

See also, FTC release.

Zoellick Discusses Trade and IPR in China

8/2. Robert Zoellick, the Deputy Secretary of State, held a news conference in Beijing, People's Republic of China, in which he discussed many issues. He touched on trade and intellectual property. See, transcript.

Robert ZoellickZoellick (at right) announced that "I know that the Chinese leaders have moved the country enormously in the direction of markets and improving the livelihood for China's people. At the same time, that makes China more influential in the world and you can see the effects of this integration, whether you look at commodities prices, whether you look at exchange rates, whether you look at issues of IPR and counterfeiting, whether you look at manufacturing markets. China is a significant influence on the world economy."

He added that "part of our challenge going forward is to see how to try to cooperate in terms of strengthening those systems, whether they be the international trade systems, whether they be -- sort of -- capital and currency flows."

Zoellick also reminded reporters that "I am no longer the U.S. Trade Representative".

Also, the Office of the U.S. Trade Representative (USTR), which is now headed by Robert Portman, published a notice in the Federal Register on August 3 in which it announced that it will hold a public hearing in Washington DC on September 14, 2005, regarding on the People's Republic of China's compliance with its World Trade Organization (WTO) commitments to assist it in preparing an annual report to the Congress. See, notice in the Federal Register, August 3, 2005, Vol. 70, No. 148, at Pages 44714 - 44715.

Court Holds Texas's Blocking of Legal E-Mail Is Neither Preempted by CAN-SPAM Act, Nor In Violation of 1st Amendment

8/2. The U.S. Court of Appeals (5thCir) issued its opinion [13 pages in PDF] in White Buffalo Ventures v. University of Texas at Austin, a case regarding the blocking of e-mail by a state. The opinion addresses two separate issues -- whether the federal CAN-SPAM Act preempts a state policy to block e-mail sent to state users where the e-mail being blocked does not violate the CAN-SPAM Act, and whether such a policy violates the First Amendment rights of the e-mail sender. The Court of Appeals answered both questions in the negative. It affirmed the District Court's summary judgment for the state that blocked e-mail.

The University of Texas at Austin (UTAustin) is a political subdivision of the state of Texas. It provides internet access and e-mail service to its faculty, staff, and students. It has a policy pertaining to the blocking of incoming e-mail. White Buffalo Ventures (WBV) operates several online dating services, including one that targets UTAustin students. WBV obtained from UTAustin a list of UTAustin e-mail addresses. It then began sending bulk unsolicited e-mail messages to these addresses regarding its dating service. E-mail users complained. UTAustin then blocked e-mail sent from WBV's domain.

UTAustin and WBV agree that the e-mail being blocking does not violate the federal CAN-SPAM Act. The CAN-SPAM Act, the full title of which is the "Controlling the Assault of Non-Solicited Pormography and Marketings Act of 2003", was S 877 in the 108th Congress. On December 16, 2003, President Bush signed it into law. It is now Public Law No. 108-187. It is codified at 15 U.S.C. §§ 7701-7713.

WBV filed a complaint in state court in Texas. It obtained a temporary restraining order. UTAustin removed the action to the U.S. District Court (WDTex), based upon federal question jurisdiction. The District Court lifted the injunction, and granted summary judgment to UTAustin.

WBV appealed. It argues on appeal that federal law preempts the anti-spam component of UTAustin's e-mail policy, and that the policy violates the First Amendment. The Court of appeals affirmed.

Preemption by the CAN-SPAM Act. The Court of Appeals first addressed the preemption issue.

Section 8(b)(1) of S 877, which is codified at 15 U.S.C. S 7707(b)(1), provides that "This chapter supersedes any statute, regulation, or rule of a State or political subdivision of a State that expressly regulates the use of electronic mail to send commercial messages, except to the extent that any such statute, regulation, or rule prohibits falsity or deception in any portion of a commercial electronic mail message or information attached thereto."

Subsection (b)(2) then provides that "This Act shall not be construed to preempt the applicability of -- (A) State laws that are not specific to electronic mail, including State trespass, contract, or tort law; or (B) other State laws to the extent that those laws relate to acts of fraud or computer crime."

Subsection (c) provides that "Nothing in this Act shall be construed to have any effect on the lawfulness or unlawfulness, under any other provision of law, of the adoption, implementation, or enforcement by a provider of Internet access service of a policy of declining to transmit, route, relay, handle, or store certain types of electronic mail messages."

The Court of Appeals concluded that the statutory preemption language is not clear. And, since preemption is an "extraordinary power", there is a "presumption against preemption of state law".

The Court reasoned that "There are two competing interpretations, both rooted firmly in the text of the Act, of the degree of authority state actors may wield in response to commercial spam. Under the first, state entities may not regulate commercial speech except where that regulation relates to the authenticity of the speech’s source and content. Under the second, state entities may implement a variety of non-authenticity related commercial speech restrictions, provided the state entity implementing them is an ``Internet access provider.´´"

It concluded that "As a result of Congress’s apparent failure to contemplate this question, we must not infer preemption. The textual ambiguity triggers the strong presumption against such a finding, and we cannot be sure whether UT’s regulations fall within the ambit of the express preemption clause. UT may therefore implement" its e-mail blocking policy.

UTAustin also argued that the CAN-SPAM Act only preempts certain state regulation of the sending of e-mail, as opposed to the receipt of e-mail, and that the UTAustin's policy regulates receipt. The words "send" and "sender" appear throughout the Act. However, the Court of Appeals wrote that "We decline to imbue the word ``send´´ with the particular significance UT urges."

First Amendment Rights. The Court of Appeals then addressed WBV's claim that UTAustin's blocking of its dating service e-mail violates its right to freedom of speech.

The Court first concluded that the speech at issue is commercial speech, and therefore, it must apply the four part test in the Supreme Court's opinion in Central Hudson Gas & Electric Corp. v. Public Service Commission, 447 U.S. 557 (1980).

The Court of Appeals wrote that the Supreme Court, in Central Hudson, "announced a four-part test to evaluate the legality of commercial speech regulation: (1) whether the speech is unlawful or misleading; (2) whether the government’s expressed interest is substantial; (3) whether the state action directly promotes that interest; and (4) whether the state action is more extensive than necessary to promote that interest." The Court of Appeals applied the four part test.

The Court of Appeals stated that the UTAustin satisfies the first part. The e-mail is not unlawful or misleading.

The Court of Appeals next addressed the second part, whether the state's interest is substantial. The Court reasoned that the state has two interests, user efficiency and server efficiency. It concluded that the state's interests are substantial. Although, it was more persuaded by the user efficiency argument -- that users need to be insulated from the burden of unwanted spam. The Court added that server efficiency "is among the most chronically over-used and under-substantiated interests asserted by parties ... involved in Internet litigation".

Perhaps it would not be too impertinent to note here that almost all federal judges are e-mail users, but few, if any, have ever attempted to manage e-mail systems, e-mail servers, or web servers.

The Court then addressed whether the state action directly promotes these substantial interests. It concluded that the UTAustin's actions do. It wrote that "One can hardly imagine a more direct means of preventing commercial spam from appearing in account-holders' inboxes and occupying server space than promulgating a policy that excludes such material from the email network."

Finally, the Court addressed whether the UTAustin's e-mail blocking is more extensive than necessary to promote its substantial interests. It concluded that with respect to promoting the interest of user efficiency, blocking is no more extensive than necessary. However, it concluded that with respect to promoting server efficiency, blocking is not no more extensive than necessary. The Court wrote that the UTAustin could have regulated the time and volume of WBV e-mail. That is, is could have allowed WBV to send its bulk e-mail at "off-peak times".

Since the Court found that the user efficiency interest meets the fourth part of the test, and the UTAustin's blocking satisfied the other three parts of the Hudson test, it held that UTAustin's e-mail blocking policy does not violate the First Amendment.

The Court's different conclusions regarding protecting the users, and protecting the servers, does nothing to assist WBV or other spammers in the sending of spam. However, the Court has established a precedent that may assist spammers in the practice of spidering web pages to harvest e-mail addresses. There is no user efficiency issue in this situation. Moreover, this precedent may be benefit those who engage in non-spam related spidering or crawling of the contents of web sites. This could be significant in suits involving claims such as computer trespass, unauthorized use of web sites, or and misappropriation of collections of data.

The Court also added that "we need not address what type of First Amendment forum a public university email network constitutes."

This case is White Buffalo Ventures, LLC v. University of Texas at Austin, U.S. Court of Appeals for the Fifth Circuit, App. Ct. No. m 04-50362, an appeal from the U.S. District Court for the Western District of Texas. Judge Jerry Smith wrote the opinion of the Court of Appeals, in which Judges Davis and DeMoss joined.

1st Circuit Rules on Application of Lanham Act to Foreign Defendants

8/2. The U.S. Court of Appeals (1stCir) issued its opinion in McBee v. Delica, a case regarding extraterritorial use of the Lanham Act. The Court of Appeals adopted a test that is different from that in the 2nd and 9th Circuits.

Cecil McBee is a U.S. citizen and resident, and a jazz musician who has toured in Japan. See for example, his album titled " Unspoken" [Amazon].

Delica Co. Ltd. is a Japanese corporation that adopted the name Cecil McBee for its girls clothing line. It operates a web site that is mostly in the Japanese language. Its URL is After McBee asserted a claim, Delica adopted a policy of not selling into the U.S.

A Google images search for "Cecil McBee" returns as top results both pictures of the musician McBee and pictures of Delica clothing and stores. A Google web search for "Cecil McBee" returns as the top result the above referenced Delica's web site.

McBee filed a complaint in U.S. District Court (DMaine) against Delica alleging trademark dilution and unfair competition claims under the Lanham Act, which is codified at 15 U.S.C. § 1051 et seq., and various Maine state law claims. He requested injunctive relief (including an injunction of the operation of the web site), damages, and attorney's fees.

McBee argued false endorsement, that the unlicensed use of his name has made a misleading and false inference that McBee endorses, approves, or sponsors Delica's product, and that inference has caused McBee harm. However, the Anti-cybersquatting Consumer Protection Act's (ACPA) is not at issue in this case.

The District Court dismissed for lack of subject matter jurisdiction. McBee appealed.

The Court of Appeals affirmed, but with an analysis that differed from that of the District Court, and other circuits.

The Court of Appeals concluded that "Our framework asks first whether the defendant is an American citizen; that inquiry is different because a separate constitutional basis for jurisdiction exists for control of activities, even foreign activities, of an American citizen. Further, when the Lanham Act plaintiff seeks to enjoin sales in the United States, there is no question of extraterritorial application; the court has subject matter jurisdiction."

It continued that "In order for a plaintiff to reach foreign activities of foreign defendants in American courts, however, we adopt a separate test. We hold that subject matter jurisdiction under the Lanham Act is proper only if the complained-of activities have a substantial effect on United States commerce, viewed in light of the purposes of the Lanham Act. If this ``substantial effects´´ question is answered in the negative, then the court lacks jurisdiction over the defendant's extraterritorial acts; if it is answered in the affirmative, then the court possesses subject matter jurisdiction."

Finally, the Court of Appeals wrote that "We reject the notion that a comity analysis is part of subject matter jurisdiction. Comity considerations, including potential conflicts with foreign trademark law, are properly treated as questions of whether a court should, in its discretion, decline to exercise subject matter jurisdiction that it already possesses."

Notably, the Court of Appeals did not follow the test set by the 2nd Circuit in Vanity Fair Mills v. T. Eaton Co., 234 F.2d 633 (1956). In that case the 2nd Circuit applied a three prong test, which the 1st Circuit summarized as follows: "(1) whether the defendant is an American citizen, (2) whether the defendant's actions have a substantial effect on United States commerce, and (3) whether relief would create a conflict with foreign law." See also, Reebok Int'l, Ltd. v. Marnatech Enters., 970 F.2d 552 (9th Cir. 1992).

Applying this new analysis to the facts of the present case, the 1st Circuit concluded that the District Court "lacked jurisdiction over McBee's claims seeking (1) an injunction in the United States barring access to Delica's Internet website, which is written in Japanese, and (2) damages for harm to McBee due to Delica's sales in Japan."

It further concluded that "McBee has made no showing that Delica's activities had a substantial effect on United States commerce. As to McBee's claim for (3) an injunction barring Delica from selling its goods in the United States, we hold that the district court had jurisdiction but conclude that this claim is without merit because the only sales Delica has made into the United States were induced by McBee for purposes of this litigation, and there is no showing that Delica plans on selling into the United States again."

This case is Cecil McBee v. Delica Co. Ltd., U.S. Court of Appeals for the First Circuit, App. Ct. No. 04-2733, an appeal from the U.S. District Court for the District of Maine, D.C. No. 02-198-P-C, Judge Gene Carter presiding. Judge Lynch wrote the opinion of the Court of Appeals, in which Judges Selya and Howard joined.

Bush Signs Document Related to BIS/BXA Regulation

8/2. The White House press office released a document, signed by President Bush, titled "Notice: Continuation of Emergency Regarding Export Control Regulations". See also, letter to the Speaker of the House and the President of the Senate.

The Export Administration Act expired in 2001. The Congress has worked on enacting replacement legislation, but has not done so. Meanwhile, the Department of Commerce's (DOC) Bureau of Industry and Security (BIS), which was formerly named the Bureau of Export Administration (BXA), continues to revise and enforce implementing regulations. These regulations pertain to, among other things, exports and "deemed exports" of dual use items, such as computers, software, and encryption products.

The President's document states that "On August 17, 2001, consistent with the authority provided me under the International Emergency Economic Powers Act (50 U.S.C. 170l et seq.), I issued Executive Order 13222. In that order, I declared a national emergency with respect to the unusual and extraordinary threat to the national security, foreign policy, and economy of the United States in light of the expiration of the Export Administration Act of 1979, as amended (50 U.S.C. App. 2401 et seq.). Because the Export Administration Act has not been renewed by the Congress, the national emergency declared on August 17, 2001, must continue in effect beyond August 17, 2005. Therefore, in accordance with section 202(d) of the National Emergencies Act (50 U.S.C. 1622(d)), I am continuing for 1 year the national emergency declared in Executive Order 13222."

Every year at about this time the President signs a similar document. This document will have the effect of maintaining in effect the BIS regulations.

Federal Circuit Issues New Opinion in NTP v. RIM

8/2. The U.S. Court of Appeals (FedCir) issued another opinion [75 pages in PDF] in NTP v. Research in Motion, a patent infringement case involving RIM's BlackBerry series of mobile communications and computing devices.

This is one of the cases cited by some proponents of patent reform, in support of the proposition that the Patent Act should be amended.

Research in Motion (RIM) makes Blackberrys. NTP holds U.S. Patents Nos. 5,436,960, 5,625,670, 5,819,172, 6,067,451, and 6,317,592, which pertain to technology for integrating existing e-mail systems with radio frequency (RF) wireless communication networks, to enable mobile users to receive e-mail over a wireless network.

Specifically, these are U.S. Patent Nos. 5,436,960 titled "Electronic mail system with RF communications to mobile processors and method of operation thereof", 5,625,670 titled "Electronic mail system with RF communications to mobile processors", 5,819,172 titled "Electronic mail system with RF communications to mobile radios", 6,067,451 titled "Electronic mail system with RF communications to mobile processors", and 6,317,592 titled "Electronic mail system with RF communications to mobile processors".

NTP filed a complaint in the U.S. District Court (EDVa) against RIM in 2001 alleging infringement of its patents. The District Court entered judgment of infringement for NTP, awarded damages to NTP of $53,704,322.69, and enjoined RIM from further infringement. See, August 5, 2003 Final Judgment.

RIM appealed. On December 14, 2004, the Court of Appeals issued its first opinion [60 pages in PDF] in this case. It affirmed in part, vacated in part, and remanded. RIM petitioned for rehearing, or in the alternative, for en banc review. Now, the same three judge panel of the Court of Appeals sets aside that 2004 opinion, and issued a new opinion.

In the present opinion, the Court of Appeals alters the District Court's construction of the claim term "originating processor", but affirmed the remainder of the District Court's claim constructions. The Court of Appeals also concluded that the District Court correctly denied RIM's motion for judgment as a matter of law, and did not abuse its discretion in denying evidentiary motions. It also concluded that the District Court was correct in sending the question of infringement of the system and apparatus claims to the jury, but erred as a matter of law in entering judgment of infringement of the method claims.

NTP successfully asserted 16 claims in the District Court. The 2004 opinion reversed as to three of these claims. The present opinion reverses as to those three, and an additional six, claims. The present opinion also vacates the damages award and injunction, and remands.

Specifically, the Court of Appeals wrote that "we reverse the judgment of infringement as to the asserted method claims, namely, claims 32 and 34 of the ’960 patent; claim 199 of the ’172 patent; and claims 309, 313, 317 of the ’451 patent. We affirm the judgment of infringement with respect to the system and apparatus claims that do not contain an "originating processor" limitation, namely, claims 28 and 248 of the ’451 patent, and claims 150, 278, 287, 653, and 654 of the ’592 patent. We vacate the judgment of infringement of the system claims that contain the "originating processor" limitation, namely, claim 15 of the ’960 patent; claim 8 of the ’670 patent; and claim 40 of the ’592 patent (through its parent claim 25), and remand to the district court the questions of whether and to what extent the jury verdict of infringement should be set aside, based on the prejudicial effect, if any, of the district court’s erroneous claim construction of the term ``originating processor.´´ We vacate the damage award and the injunction and affirm the district court’s judgment in all other respects." (Parentheses in original.)

Thus, the Court of Appeals affirmed in part, reversed in part, vacated in part, and remanded to the District Court.

RIM issued a release on August 2, 2005, in which it offered its summary of the proceedings related to this case. It wrote that "At trial in the District Court in 2002, NTP successfully asserted 16 claims of 5 patents against RIM. Today's Federal Circuit decision reversed the District Court’s ruling of infringement on 6 of the 16 claims, and found that RIM does not infringe those 6 claims. Consistent with its prior ruling, the Federal Circuit also vacated the District Court’s finding of infringement of an additional 3 of the 16 patent claims because the District Court erred in construing their scope, and remanded to the District Court for further proceedings based on the new claim construction."

RIM continued that "Infringement of the remaining 7 claims of the NTP patents was affirmed in today's ruling." However, its added that two of these claims have been rejected by the U.S. Patent and Trademark Office (USPTO) in its initial rulings in reexamination proceedings, and that the other five claims remain the subject of an ongoing Director initiated reexamination proceeding at the USPTO.

See also, story titled "USPTO Orders Reexamination of NTP Patents" in TLJ Daily E-Mail Alert No. 584, January 16, 2003. The patents to be reexamined are U.S. Patent Nos. 5,625,670 titled "Electronic mail system with RF communications to mobile processors", 5,631,946 titled "System for transferring information from a RF receiver to a processor under control of a program stored by the processor and method of operation thereof", 5,819,172 titled "Electronic mail system with RF communications to mobile radios", 6,067,451 titled "Electronic mail system with RF communications to mobile processors", and 6,317,592 titled "Electronic mail system with RF communications to mobile processors".

RIM also stated that "Consistent with its prior ruling, the Federal Circuit also vacated the damages award and injunction imposed by the District Court and ordered further proceedings."

Finally, RIM stated that "On June 9, 2005, RIM announced that it had brought a motion before the Federal Circuit seeking to stay the appeal and remand to the District Court to enforce the parties’ March 2005 settlement of the litigation. The Federal Circuit denied RIM’s motion to stay the appeal. The Federal Circuit was not asked to and did not rule on the enforcement of the settlement. The effect of today’s ruling is to leave the enforcement of the settlement to be decided by the District Court. In addition, RIM may seek en banc review of today’s ruling of the panel as to the affirmed patent claims and may also seek review by the United States Supreme Court."

See, story titled "RIM to Pay $450 Million to Settle NTP's Blackberry Related Patent Claims" in TLJ Daily E-Mail Alert No. 1,099, March 21, 2005.

This case is NTP, Inc. v. Research in Motion, Ltd., U.S. Court of Appeals for the Federal Circuit, App. Ct. No. 03-1615, an appeal from the U.S. District Court for the Eastern District of Virginia , D.C. No. 3:01CV767, Judge James Spencer presiding. Judge Linn wrote the opinion of the Court of Appeals, in which Judges Schall and Michel joined.

RIM is represented by Henry Bunsow and others of the law firm of Howrey Simon Arnold & White. NTP is represented by James Wallace and others of the law firm of Wiley Rein & Fielding.

People and Appointments

8/2. Jean Schmidt won a special election to the Second Congressional District in Ohio. The vacancy was created by the appointment of former Rep. Bob Portman (R-OH) to be the U.S. Trade Representative. Schmidt, a Republican, defeated Paul Hackett 52-48%. See, web site of the Hamilton County, Ohio, Board of Elections.

8/2. President Bush gave a recess appointment to Peter Cyril Wyche Flory to be an Assistant Secretary of Defense (International Security Policy). See, White House release.

More News

8/2. President Bush signed into law HR 3045, the "Dominican Republic-Central America-United States Free Trade Agreement Implementation Act". See, transcript of signing ceremony, and White House release.

8/2. The Progress and Freedom Foundation (PFF) released a paper [22 pages in PDF] titled "Reflections on Intellectual Property and Standards: The Immediate Issue: Should Standards be Own-Able?". The PFF's James DeLong, the author, writes that there are two issues. First, "Should a standard-setting organization (SSO) be willing to embrace a standard that can be implemented only with the use of intellectual property owned by a particular firm, and upon which the firm desires to collect royalties and impose other licensing conditions?" Second, "if an SSO is willing in principle to consider adopting an ``owned´´ standard, should it sometimes make its approval conditional upon the holder of the relevant IP agreeing to forego some of its property rights?" DeLong concludes that "The answers are ``yes,´´ SSOs should be willing to endorse ``owned´´ standards, and ``yes,´´ they should also be willing to make the endorsement conditional on the owner's willingness to renounce some of its property rights."

8/2. The National Institute of Standards and Technology's (NIST) Computer Security Division released its draft [52 pages in PDF] of Special Publication 800-18, Revision 1, titled "Guide for Developing Security Plans for Federal Information Systems". The deadline to submit comments on this draft is September 12, 2005.

People and Appointments

8/1. President Bush gave a recess appointment to John Bolton to be the U.S. Ambassador to the United Nations. See, transcript of event at which Bush made the announcement. Senate Democrats had blocked a vote on his nomination by the full Senate. The appointment lasts until the end of the 109th Congress -- January 2007.

More News

8/1. The Copyright Office published a notice in the Federal Register regarding a "notice of policy decision" regarding the recordation of documents with the Copyright Office pertaining to copyrights, such as assignments. See, Federal Register: August 1, 2005, Vol. 70, No. 146, Pages 44049 - 44052.

8/1. The National Institute of Standards and Technology (NIST) announced that it has "decided to recommend the Galois Counter Mode (GCM) in an upcoming draft special publication, SP 800-38D. GCM is a parallelizable mode of the Advanced Encryption Standard (AES) algorithm that combines Counter mode encryption with authentication that is based on a universal hash algorithm. In light of public comments on GCM, NIST intends to restrict the tag sizes for the authentication service to larger values. GCM is intended for high-throughput applications that can take advantage of the parallelizability while tolerating the tag size restrictions. Information about the ongoing development effort for block cipher modes of operation, including the GCM submission documentation and public comments, is available through the modes home page."

Go to News from July 26-31, 2005.