TLJ News from September 1-5, 2007

House Judiciary Committee Holds Hearing on Surveillance and FISA

9/5. The House Judiciary Committee held a hearing titled "Warrantless Surveillance and the Foreign Intelligence Surveillance Act (FISA): The Role of Checks and Balances in Protecting Americans’ Privacy Rights."

Bob BarrFormer Rep. Bob Barr (R-GA) (at right) wrote in his prepared testimony [7 pages in PDF] that S 1927 "went far, far beyond what could reasonably be deemed necessary to address a technological problem with the 1970s-era FISA law that manifested itself because of 21st-Century technology. Now, thanks to the poorly-considered "Protect America Act" the administration is able to order the surreptitious interception and surveillance of virtually any electronic communication (including phone calls and e-mails) from or to any person in the United States, so long as the government reasonably believes one of the parties is "located outside of the United States."

Barr continued that "the changes wrought by "The Protect America Act" are neither "technical" nor "corrective." Especially those provisions found in Section 2 of the Act (which amends FISA by adding new Sections 105A and 105B), represent a profound alteration in the scope and reach of FISA, and a dramatic "brave new world" of electronic surveillance."

He added that this bill carves "out from Fourth-Amendment protection an entire class of communication -- electronic communications going to a person outside the United States, or coming to a person inside the United States."

He urged the Congress not to make permanent the provisions of this bill.

Suzanne Spaulding, a former CIA Assistant General Counsel, who now works for the Harbour Group, wrote in her prepared testimony [13 pages in PDF] that the newly enacted changes to the FISA "provide neither clear guidance nor the mechanisms to ensure careful oversight."

She continued that "the legal framework governing this intelligence activity has come to resemble a Rube Goldberg contraption rather than the coherent foundation we expect and need from our laws. The rules that govern domestic intelligence collection are scattered throughout the US Code and a multitude of internal agency policies, guidelines, and directives, developed piecemeal over time, often adopted quickly in response to scandal or crisis and sometimes in secret."

She recommended that the "Congress should undertake this comprehensive consideration of domestic intelligence with an eye toward the future but informed by the past and present. Until Congress fully understands precisely what has and is being done in terms of the collection and exploitation of intelligence related to activities inside the US, by all national security agencies, it cannot wisely anticipate the needs and potential problems going forward."

Robert Turner, a professor at the University of Virginia Law School, submitted lengthy prepared testimony [41 pages in PDF] about Presidential powers, intelligence gathering, and the history of the FISA. He also wrote that the Congress should "fix permanently the inadvertent consequences of technological changes and outdated statutory language that prevents our Intelligence Community from listening to every word we can intercept from Osama bin Laden and his associates in other countries."

Mort Halperin, of the Open Society Institute, wrote in his prepared testimony that "deeply troubled by the amendments to FISA passed by the Congress before the August recess. I am troubled because Congress granted to the Executive branch broad authority, in violation of the Fourth Amendment, to intercept the phone calls and emails of persons in the United States.

9th Circuit Applies Dubious Doctrine of Brulotte v. Thys

9/5. The U.S. Court of Appeals (9thCir) issued its opinion [23 pages in PDF] in Zila v. Tinnell, a case regarding the Supreme Court's dubious doctrine of Brulotte v. Thys. The Supreme Court held that patent royalty agreements are unenforceable to the extent that they extend royalty payments beyond the expiration date of the patent.

This doctrine has been frequently criticized by economists, government antitrust agencies, and lower courts. This Court of Appeals wrote that "No matter how unconvincing Brulotte’s foundation may be" it must be followed".

Moreover, the Court of Appeals applied it to a situation where the royalty agreement was executed before the issuance of a patent, and covered all revenues on sales of the invention, regardless of whether a patent ever issued.

James Tinnell invented a liquid solution for use in medical treatments. It is now named Tilactin. He also acquired a corporation now named Zila to market and sell Tilactin. He also applied for a patent. However, before acquiring a patent he assigned all rights in his invention to the company in return for royalty payments and stock. The contract provided that he would relinquish all rights to Zilactin, whether or not a patent issued, and would receive in return a 5% royalty in perpetuity on Zila's sales of the invention.

The USPTO did in fact issue a patent after execution of the agreement. Other U.S. patents followed. Also, the Canadian patent office issued a patent.

Later, Zila stopped paying royalties. It filed a complaint in U.S. District Court (DNev) seeking declaratory relief. Tinnell counterclaimed for declaratory relief.

The District Court held that the agreement was unlawful per se under federal patent law.

The Court of Appeals wrote that "Brulotte renders unenforceable some aspects of an otherwise valid contract. And it does so for a reason that many courts and commentators have found economically unconvincing". However, "No matter how unconvincing Brulotte’s foundation may be, however, we are bound to apply its holding if it applies to the case before us.

The Court of Appeals rejected the District Court's unlawful per se conclusion. It wrote that there is no support the notion that Brulotte "erects a general barrier to the enforcement of otherwise valid contract terms unless and until that last applicable patent expires."

It stated that the question is "not whether but the extent to which Brulotte preempts state law with regard to a contract for payment of royalties on the sale of an invention that may be patented, if a patent indeed issues on the invention."

It concluded that "Brulotte does not render an entire contract void and unenforceable merely because it includes an invalid licensing agreement. Rather, Brulotte renders unenforceable only that portion of a license agreement that demands royalty payments beyond the expiration of the patent for which the royalties are paid."

The Supreme Court held in Brulotte v. Thys Co., 379 U.S. 29 (1964), that a patent holder's attempt to collect royalties beyond the term of the patent constituted misuse of the patent.

The Federal Trade Commission (FTC) and the Department of Justice (DOJ) released a report [217 pages in PDF] on April 17, 2007, that suggests that economic analysis demonstrates that the doctrine announced in Brulotte should be revisited.

This report is titled "Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and Competition". See also, story titled "FTC and DOJ Release Report on IPR and Antitrust" in TLJ Daily E-Mail Alert No. 1,566, April 17, 2007.

For example, the FTC and DOJ wrote that "Collecting royalties beyond a patent's statutory term can be efficient. Although there are limitations on a patent owner's ability to collect royalties beyond a patent’s statutory term, that practice may permit licensees to pay lower royalty rates over a longer period of time, which reduces the deadweight loss associated with a patent monopoly and allows the patent holder to recover the full value of the patent, thereby preserving innovation incentives."

The U.S. Court of Appeals (7thCir) criticized Brulotte in its 2002 opinion in Scheiber v. Dolby Laboratories. See, story titled "7th Circuit Criticizes But Follows Brulotte" in TLJ Daily E-Mail Alert No. 453, June 18, 2002.

Moreover, Judge Richard Posner wrote the opinion. Posner is also the author or co-author of many books, including Economic Analysis of Law [Amazon], Antitrust Law [2nd edition, Amazon], and The Economic Structure of Intellectual Property Law [Amazon].

The opinion in Scheiber v. Dolby states that "we have no authority to overrule a Supreme Court decision no matter how dubious its reasoning strikes us, or even how out of touch with the Supreme Court's current thinking the decision seems." While the 7th Circuit applied the Brulotte holding, it went on to explain at length why Brulotte is such an awful precedent.

This case is Zila, Inc. v. James Tinnell, U.S. Court of Appeals for the 9th Circuit, App. Ct. Nos. 05-15031 and 05-15087, appeals from the U.S. District Court for the District of Nevada, D.C. CV-00-01345-KJD, Judge Kent Dawson presiding. Judge Marsha Berzon wrote the opinion of the Court of Appeals, in which Judges Robert Cowen, sitting by designation, and Dorothy Nelson joined.

SEC Commissioner Casey Addresses Online Securities Fraud

9/5. Securities and Exchange Commission (SEC) Commissioner Kathleen Casey gave a speech in Ft. Worth, Texas, in which she discussed internet based securities fraud.

She said that "The internet has ushered in a new age of access to information and the marketplace for investors. But it has also ushered in ever more sophisticated tools for would be fraudsters and swindlers to hack, pump and intrude their way to riches. They may be dressed up differently, but their frauds are ages old."

Kathleen CaseyCasey (at right) said that "almost 100 years after Ponzi first schemed, despite the enactment of several major laws, the creation of the SEC, the hiring and training of thousands of investigators and prosecutors, and the proliferation of investor education and alerts, Ponzi's scheme survives. Perhaps the internet or other new technologies have made it possible to disguise these schemes or employ ever more enticing sales pitches; perhaps it's the greater access to the marketplace brought about by the internet".

More recently, she continued, "telemarketers and blast-faxers got in on the pump and dump game, urging investors to jump at the chance to buy sometimes worthless stock. The internet has allowed for spammers to take advantage of cheap and anonymous mass mailings of fraudulent inducements to buy worthless stock."

She also discussed the SEC's campaign titled "Operation Spamalot". See, SEC release of March 8,. 2007, and story titled "SEC Suspends Trading in 35 Companies Touted by Spam" in TLJ Daily E-Mail Alert No. 1,552, March 14, 2007.

Finally, she discussed internet account intrusions. She noted that the SEC's internet enforcement group is led by John Stark. She said that "John's group was among the first to discover a new trend in internet-based fraud that has been dubbed the ``intrusion´´ cases."

She continued that "In these cases the perpetrator, sometimes affiliated with a foreign crime syndicate, hacks into an online brokerage account and places purchase orders for large blocks of relatively obscure or lightly traded stocks. The perpetrator then places sell orders for this same stock in his own account, quickly posting thousands of dollars in paper gains. The owner of the intruded account is left with a depleted bank account and shares of worthless stock. Although this fraud relies on computers, the internet, and spyware, it is, at its root, plain theft -- and there's nothing new about that."

She added that "John's group has been quick to work with online brokerages to detect these intrusions, secure freezes before much of the money leaves the country, and support our litigation team in obtaining the default judgments that often resolve these cases."

She also said that the SEC's Enforcement Division has "been working with the online brokerage firms to help avoid intrusions in the future; hopefully, investors, brokerage houses, and the Commission are all getting ahead of this crime through education, enforcement, and improved security awareness."

For more information about account intrusion, see:

Finally, Casey said that "we hope to soon announce the product of a long and large-scale investigation" by John Stark's group "into a market manipulation ring involving promoters, brokers and attorneys that has resulted in at least one significant indictment, with others likely to follow."

FCC Denies Comcast's Request for Waiver of Integration Ban

9/5. The Federal Communications Commission (FCC) released a Memorandum Opinion and Order (MO&O) [20 pages in PDF] upholding the FCC's Media Bureau's denial of Comcast's request for waiver of the integration ban as to three set top boxes.

Section 629 of the Telecommunications Act of 1996, which is codified at 47 U.S.C. § 549(a), provides, in part, that the FCC "shall ... adopt regulations to assure the commercial availability, to consumers of multichannel video programming and other services offered over multichannel video programming systems, of converter boxes, interactive communications equipment, and other equipment used by consumers to access multichannel video programming and other services offered over multichannel video programming systems, from manufacturers, retailers, and other vendors not affiliated with any multichannel video programming distributor."

FCC Commissioner Michael Copps wrote in his statement [PDF] associated with this MO&O that "Eleven years ago, Congress instructed the Commission to assure the commercial availability of set top boxes. The message was clear: American consumers should be able to purchase a device at Best Buy or Wal-Mart that works just as well with their television as the cable company’s own device. This openness is clearly good news for cable subscribers. Vigorous competition will drive prices down and increase the pace of technological innovation."

FCC Commissioners Jonathan Adelstein and Robert McDowell wrote in a joint concurring statement [PDF] that while the FCC has set a July 1, 2007, date for compliance, "the industry is still years away from implementing downloadable security nationwide".

They wrote that what the FCC has done, "through a series of Bureau-issued orders, is focus on the operator who requested the waiver, rather than the box." They concluded that "Because Comcast’s waiver request was not granted, the company will have to deploy more expensive boxes that contain separated security and likely will pass on this cost to its subscribers. Those who subscribe to a company whose waiver was granted will pay less for an integrated box, even though that box comes with the same functions and features as Comcast’s. That result doesn’t make sense -- for consumers, for MVPDs for the consumer electronics industry, or for the creation of the national retail market Congress intended."

This MO&O states that it was adopted on July 20, 2007, but not released until September 4, 2007.

This MO&O is FCC 07-127. The relevant proceedings are titled "In the Matter of Comcast Corporation Request for Waiver of Section 76.1204(a)(1) of the Commission’s Rules" and "In the Matter of Implementation of Section 304 of the Telecommunications Act of 1996: Commercial Availability of Navigation Devices: Application for Review" and numbered CSR-7012-Z and CS Docket No. 97-80.

DC Court Rules Against EPIC and ACLU on FOIA Requests of DOJs Records Regarding Electronic Surveillance

9/5. The U.S. District Court (DC) issued a Memorandum Opinion and Order [24 pages in PDF] in EPIC v. Department of Justice and ACLU v. Department of Justice, cases brought under the Freedom of of Information Act (FOIA) in connection the the Department of Justice's (DOJ) failure to produce requested records related to the government electronic surveillance program first publicly disclosed by the New York Times in December of 2005.

The U.S. government has disclosed little about this and other surveillance activities. The District Court described the subject matter of these FOIA requests as the "Bush Administration's policy of conducting surveillance of domestic communications without the prior authorization of the Foreign Intelligence Surveillance Court". Members of the Bush administration, government employees, and others sometimes refer to the "Terrorist Surveillance Program" or "TSP". DOJ officials have testified at Congressional hearings, and stated in speeches and news conferences that there is a National Security Agency (NSA) program that involves surveillance where one party to a communication is believed to be associated with terrorism, and one party to the communication is outside of the U.S. and the other is inside the U.S.

Both the Electronic Privacy Information Center (EPIC) and the American Civil Liberties Union (ACLU) submitted requests to the DOJ for records related to this program pursuant to the federal FOIA, which is codified at 5 U.S.C. § 552.

The ACLU requested any presidential orders authorizing the NSA to engage in warrantless electronic surveillance. The Court added that it also sought "records relating to the policies, practices and procedures of the NSA (1) for selecting individuals to subject to warrantless domestic surveillance; (2) for gathering, maintaining, storing, and sharing information generated through such surveillance; (3) for using gathered information as the basis for FISA requests; and (4) for consulting with, or obtaining approval from, DOJ, before engaging in warrantless electronic surveillance."

The EPIC sought, among other things, "an audit of NSA domestic surveillance activities" and "legal memoranda, opinions or statements concerning increased domestic surveillance".

The DOJ produced copies of a few documents, but claimed exemptions under the FOIA from the obligation to release documents as to the majority of the requested records. The DOJ asserted the FOIA's "national defense or foreign policy", "exempted from disclosure by statute", and "inter-agency or intra-agency memorandums or letters" exemptions.

Both the EPIC and the ACLU have filed complaints in the U.S. District Court (DC) under the FOIA. The District Court has consolidated the two actions.

The EPIC moved for an in camera review of withheld records. That is, it asked that the Judge obtain and review the records that the DOJ possesses but refuses to give to the EPIC.

The District Court denied the motion for an in camera review.

In addition, the DOJ moved for summary judgment.

The District Court granted summary judgment to the DOJ as to some of the requested records. Further, it ordered that "As to the remainder, the government must submit to the court a detailed, document-by-document Vaughn index regarding these documents, along with further, significantly more-detailed declarations justifying the various departments’ withholding decisions."

These cases are Electronic Privacy Information Center v. DOJ, D.C. No. 06-00096 (HHK), and American Civil Liberties Union v. DOJ, D.C. No. 06-00214 (HHK), Judge Henry Kennedy presiding.

People and Appointments

9/5. Rep. Paul Gillmor (R-OH) died. He was previously a member of the House Commerce Committee (HCC) and its Subcommittee on Telecommunications and the Internet. In the 110th Congress he became the ranking Republican on the House Financial Services Committee's (HFSC) Subcommittee on Housing and Community Opportunity. See also, statement by Rep. Joe Barton (R-TX), and statement by President Bush.

9/5. Former Rep. Jennifer Dunn (R-WA) died. She was previously a member of the House Ways and Means Committee (HWMC) and its Subcommittee on Trade. She represented a Seattle area district. She advocated free trade. See also, White House release.

More News

9/5. A grand jury of the U.S. District Court (DWash) returned an indictment that charges Gregory Kopiloff with mail fraud, aggravated identity theft, and accessing a protected computer without authorization to further fraud. The Department of Justice (DOJ) announced in a release the arrest of Kopiloff on September 5, 2007. This release also states that Kopiloff "used file sharing programs to invade the computers of hundreds of victims across the United States to get access to their personal information in tax returns, credit reports, bank statements and student financial aid applications."

9/5. The Securities and Exchange Commission (SEC) filed a civil complaint [17 page PDF scan] in U.S. District Court (SDFla) against Homeland Communications Corporation and its principals on September 5, 2007, alleging violation of federal securities law in connection with the sale of unregistered securities and fraudulent misrepresentations. The SEC also announced in a release that the District Court issued temporary restraining orders, asset freezes and other emergency relief. The complaint states that Homeland is a "purported wireless company" without any FCC licenses or pending applications. This case is SEC v. Homeland Communications Corporation, Frances M. Labarre, Joseph Yurkin, et al., U.S. District Court for the Southern District of Florida, D.C. No. 07-80802-Marra/Johnson.

9/5. The Federal Communications Commission (FCC) released a notice [PDF] regarding its Attorney Honors Program for 2008. The deadline to submit applications to the FCC is October 18, 2007.

3rd Circuit Rules that Deception of SDO Can Give Rise to Claims for Violation of Sherman Act

9/4. The U.S. Court of Appeals (3rdCir) issued its opinion [39 pages in PDF] in Broadcom v. Qualcomm, a case regarding whether a patent holder's deceptive conduct before a private standards development organization (SDO) may be condemned under antitrust laws, and if so, what facts must be pled to survive a Rule 12(b)(6) motion to dismiss. See, full story.

House Approves Bill to Create Grant Program for IT at Minority Serving Institutions

9/4. The House approved HR 694 [LOC | WW], the "Minority Serving Institution Digital and Wireless Technology Opportunity Act of 2007" without amendment by a vote of 331-59. See, Roll Call No. 847. All of the votes against the bill were cast by Republicans.

This bill would amend 15 U.S.C. § 3704 to create at the Department of Commerce (DOC) a grant program titled the "Minority Serving Institution Digital and Wireless Technology Opportunity Program". Its purpose would be to assist eligible institutions (minority serving institutions) in acquiring and using "digital and wireless networking technologies to improve the quality and delivery of educational services".

The bill would authorize the appropriation of $250,000,000 for fiscal year 2008, and "such sums as may be necessary for each of the fiscal years 2009 through 2012".

Similar bills have been considered in the House in prior Congresses, without becoming law. See, for example, HR 2183 (108th Congress), the "Minority Serving Institution Digital and Wireless Technology Opportunity Act". See also, stories titled "Rep. Forbes Introduces Bill to Provide Grants for Digital and Wireless Technology for MSIs" in TLJ Daily E-Mail Alert No. 669, May 29, 2003; and "House Science Committee Holds Hearing on MSI Tech Grant Bill" in TLJ Daily E-Mail Alert No. 695, July 10, 2003.

On June 27, 2007, the Senate Commerce Committee (SCC) approved the related Senate bill, S 1650 [LOC | WW], the "Max Cleland Minority Serving Institution Digital and Wireless Technology Opportunity Act". See, SCC release and story titled "Senate Commerce Committee Again Approves Bill to Create MSI Tech Grant Bill" in TLJ Daily E-Mail Alert No. 1,604, June 29, 2007.

The Senate has also long considered MSI tech bills. S 1650 is the 110th Congress's version of S 432 (109th Congress), the "Minority Serving Institution Digital & Wireless Technology Opportunity Act of 2005", and S 196 (108th Congress). Former Sen. George Allen (R-VA) was the sponsor of earlier versions of the bill in the Senate. He lost his bid for re-election in 2006. Former Sen. Max Cleland (D-GA) lost his bid for re-election in 2002. He was the sponsor of an even earlier version of the bill, S 414 (107th Congress), the "NTIA Digital Network Technology Program Act".

FCC Commissioners to Hold Next Monthly Event on September 11

9/4. The Federal Communications Commission (FCC) released the agenda [4 pages in PDF] for its event scheduled for September 11, 2007, titled "Open Meeting". The FCC Commissioners will announce, and read prepared statements regarding, several actions to be taken by the FCC.

Forbearance Petitions of Broadband Providers. The FCC is scheduled to adopt a Memorandum Opinion and Order (MO&O) regarding requests for forbearance, submitted by AT&T, Verizon and Qwest, pursuant to 47 U.S.C. § 160(c), from Title II and Computer Inquiry requirements with respect to certain broadband services. The relevant FCC proceedings are numbered WC Docket No. 06-125 and WC Docket No. 06-147.

E911 Location Accuracy Rules. The FCC is scheduled to adopt a Report and Order (R&O) regarding the geographic area over which wireless carriers must meet the E911 location accuracy requirements.

This R&O relates to the FCC proceeding titled "Wireless E911 Location Accuracy Requirements" and numbered PS Docket No. 07-114, the FCC proceeding titled "Revision of the Commission's Rules to Ensure Compatibility with Enhanced 911 Emergency Calling Systems" and numbered CC Docket No. 94-102, and the FCC proceeding titled "Association of Public-Safety Communications Officials-International, Inc. Request for Declaratory Ruling; and 911 Requirements for IP-Enabled Service Providers" and numbered WC Docket No. 05-196.

See also, story titled "FCC Extends E911 Location Tracking Rules to Interconnected VOIP" in TLJ Daily E-Mail Alert No. 1,589, May 31, 2007.

800 MHz Band. The FCC is scheduled to adopt a Memorandum Opinion and Order (MO&O) regarding the obligations of licensees involved in 800 MHz band reconfiguration. This proceeding is WT Docket No. 02-55. The FCC is also scheduled to adopt a Public Notice regarding implementation of 800 MHz band reconfiguration.

Video Franchising. The FCC is scheduled to adopt a Second R&O regarding Section 621(a)(1)'s directive that local franchising authorities not unreasonably refuse to award competitive franchises and the application of the FCC's findings in its First R&O to incumbent providers.

Section 621, which is codified at 47 U.S.C. § 541, provides in part that that "A franchising authority may award, in accordance with the provisions of this subchapter, 1 or more franchises within its jurisdiction; except that a franchising authority may not grant an exclusive franchise and may not unreasonably refuse to award an additional competitive franchise".

The FCC adopted its First R&O and Further Notice of Proposed Rulemaking [109 pages in PDF] in this proceeding on December 20, 2006, and released it on March 5, 2007. See, stories titled "FCC Adopts Order Affecting Local Franchising Authorities" in TLJ Daily E-Mail Alert No. 1,510, December 27, 2006, and "FCC Releases Text of Video Franchising Order and Further NPRM" in TLJ Daily E-Mail Alert No. 1,548, March 7, 2007.

This proceeding is titled "Implementation of Section 621(a)(1) of the Cable Communications Policy Act of 1984 as amended by the Cable Television Consumer Protection and Competition Act of 1992" and numbered MB Docket No. 05-311.

Program Access Rules. The FCC is scheduled to adopt a R&O regarding the exclusive contract prohibition in Section 628(c)(2)(D) and modification of the FCC's program access complaint procedures. The FCC is also scheduled to adopt a Notice of Proposed Rulemaking (NPRM) to review its program access rules and to examine programming tying arrangements.

These items relate to the FCC's proceeding titled "Implementation of the Cable Television Consumer Protection and Competition Act of 1992; Development of Competition and Diversity in Video Programming Distribution, Section 628(c)(5) of the Communications Act, Sunset of Exclusive Contract Prohibition" and numbered MB Docket No. 07-29, and its proceeding titled "Review of the Commission's Program Access Rules and Examination of Programming Tying Arrangements".

Must Carry. The FCC is scheduled to adopt a Third R&O and Order and Third Further NPRM regarding mandatory cable carriage of digital broadcast television signals after the conclusion of the digital television (DTV) transition.

This proceeding is titled "Carriage of Digital Television Broadcast Signals, Amendment to Part 76 of the Commission’s Rules" and numbered MB Docket No. 98-120.

See, stories titled "FCC Drops Multicast Must Carry Item" in TLJ Daily E-Mail Alert No. 1,394, June 19, 2006, "FCC Adopts Digital Multicasting Must Carry Order" in TLJ Daily E-Mail Alert No. 1,075, February 11, 2005. See also, story titled "Digital Multicasting Must Carry Developments" in TLJ Daily E-Mail Alert No. 1,073, February 9, 2005.

Antennas in the 10.7 - 11.7 GHz Band. The FCC is scheduled to adopt a Report and Order regarding rules governing the use of smaller antennas by Fixed Service operators in the 10.7 -- 11.7 GHz band. This proceeding is numbered WT Docket No. 07-54 and RM-11043.

This event is scheduled for 9:30 AM on Tuesday, September 11, 2007 in the FCC's Commission Meeting Room, Room TW-C305, 445 12th Street, SW. The event will be webcast by the FCC. The FCC does not always take up all of the items on its published program. The FCC sometimes adds items to the program without providing the "one week" notice required 5 U.S.C. § 552b. The FCC frequently fails to start its events and the scheduled time, and frequently postpones or cancels its events without notice. The FCC usually does not release at its events copies of the items that it adopts at its events. The FCC has not always written the items that it adopts at the time that it announces that it has adopted them.

9th Circuit Rules on Application of Antitrust Law to Bundling Discounts

9/4. The U.S. Court of Appeals (9thCir) issued its opinion [58 pages in PDF] in McKenzie v. PeaceHealth, vacating the key parts of the judgment of the District Court, and rejecting its analysis, as well as that of the 3rd Circuit en banc in LePage's v. 3M.

Introduction. This is an antitrust dispute between hospitals regarding health care services. However, since the dispute centers around bundling of services at discount prices, which is also characteristic of large companies with large market shares in the telecommunications and information technology sectors, this case may be of interest to telecom and tech sector companies, and the companies and consumers with whom they do business.

In short, the Court of Appeals vacated the jury's verdict in favor of McKenzie on the attempted monopolization, price discrimination, and tortious interference claims. It also vacated the District Court's summary judgment in favor of PeaceHealth on the tying claim. It also vacated the District Court's award of attorneys' fees, costs, and expenses. Finally, it remanded for further proceedings.

More to the point, this Court of Appeals (the 9th Circuit) rejected the approach to bundled discounts taken by the District Court, and the approach to bundled rebates taken by the 3rd Circuit in its en banc opinion [PDF] in 2003 in LePage's v. 3M, upon which the District Court relied. The 9th Circuit adopted a cost based standard for bundling discounts.

One hospital company, formerly known as McKenzie, filed a complaint against another hospital company, known as PeaceHealth, alleging, among other things, a violation of Section 2 of the Sherman Act in connection with PeaceHealth's offering to insurers of bundled discounts. While there are a number of issues on appeal in this case, the application of Section 2 to bundled discounts may have far reaching affects for the telecom and tech sectors, as well as health care.

Telecom companies are providing consumers an ever wider array of services and products. One company might offer a triple play of voice, broadband, and video. Companies are also bundling electronic devices with services. It is common for tech and telecom companies to offer bundles, and at a total price for the bundle that is lower than the sum of the prices for the components of the bundle, when purchased one by one.

Even though this is a health care case, the Court of Appeals wrote in a footnote that "in the telecommunications field, it is common for companies to offer not only phone service, but also Internet access and television service, and many of these companies offer bundled discounts to customers who purchase their entire package".

Companies use discounted bundles to compete with other companies. Competition benefits. Consumers benefit too from lower prices.

However, there is an opportunity for anti-competitive conduct when several conditions are present. For example, if there are two or just a few providers, their bundled product and/or services lines are not the same, and one company has market power with respect to one product or service that it offers as part of a discounted bundle, this company might hypothetically be able to abuse its market power via bundled discounts.

Telecom and IT companies are already offering bundled discounts. Yet, some telecom and IT sectors are characterized by consolidation, overlapping but not identical product mixes, and companies with market power with respect to some products or services. This is increasing the potential for these conditions to be met.

This opinion reflects an attempt by one Court of Appeals to set a precedent that does impose antitrust liability upon the rare anti-competitive bundled discounts, while not also enabling antitrust plaintiffs to prevail in Section 2 cases where the complained of conduct is actually pro-competitive. The approaches of the District Court in this case, and the Third Circuit en banc opinion in LePage's, arguably, and theoretically, enable plaintiffs to prevail against some providers of bundled discounts in the absence of anti-competitive conduct.

However, this 58 page opinion, as long and detailed as it is, recognizes that the topic is complex, that the underlying economic analysis is still developing, and that it will take some time for this area of antitrust law to "percolate" in the courts. This opinion rejects LePage's, offers the foundation for a cost based approach, but leaves many questions unanswered.

See, full story.

GAO Reports on DHS's US VISIT Failings

9/4. The Government Accountability Office (GAO) released a report [167 pages in PDF] titled "Homeland Security: U.S. Visitor and Immigrant Status Program’s Long-standing Lack of Strategic Direction and Management Controls Needs to Be Addressed".

The Department of Homeland Security's (DHS) U.S. Visitor and Immigrant Status Indicator Technology (US-VISIT) program is intended to collect, maintain, and share information on foreign nationals who enter and exit the U.S.

The GAO has previously released reports critical of the DHS's implementation of this program. The just released report states that the "DHS has had ample opportunity to address these many issues, but it has not."

"As a result, there is no reason to expect that its newly launched exit endeavor, for example, will produce results different from past endeavors -- namely, DHS will not have an operational exit solution despite expenditure plans allocating about a quarter of a billion dollars to various exit activities."

It continues that "on the basis of past efforts, there is no reason to believe that the program’s disproportionate investment in management-related activities represents a prudent and warranted course of action. All told, this means that needed improvements in US-VISIT program management practices are long overdue. Both the legislative conditions and our open recommendations are aimed at accomplishing these improvements, and they need to be addressed quickly and completely. Thus far, they have not been, and the reasons that they have not are unclear."

This report also recommends that the DHS "perform a privacy impact analysis" of the US VISIT program.

Also, on September 19, 2007, the Department of Homeland Security's (DHS) Data Privacy and Integrity Advisory Committee will meet. One of the items on the agenda is the US VISIT program. See, notice in the Federal Register, September 4, 2007, Vol. 72, No. 170, at Pages 50686-50687.

People and Appointments

9/4. The Senate confirmed former Rep. Jim Nussle (R-IA) to be Director of the Office of Management and Budget (OMB) by a vote of 69-24. All of the votes against were cast by Democrats.

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9/4. The U.S. Patent and Trademark Office (USPTO) and the United Kingdom Intellectual Property Office (UKIPO) announced that they are "accepting applications for participation in a pilot Patent Prosecution Highway project established between the two offices. The Patent Prosecution Highway will leverage fast-track patent examination in both offices to allow applicants in both countries to obtain corresponding patents faster and more efficiently. It also will permit each office to benefit from work previously done by the other office, in turn reducing examination workload and improving patent quality." See, USPTO release.

Go to News from August 26-31, 2007.