TLJ News from July 21-25, 2006

Europe Announces Public Consultation on Regulation of Children's Use of Mobile Phones

7/25. The European Commission (EC) announced a public consultation regarding possible regulation of "the use of mobile phones by children and young people". See, EC release.

Viviane RedingViviane Reding (at right), the EC's Commissioner for Information Society and Media, stated that "protection of minors in mobile communications is the responsibility of all actors: industry, child safety associations and public bodies. The more efficient self-regulation can become, the less the need for State intervention."

The EC stated that "The consultation aims to gather factual information and views from different stakeholders on the types of risks faced by children in their use of mobile content services, the technical and regulatory solutions that exist and the scope for further action, in particular at European level."

The EC seeks comments "linked to content and behaviour, such as access to harmful or illegal content, bullying (e.g. distribution of abusive or compromising messages and photos amongst children), grooming (e.g. strangers ``making friends´´ with children with a view to meeting them), risks to the privacy of children, and the risk of unexpectedly high expense." (Parentheses in original.)

The deadline to submit comments is October 16, 2006.

Panel Discusses Possible FTA with Taiwan

7/25. The American Enterprise Institute (AEI) hosted a panel discussion titled "Strengthening the U.S.-Taiwan Relationship: The Prospects for a Free Trade Agreement".

All of the participants advocated a free trade agreement (FTA) between the U.S. and Taiwan. The keynote speaker, Steve Ruey-Long Chen (Deputy Minister of the Ministry of Economic Affairs), stated that a FTA would grow U.S. exports to Taiwan by 16%, according to a U.S. International Trade Commission (USITC) study.

He also said that an FTA would include "enhanced protection of IPR" and "enhanced cooperation on high tech / nanotech R&D".

He said that "Taiwan is ready to enter into FTA negotiations" with the U.S. at any time, and hopefully this year. He also stated that Taiwan seeks a comprehensive FTA, rather than a trade and investment framework agreement (TIFA).

Chun-Der Wu (Taiwan's Institute for Information Industry) outlined opportunities for U.S. companies in Taiwan in telecommunications and technology. He stated that the U.S. excels at innovation, sales, marketing, and system integration, while Taiwan excels at manufacturing. He said that the U.S. and Taiwan tend to engage in complimentary, rather than competitive, activities.

He also discussed Taiwan's foreign investment limitations, and other non-tariff barriers, and recent steps that Taiwan has taken unilaterally to reduce barriers.

Claude Barfield (AEI) made the point that while unilateral reductions are nice, they are informal, and could be reversed. However, if they were incorporated into an FTA or a World Trade Organization (WTO) agreement, then they would be permanent and enforceable.

Webster Wei-Ping Kiang (Chinatrust Commercial Bank) spoke at the AEI event about the financial services sector.

Negotiating a FTA between the U.S. and Taiwan is unlike negotiating other FTAs. For example, Barfield stated that the People's Republic of China (PRC) has successfully exerted pressure on other Asian nations not to negotiate or enter into a FTA with Taiwan, and opposes the U.S. doing so.

Rupert Hammond-Chambers (U.S.-Taiwan Business Council) stated that there are interagency issues in the U.S. For example, the Department of Defense would like to see Taiwan do more to develop its defense capabilities.

Dan Blumenthal (AEI) and Barfield also indicated that the office of the U.S. Trade Representative is dragging its feet on an FTA with Taiwan so as not to offend the PRC. There was no one from the USTR on this panel.

Barfield elaborated that the PRC states that it opposes a U.S. Taiwan FTA because it would be a step towards recognizing the sovereignty of Taiwan. Barfield said that "this is nonsense" because the PRC allowed Taiwan to enter into the WTO as a "customs territory" and could do the same for FTAs.

Barfield also argued that while Taiwan invests in and exports to the PRC, Taiwan should not be bound by a production model that begins and ends with the mainland. He said that it is important that Taiwan be integrated into East Asian production sharing models. Also, he suggested that the U.S. should tell the PRC either to stop bullying other nations not to enter into FTAs with Taiwan, or the U.S. will negotiate an agreement with Taiwan.

Finally, Barfield predicted that it is unlikely that the U.S. Congress will extend trade promotion authority (TPA), which expires next summer. However, he suggested that an FTA with Taiwan might be approved by the Congress absent TPA. Chambers added that "Taiwan is a very unique unifier in Congress."

There has been some activity in Congress on this subject. On February 16, 2006, Rep. Jim Ramstad (R-MN), introduced HConRes 346, a resolution that states "That it is the sense of the Congress that the United States should increase trade opportunities with Taiwan by launching negotiations to enter into a free trade agreement with Taiwan."

This resolution states that one reason for negotiating a FTA is that "Taiwan has become the world's largest producer of information technology hardware, and ranks first in the production of notebook computers, monitors, motherboards, and scanners".

Rep. Ramstad is a member of the House Ways and Means Committee, which has jurisdiction over many trade related issues, including FTAs. The Committee has taken no action on this resolution.

This resolution has 56 cosponsors. While most are Republicans, there are also some Texas Democrats, which is home to Dell, including Charlie Gonzales, E.B. Johnson, Henry Cuellar, and Solomon Ortiz. The sponsors also include some West Coast Democrats, including Henry Waxman, Anna Eshoo, Loretta Sanchez, David Wu, and Pete Stark.

Also, on July 20, 2006, the House International Relations Committee (HIRC) held a hearing titled "Asian Free Trade Agreements: Are They Good for the USA?"

Karan Bhatia, Deputy USTR, wrote in his prepared testimony [7 pages in PDF] that "We also have an active TIFA dialogue with Taiwan. I recently traveled to Taiwan for two days of discussions under the U.S.-Taiwan TIFA, and was able to get a first-hand view of the vibrancy of that economy and of the importance that senior leaders there place on our trade relationship. That relationship is a strong one, with nearly $57 billion in two-way goods trade last year. Taiwan is an important economic partner for the United States and it is one that we are determined not to overlook."

See also, opening statement of Rep. Henry Hyde (R-IL).

House Approves Bill to Create DHS Office of Emergency Communications

7/25. The House approved HR 5852, the "21st Century Emergency Communications Act of 2006", by a vote of 414-2. See, Roll Call No. 397. The Senate has yet to approve the bill.

This bill creates an "Office of Emergency Communications" (OEC) at the Department of Homeland Security (DHS).

It provides, among other things, that the new OEC shall "promote the development of best practices with respect to use of interoperable emergency communications capabilities for incident response and facilitate the sharing of information on such best practices".

It also provides that the OEC shall "coordinate the establishment of a national response capability with initial and ongoing planning, implementation, and training for the deployment of backup communications services in the event of a catastrophic loss of local and regional emergency communications services".

It also requires that the OEC shall "establish ... requirements for total and nonproprietary interoperable emergency communications capabilities for all public safety radio and data communications systems and equipment purchased using homeland security assistance administered by the Department".

Rep. Dave Reichert (R-WA) introduced this bill on July 20, 2006. See also, Reichert release and House Science Committee release.

7th Circuit Issues Second Opinion in Computer Hacking Case

7/25. The U.S. Court of Appeals (7thCir) issued an opinion [5 pages in PDF] in International Airport Centers v. Citrin, a post employment dispute between a real estate company chartered in Delaware, International Airport Centers (IAC), and its former Chicago based employee, Jacob Citrin.

IAC sued Citrin in U.S. District Court (NDIll) on various state law claims, and for civil violation of the federal computer hacking statute, 18 U.S.C. § 1030. While in the employ of IAC Citrin used a trace remover tool on the laptop assigned to him by IAC.

In its March 8, 2006, opinion [7 pages in PDF], the Court of Appeals held that an employee of a company who is provided a laptop computer by that company, and who uses a trace remover tool on that laptop, may be sued civilly, or prosecuted criminally, for that act, even if there is no employment contract or company policy that prohibits the use of trace remover programs. That opinion is also reported at 440 F.3d 418.

See also, story titled "7th Circuit Applies Computer Hacking Statute to Use of Trace Removers on Employee Laptops" in TLJ Daily E-Mail Alert No. 1,326, March 9, 2006. That TLJ article contains a detailed analysis of trace remover tools and the Court of Appeals' § 1030 analysis, and implies that the March 8 opinion was unfortunate, and a rare example of flawed reasoning by its author, Judge Richard Posner.

In the previous opinion, the Court of Appeals ruled that Citrin's motion to dismiss the § 1030 claim should be denied. The Court of Appeals remanded the case to the District Court for further proceedings.

The present opinion concerns IAC's appeal of the District Court's denial of an injunction of a related state court proceeding. Citrin filed a complaint in state court in Delaware seeking declaratory and injunctive relief that IAC is obligated to, among other things, pay in advance for his defense in the District Court action, as a consequence of Citrin's employment contract, which requires IAC to defend and indemnify him for any damages he might incur if he is sued based on acts performed in connection with the IAC's business. IAC is a Delaware corporation, and Delaware law controls construction of IAC's employment contracts.

IAC argued in the District Court, and on appeal, that the Delaware action is a collateral attack upon the Court of Appeals prior ruling that IAC's § 1030 claim survives a motion to dismiss. The District Court denied IAC's motion for a preliminary injunction. IAC then brought the present appeal.

The Court of Appeals affirmed the denial of the injunction.

It reasoned that "The Delaware suit is not a collateral attack on our ruling. Citrin is not asking the Delaware court to hold, contrary to our decision, that IAC has failed to state a claim under the federal computer statute. He is not asking to be indemnified on the ground that he is innocent of the charge of breach of fiduciary obligation. That would require a ruling on the merits of IAC’s claim and he is not asking for that. All he is asking is that in advance of the final disposition of the suit in federal district court he receive his litigation expenses in accordance with the terms of his employment contract. And since entitlement to advancement is independent of the merits of the suit for which the money is sought, ... the claim for advancement is not a compulsory counterclaim to that suit. For the claim does not arise out of the litigation; it arises out of the employment contract."

The Court of Appeals also wrote that because of Delaware precedent on attorneys fees advancement, "Delaware judges might be more favorably disposed to claims such as Citrin's than other judges, including federal judges in the Seventh Circuit, would be. And so there is an element of ``forum shopping´´ in Citrin’s decision to seek advancement in Delaware rather than in Chicago, where it could do so without a separate litigation. But more must be shown to justify an injunction against proceeding in what would be after all a perfectly natural and proper forum in which to bring such a suit."

The Court of Appeals did not state, in either this or its previous opinion, that there may also have been forum shopping by IAC. This dispute is essentially a post employment dispute involving state law claims of breach of fiduciary duty, conversion, misappropriation, breach of contract, and theft of trade secrets. See, IAC's amended complaint [30 pages in PDF]. IAC may have added the § 1030 claim (which is federal) to create federal question jurisdiction.

This case is International Airport Centers, LLC, et al. v. Jacob Citrin, U.S. Court of Appeals for the 7th Circuit, App. Ct. No. 06-2073, an appeal from the U.S. District Court for the Northern District of Illinois, Eastern Division, D.C. No. 03 C 8104, Judge Wayne Andersen presiding. Judge Posner wrote the opinion of the Court of Appeals, in which Judges Williams and Sykes joined.

IAC is represented by Jeffrey Fowler of the law firm of Laner Muchin and Don Reuben of the law firm of Kane Carbonara. Citrin is presented by Ronald Marmer of the law firm of Jenner & Block.

DC Circuit Denies Petition for Review in Echostar v. FCC

7/25. The U.S. Court of Appeals (DCCir) issued its opinion [19 pages in PDF] in Echostar v. FCC, denying Echostar's petition for review of the Federal Communications Commission's (FCC) orders that adopted an improved version of its Individual Location Longley-Rice (ILLR) model for predicting the strength of broadcast television signals.

§ 1008 of the Satellite Home Viewer Improvement Act of 1999 (SHVIA), which is codified at 47 U.S.C. § 339(c)(3), directed the FCC to adopt "a point-to-point predictive model for reliably and presumptively determining the ability of individual locations to receive signals in accordance with the signal intensity standard in effect under section 119(d)(10)(A) of title 17. In prescribing such model, the Commission shall rely on the Individual Location Longley-Rice model set forth by the Federal Communications Commission in Docket No. 98–201 and ensure that such model takes into account terrain, building structures, and other land cover variations. The Commission shall establish procedures for the continued refinement in the application of the model by the use of additional data as it becomes available."

Pursuant to this direction, the FCC conducted a rulemaking proceeding, and issued the two orders that are the subject of this proceeding. Echostar filed a petition for review of these orders, which the Court of Appeals denied.

This case is Echostar Satellite, LLC v. FCC and USA, respondents, and National Association of Broadcasters, et al, intervenors, U.S. Court of Appeals for the District of Columbia, App. Ct. No. 04-1304, a petition for review of final orders of the FCC.

People and Appointments

7/25. President Bush announced his intent to designate Stephen Larson to be acting General Counsel for the Department of the Treasury. See, White House release.

7/25. President Bush nominated Margrethe Lundsager to be the U.S. Executive Director of the International Monetary Fund (IMF) for a term of two years. See, White House release and release.

7/25. President Bush nominated Dianne Moss to be a Member of the Board of Directors of the Overseas Private Investment Corporation (OPIC) for a term expiring on December 17, 2007. See, White House release and release.

7/25. Andrew Noyes joined the National Journal's Technology Daily as a senior writer. His beat will include intellectual property policy, privacy, civil liberties and courts/litigation. He replaces Sarah Stirland. His new e-mail address is anoyes at nationaljournal dot com. He was previously associate managing editor of Washington Internet Daily.

7/25. Greg Piper was promoted to associate managing editor of Warren Publication's Washington Internet Daily. He has worked at Warren since February of 2005. He replaces Andrew Noyes.

7/25. The Senate confirmed Jerome Holmes to be a Judge of the U.S. Court of Appeals (10thCir). See, Congressional Record, July 25, 2006, at Page S8210.

7/25. Rep. Bennie Thompson (D-MS), the ranking Democrat on the House Homeland Security Committee, wrote a letter [PDF] to Secretary of Homeland Security Michael Chertoff to express his "deep concern" over the selection of Hugo Teufel to be the Department of Homeland Security's (DHS) new Chief Privacy Officer. He wrote that "When Congress created the Chief Privacy Officer, it was with the intent that the position would be filled by a qualified and experienced privacy expert. Nuala O'Connor Kelly, the first (and last) Chief Privacy Officer for the Department, fit this bill as she had both worked in a private sector environment tackling privacy and technology issues and served as the privacy officer at the Department of Commerce. Maureen Cooney, who was the interim Privacy Officer, also had years of experience working on privacy issues at the Federal Trade Commission and as O'Connor Kelly's Chief of Staff and Director of International Privacy Policy. Both are respected among government, private sector, and privacy experts and brought credibility to the position. They did so by putting their responsibility to advocate for the American people and their privacy rights ahead of pleasing the Departmental leadership." Rep. Thompson added that "Teufel obviously lacks the expertise in privacy law".

More News

7/25. The Cato Institute published a short paper arguing that compulsory jury service should be replaced with an all volunteer jury system.

7/25. The National Telecommunications and Information Administration (NTIA) published a notice in the Federal Register regarding its proposed rules for the administration of the program to provide $40 coupons to consumers for use towards the purchase of digital to analog converter boxes. The deadline to submit comments is 5:00 PM on September 25, 2005. See, NTIA release [PDF] and notice in the Federal Register, July 25, 2006, Vol. 71, No. 142, at Pages 42067-42074.

7/25. The Department of Defense (DOD) issued a Directive [18 pages in PDF] that states the mission, responsibilities, functions, relationships, and authorities of the Defense Information Systems Agency (DISA).

9th Circuit Holds Government Can Conduct Warrantless Random Searches of Laptops of Persons Entering US at Airports

7/24. The U.S. Court of Appeals (9thCir) issued its opinion [PDF] in USA v. Romm, holding that a border or international airport seizure and search of a laptop computer, including search of internet caches, forensic analysis, and recovery of deleted files, is permissible, without consent, a warrant, probable cause, or any reason to believe that contraband is being brought into the U.S.

The Court of Appeals did not address what the consequences of such search authority, and resulting government searches, may have for information security, and preservation of trade secrets and other proprietary and confidential information.

Romm traveled by air from the U.S. to Canada. Canadian customs searched his laptop, and then denied him entry. It sent him back to the U.S. by air. It also seized his laptop and transferred it to U.S. customs, which did further searches and forensic analysis.

Romm was criminally charged in the U.S. on the basis of the government's discovery of, among other things, automatically cached files associated with web browsing. He moved to suppression evidence obtained as a result of the seizure and searches of his laptop. The District Court denied the motion. He was convicted.

The Court of Appeals affirmed the denial of the motion to suppress evidence. The Court first rejected his 4th Amendment argument. It wrote that "Under the border search exception, the government may conduct routine searches of persons entering the United States without probable cause, reasonable suspicion, or a warrant."

The Court of Appeals added that "For Fourth Amendment purposes, an international airport terminal is the ``functional equivalent´´ of a border."

The Court of Appeals concluded that the scope of searches includes the contents of a computer hard drive. However, it did not explain the basis for this.

Since Romm was denied entry into Canada, and sent back to the U.S., he had "no opportunity to obtain foreign contraband", which is the primary purpose for U.S. border searches. The Court of Appeals wrote that "Even so, the border search doctrine is not limited to those cases where the searching officers have reason to suspect the entrant may be carrying foreign contraband." The Court of Appeals added that border searches "are reasonable simply by virtue of the fact that they occur at the border."

Romm also made a 1st Amendment argument. However, the Court of Appeals declined to address this argument, on the basis that is was raised for the first time on appeal.

The Court of Appeals opinion also addresses other non-technology related appeal issues.

This case is USA v. Stuart Romm, U.S. Court of Appeals for the 9th Circuit, App. Ct. No. 04-10648, an appeal from the U.S. District Court for the District of Nevada, D.C. No. CR-04-00216-PMP(PAL), Judge Pro presiding. Judge Carlos Bea wrote the opinion of the Court of Appeals, in which Judges Betty Fletcher and David  Thompson joined.

4th Circuit Affirms in IBM Sales Commission Case

7/24. The U.S. Court of Appeals (4thCir) issued its opinion [11 pages in PDF] in Jensen v. IBM, a contract case involving commissions for sales of IBM software. The Court of Appeals affirmed the judgment of the District Court for IBM.

IBM makes, among other things, software. It hired Niels Jensen in 2000 as a software salesman. IBM provided Jensen and other salesmen a copy of its document titled "Welcome to the fabulous world of your 2001 Software Sales Incentive Plan". It explained how the salesmen would be compensated, through base pay, percentages of sales, and attaining quotas.

Jensen quickly turned out to be a phenomenally good salesman. In 2001 he closed a $24 Million sale to a government agency. Jensen sought compensation based upon the formulas provided in the document provided to salesmen. IBM refused. IBM substantially reduced the commission based upon criteria not disclosed to salesmen in the document.

Jensen filed a complaint in U.S. District Court (EDVa) against IBM alleging breach of contract. The District Court held that the document did not constitute, or set the terms of, a contract. It concluded that Jensen was an at will employee who had no employment contract with IBM.

IBM was free to ignore the commission language in the document that it provided to its salesmen.

Jensen appealed. The Court of Appeals affirmed. It held that there was no contract, only a company policy.

Even after IBM's action, Jensen's performance was so exemplary that he still received substantially more compensation from IBM in 2001 than did the three Court of Appeals Judges, and the District Court Judge, combined. They had little sympathy for the salesman.

Persons considering accepting employment from IBM may wish to first employ counsel with expertise in negotiating and drafting employment contracts.

This case is Niels Jensen v. International Business Machines Corporation, U.S. Court of Appeals for the 4th Circuit, App. Court No. 05-1611, an appeal from the U.S. District Court for the Eastern District of Virginia, D.C. No. CA-04-1316-1, Judge Leonie Brinkema presiding. Judge Niemeyer wrote the opinion of the Court of Appeals, in which Judges Wilkinson and King joined.

FCC Adelphia Order Rejects Network Neutrality Objections

7/24. The Federal Communications Commission (FCC) released the text [157 pages in PDF] of its Memorandum Opinion and Order that approves the sale of most of the cable systems and assets of Adelphia Communications Corporation to Time Warner Inc. and Comcast Corporation, subject to conditions.

The FCC adopted, but did not release, this item at its July 13, 2006, meeting. See also, story titled "FCC Approves Sales of Adelphia Assets" in TLJ Daily E-Mail Alert No. 1,411, July 17, 2006. This item is FCC 06-105 in MB Docket No. 05-192.

The MOO addresses network neutrality issues at paragraphs 212-223. The MOO states that "Several commenters assert that the proposed transactions would reduce competition in the market for residential high-speed Internet access or would facilitate discrimination by Comcast or Time Warner against unaffiliated providers of Internet content or applications."

However, the MOO does not include a condition similar to that contained in the AOL-Time Warner order in 2001, which required AOL Time Warner to give unaffiliated ISPs open access to its cable systems. Nor does the MOO condition approval upon compliance with the FCC's policy statement [3 pages in PDF], adopted on August 5, 2005, and released on September 23, 2005. See also, story titled "FCC Adopts a Policy Statement Regarding Network Neutrality" in TLJ Daily E-Mail Alert No. 1,190, August 8, 2005, and story titled "FCC Releases Policy Statement Regarding Internet Regulation" in TLJ Daily E-Mail Alert No. 1,221, September 26, 2005.

The MOO concludes that "the transactions are not likely to increase incentives for either Comcast or Time Warner to engage in conduct that is harmful to consumers or competition with respect to the delivery of Internet content, services, or applications given the competitive nature of the broadband market."

It finds that recently, "consumers have gained access to more choice in broadband providers", and that "cable modem service and DSL service are facing emerging competition from deployment of cellular, WiFi, and WiMAX-based competitors, and broadband over power line (BPL) providers."

It also concludes that increased penetration of broadband services "has been accompanied by more vigorous competition. In turn, greater competition limits the ability of providers to engage in anticompetitive conduct, a concern of some commenters, since subscribers would have the option of switching to alternative providers if their access to content were blocked or degraded."

The MOO states that "The only specific factual allegation in the record concerns an instance of e-mails being inadvertently blocked by a Comcast firewall provider." (Footnotes removed from this and other quotes.)

It adds that "There is no evidence that the block was motivated by subjective judgments regarding the content being transmitted or that it was anything other than the result of a legitimate spam filtering effort by Symantec."

The MOO concludes that "There is, other than this, no record evidence indicating that Comcast or Time Warner has willfully blocked a web page or other Internet content, service, or application via its high speed Internet platforms. Commenters and petitioners do not offer evidence that Time Warner and Comcast are likely to discriminate against Internet content, services, or applications after the proposed transactions are complete; nor do they explain how the changes in ownership resulting from the transactions could increase Time Warner’s or Comcast’s incentive to do so.

The MOO adds that "If in the future evidence arises that any company is willfully blocking or degrading Internet content, affected parties may file a complaint with the Commission."

Finally, the MOO discusses the FCC's policy statement. It states that "This statement reflects the Commission’s view that it has the jurisdiction necessary to ensure that providers of telecommunications for Internet access or Internet Protocol-enabled (IP-enabled) services are operated in a neutral manner."

The MOO continues that "The Commission held out the possibility of codifying the Policy Statement’s principles where circumstances warrant in order to foster the creation, adoption, and use of Internet broadband content, applications, services, and attachments, and to ensure consumers benefit from the innovation that comes from competition. Accordingly, the Commission chose not to adopt rules in the Policy Statement. This statement contains principles against which the conduct of Comcast, Time Warner, and other broadband service providers can be measured. Nothing in the record of this proceeding, however, demonstrates that these principles are being violated by Comcast or Time Warner or that the transactions before us create economic incentives that are likely to lead to violations. Additionally, the vigorous growth of competition in the high-speed Internet access market further reduces the chances that the transactions are likely to lead to violations of the principles."

Report Contends Universal Service Programs Are a Failure

7/24. The Seniors Coalition published a report [91 pages in PDF] titled "``Universal Service´´ Telephone Subsidies: What Does $7 Billion Buy". The author is Tom Hazlett, a professor of law and economics at George Mason University, and a former Chief Economist of the Federal Communications Commission (FCC).

The report concludes that universal service "benefits are largely distributed to shareholders of rural telephone companies, not consumers, and fail -- on net -- to extend network access." It also argues that "the incentives created by these subsidies encourage widespread inefficiency and block adoption of advanced technologies -- such as wireless, satellite, and Internet-based services -- that could provide superior voice and data links at a fraction of the cost of traditional fixed-line networks."

High Cost Fund. The paper notes the potential for VOIP services provided over cable broadband connections, and wireless services, to substitute for subsidized wireline service. It argues that "no more than two or three percent of Americans are beyond the reach of communications systems offering an alternative to traditional fixed line phone service". It adds that satellite service could provide service for remote locations and mission critical functions. It concludes that the "emergence of these multiple rival networks allows us to plausibly consider capping, reducing, or even abolishing the $3.7 billion per year high-cost fund."

The paper takes issue with the high cost fund's subsidization of carriers, rather than consumers. It argues that this leads to great inefficiency. It states that some rural telephone companies manage to spend over $500 per year per subscriber just on corporate overhead, and up to $13,345 per line per year to provide service to remote areas. The paper jests that "It would be cheaper to purchase a $3,000 solar-powered, self-contained satellite phone booth for each residential unit than to continue doling out payments to the highest cost rural carriers".

The paper argues that if high cost universal service subsidies are continued that the government should consider auctioning the "provider of last resort" duty to the low-cost bidder, or "distributing subsidies not to carriers (encouraging cost inflation) but to consumers in the form of phone service vouchers (thus encouraging smart shopping)". (Parentheses in original.)

E-Rate. The paper concludes that "The E-Rate program generously funds computers and computer network connections in educational institutions. Much of this spending would likely take place without the E-Rate program, especially in higher income areas, while lax oversight results in gold-plated systems and fraud. More generally, research on student achievement suggests that E-Rate program benefits are unproven."

It adds that the program also leads to both "gold-plating and fraud". Moreover, by taxing productive activities, it may result in lost economic output greater than the taxes collected.

People and Appointments

7/24. Conrad Hewitt was named Chief Accountant of the Securities and Exchange Commission (SEC), effective August 18, 2006. See, SEC release.

More News

7/24. The Federal Communications Commission (FCC) released Notice of Proposed Rulemaking [22 pages in PDF] in a new proceeding titled "In the Matter of Amendment of Section 90.20(e)(6) of the Commission's Rules". This is a reaction to Lojack's petition for rulemaking relating to the use of spectrum for stolen vehicle recovery systems (SVRS). The FCC proposes to revise section 90.20(e)(6) of its rules "to permit increased mobile output power, to permit digital emissions in addition to the analog emissions currently authorized by the Rules, and to relax the limitations on duty cycles", among other things. The FCC adopted this item on July 19, 2006, and released it on July 24, 2006. It is FCC 06-107, in WT Docket No. 06-142. Comments will be due 30 days after publication of a notice in the Federal Register. Reply comments will be due 45 days after such publication.

7/24. The Federal Communications Commission (FCC) released the text [36 pages in PDF] of its Further Notice of Proposed Rulemaking (FNPRM) related to its various media ownership rules. The FCC adopted, but did not release, this FNPRM at its June 21, 2006 meeting. See also, story titled "FCC Adopts FNPRM on Rules Regulating Ownership of Media" in TLJ Daily E-Mail Alert No. 1,397, June 22, 2006. This FNPRM is FCC 06-93 in MB Docket No. 02-277, MM Docket No. 01-235, MM Docket No. 01-317, MM Docket No. 00-244, and MB Docket Nos. 06-121.

7/24. Advanced Micro Devices, Inc. (AMD) will acquire ATI Technologies, Inc. AMD makes microprocessors. ATI makes 3D graphics and PC platform technologies. AMD stated in a release that "AMD will acquire all of the outstanding common shares of ATI for a combination of $4.2 billion in cash and 57 million shares of AMD common stock, based on the number of shares of ATI common stock outstanding on July 21, 2006. All outstanding options and RSUs of ATI will be assumed. Based upon the closing price of AMD common stock on July 21, 2006 of $18.26 a share, the consideration for each outstanding share of ATI common stock would be $20.47, comprised of $16.40 of cash and 0.2229 shares of AMD common stock." The transaction is subject to regulatory approval. See also, ATI release [PDF].

6th Circuit Affirms in BellSouth v. Universal Telecom

7/21. The U.S. Court of Appeals (6thCir) issued its opinion [5 pages in PDF] in BellSouth v. Universal Telecom, an interconnection case.

For the purposes of this case, BellSouth is an incumbent local exchange carrier (ILEC), and Universal Telecom is a competitive local exchange carrier (CLEC). The Kentucky Public Service Commission (KPSC) is the state of Kentucky's communications regulatory commission with authority under 47 U.S.C. §§ 251 and 252.

47 U.S.C. § 251 provides, at subsection (a)(1), that "Each telecommunications carrier has the duty -- (1) to interconnect directly or indirectly with the facilities and equipment of other telecommunications carriers".

47 U.S.C. § 252 provides, at subsection (a)(1), that "Upon receiving a request for interconnection, services, or network elements pursuant to section 251 of this title, an incumbent local exchange carrier may negotiate and enter into a binding agreement with the requesting telecommunications carrier or carriers ..."

47 U.S.C. § 252(e) requires that such agreements must be submitted for approval or rejection to the state commission. Back in 2002 BellSouth and MCI completed the negotiation of an interconnection agreement. It contained a change in law provision. The KPSC approved it on August 28, 2002.

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

Universal Telecom, taking advantage of subsection 252(i) notified BellSouth on March 12, 2004, that it wished to adopt the MCI interconnection agreement. BellSouth refused.

The KPSC then issued an order, pursuant to 47 U.S.C. § 252(i), allowing Universal Telecom to adopt the existing interconnection agreement between BellSouth and MCI.

BellSouth filed a complaint in U.S. District Court (EDKy) against Universal Telecom, the KPSC, and its members, challenging the decision of the KPSC. The District Court affirmed the order of the KPSC. And, in the present opinion, the Court of Appeals affirmed the judgment of the District Court.

BellSouth argued that notwithstanding subsection 252(i) it should not have to enter into an interconnection agreement with Universal Telecom upon the same terms and conditions as contained in the MCI agreement because of the expiration of a reasonable period of time.

The Federal Communications Commission (FCC) has promulgated a rule, which is codified at 47 C.F.R. § 51.809(c), that provides, in part, that a subsection 252(i) request to adopt a prior interconnection agreement must be made within "a reasonable period of time after the approved agreement is available for public inspection". The FCC's rules contain no fixed time limit. The FCC rule references time, but not change in the law.

BellSouth argued that between the time that it reached its agreement with MCI, and the time that Universal Telecom requested to adopt that agreement, the FCC issued two orders that changed the legal environment in which interconnection agreements are negotiated.

The FCC adopted its the ISP remand order, which governs telecommunications traffic bound for ISPs. However, the Court of Appeals wrote that since Universal Telecom is not an ISP, the relevant part of the MCI agreement would not affect Universal Telecom.

The FCC also adopted it triennial review order. The Court Appeals wrote, however, that BellSouth failed to explain "what it is about the Triennial Review Order that makes adoption of the BellSouth-MCI agreement infeasible, unduly costly, or otherwise indicative that an unreasonable time for adopting the agreement has run."

The Court of Appeals added that "The company also has failed to explain why the MCI agreement’s change-of-law provision does not solve this problem and indeed acknowledged at oral argument that it has not yet sought relief under this provision."

While the Court of Appeals affirmed the District Court (which upheld the KPSC order), it wrote no clear rule. It did conclude that "any" change in law was insufficient for an ILEC to avoid a prior agreement.

It also wrote that "We have no doubt that intervening changes in the law are one of the reasons for the ``reasonable period of time´´ limitation, and it may well be that the FCC has authority in construing its own regulation to say that certain significant orders necessarily run out the reasonable-period clock. But that hardly proves that any change in law, no matter how soon after approval of the underlying agreement and no matter how irrelevant to that agreement, necessarily establishes that a ``reasonable period of time´´ has run. Were that the FCC’s objective, one would not expect the agency to promulgate a regulation using time and time alone as its measure."

It added the the term "reasonable" in the FCC rule "plainly is a relative term, dependent on context and circumstances, and the FCC’s invocation of that term here casts considerable doubt on the contention that a change in law necessarily establishes that a reasonable period of time has lapsed."

This case is BellSouth Telecommunications Inc. v. Universal Telecom, Inc., et al., U.S. Court of Appeals for the 6th Circuit, App. Ct. No. 05-5674, an appeal from the U.S. District Court for the Eastern District of Kentucky at Frankfort, D.C. No. 04-00035, Judge Joseph Hood presiding. Judge Boggs wrote the opinion of the Court of Appeals, in which Judges Keith and Sutton joined.

People and Appointments

7/21. The Senate confirmed Brett Tolman to be the U.S. Attorney for the District of Utah for the term of four years. See, Congressional Record, July 21, 2006, at Page S8110.

More News

7/21. The Department of Commerce's Bureau of Industry and Security (BIS) published a notice in the Federal Register soliciting applications for membership on the BIS's six Technical Advisory committees (TACs). One of these six TACs, titled "Information Systems TAC", advises the BIS on the regulation of exports of electronics, computers, telecommunications, and information security. The notice states that "This Notice of Recruitment will be open for one year from its date of publication in the Federal Register." See, Federal Register, July 21, 2006, Vol. 71, No. 140, at Page 41418.

Go to News from July 16-20, 2006.