TLJ News from September 16-20, 2007

US Peru Trade Promotion Agreement Implementation Bills Proceed

9/20. The Senate Finance Committee (SFC) approved in a mock mark up, S __, a bill to implement the U.S.-Peru trade promotion agreement, by a vote of 18-3.

The US and Peru have negotiated a free trade agreement (FTA). Like FTAs with Korea, Panama, and Columbia, the Congress has not yet approved the FTA with Peru. See, text of the FTA, and especially its sections pertaining to telecommunications [PDF], electronic commerce [PDF], and intellectual property rights [PDF].

This implementing bill approves the Peru free trade agreement and establishes the necessary conditions for its entry into force. Sen. Max Baucus (D-MT), the Chairman of the SFC, wrote in his opening statement [PDF] that "With the U.S.-Peru Trade Promotion Agreement, Congress can turn a new page on trade. The Committee considered an earlier version of the agreement in July of last year. The Committee ultimately approved that version. But it did so by a closely-divided vote. We have worked since then to build support. We worked with the administration to address the issues that troubled many Senators last year. And we succeeded. The revised agreement includes historic new labor and environmental provisions."

Sen. Charles Grassley (R-IA), the ranking Republican on the SFC, reviewed the history of this bill. He said that "This is the second time that the Committee has engaged in informal consideration of proposed implementing legislation for our trade agreement with Peru. The first was on July 27, 2006. However, Congress did not enact implementing legislation for our trade agreement with Peru last year. This year, the Democrats demanded additional provisions in our trade agreements before they would agree to implement them. After lengthy negotiations, the Administration agreed to a compromise that the House Democratic leadership announced with much fanfare on May 10th. Our trade agreement with Peru was then renegotiated to reflect this compromise. I have accepted the May 10th compromise because, even with those changes, I believe it remains in our national interest to implement these agreements. Our agreement with Peru is a strong trade agreement that deserves the support of this Committee and the Congress."

Susan Schwab stated in a release that "I am delighted by this overwhelming, bipartisan vote in the Senate Finance Committee for the Peru Trade Promotion Agreement. This is the first vote on a free trade agreement since the Administration and Congress agreed on a path for the consideration of four pending free trade agreements last May. The vote shows the Administration and Congress can do the right thing - not only for American farmers, ranchers, manufacturers and service providers - but also for the sake of strengthening America’s ties with key allies. I welcome and look forward to continued bipartisanship in the pursuit of a market-opening, pro-growth trade policy for the American people."

The House Ways and Means Committee (HWMC) is scheduled to meet to mark up HR __, a bill to implement the US-Peru trade promotion agreement, at 10:30 AM on Tuesday, September 25, 2007. See, HWMC's notice and section by section summary [PDF] of bill.

Grand Jury Indicts Weiss, Lerach and Shulman Agree to Plead Guilty

9/20. The U.S. Attorneys Office (USAO) for the Central District of California announced in a release that a grand jury of the U.S. District Court (CDCal) returned an indictment that charges Melvyn I. Weiss with "participating in a scheme in which the firm paid millions of dollars in secret kickbacks to several individuals in exchange for them serving as named plaintiffs in more than 225 class-action and shareholder derivative-action lawsuits".

Milberg Weiss and many of its attorneys have long been involved in class action litigation against information technology and communications companies.

The USAO added that this is a second superseding indictment that "charges Milberg Weiss and Weiss with obstruction of justice and Weiss with making false statements in relation to documents that were the subject of a grand jury subpoena."

The USAO also stated that this superseding indictment charges the Milberg Weiss law firm, Weiss and Seymour Lazar (a paid class action plaintiff) with "one count of conspiring a) to obstruct justice, b) to make false declarations under oath in court proceedings, c) to travel in interstate commerce and use mail facilities to carry on commercial bribery, d) to commit mail and wire fraud, and e) to make illegal payments to a witness."

The USAO announced in a second release that "Steven G. Schulman, a former name partner in the law firm now known as Milberg Weiss, has agreed to plead guilty to a federal racketeering charge and acknowledge that he and others conspired to conceal from judges in federal courts Milberg Weiss’ secret payment arrangements with named plaintiffs in class-action lawsuits."

William S. Lerach, another former partner in a Milberg Weiss law firm, agreed to plead guilty to a conspiracy charge on September 18. The USAO stated in a third release that Lerach "was charged in a criminal information filed this morning in United States District Court with conspiring to obstruct justice and to make false statements under oath. In a plea agreement also filed this morning, Lerach agreed to plead guilty to the conspiracy charge, to forfeit $7.75 million to the government, to pay a $250,000 fine, and to accept a sentence ranging from one year to two years in federal prison."

Lerach announced his retirement last month. See, story titled "Lerach Retires" in TLJ Daily E-Mail Alert No. 1,631, August 30, 2007.

In July, David Bershad, another former partner of a Milberg Weiss law firm, agreed to plead guilty in a criminal action arising out of the payment of kickbacks to named plaintiffs in class action lawsuits. Moreover, Bershad agreed to cooperate with prosecutors. See, story titled "Bershad Agrees to Cooperate with Prosecutors" in TLJ Daily E-Mail Alert No. 1,607, July 9, 2007.

See also, story titled "Milberg Weiss Indicted for Paying Illegal Kickbacks to Class Action Plaintiffs" in TLJ Daily E-Mail Alert No. 1,375, May 22, 2006.

9th Circuit Rules in Class Action Involving Wireless Service Billing Practices

9/20. The U.S. Court of Appeals (9thCir) issued its opinion [31 pages in PDF] in Lozano v. AT&T Wireless, a class action against a wireless service provider based upon allegations of failure to disclose the practice of out of cycle billing for phone calls.

Paul Lozano is a cell telephone service customer of AT&T Wireless Services (AWS) in the state of California. He asserts that AWS billed its customers for cellular calls during a billing period other than the billing period in which the calls were made -- that is, out of cycle billing.

He asserts that by doing this AWS charged him for calls for which he would not have been charged had the calls been assigned to the billing period in which they were made. Moreover, he asserts, AWS did not fully and adequately disclose its billing practice to its customers at the time they entered into contracts with AWS.

AWS asserts that its roaming cellular telephone calls are billed to its customers based on the date that AWS receives the information regarding the call, not on the date the call was actually made, and that it fully disclosed this practice.

Lozano filed a complaint, which he amended, in the U.S. District Court (CDCal) against AWS alleging violation of the federal Communications Act (FCA), the Declaratory Judgment Act (DJA), California contract law, the California Consumer Legal Remedies Act (CLRA), and the California Unfair Competition Law (UCL).

He also sought class action status. In particular, he sought certification of a national class for claims based on the FCA, the DJA, and breach of contract law, and certification of a California subclass based on his CLRA and UCL claims.

AWS moved to compel arbitration, pursuant to a class action waiver in an arbitration agreement in a document titled "Welcome Guide" which Lozano received when he purchased service. The District Court ultimately held that the waiver was unconscionable and therefore unenforceable under California law.

The Court of Appeals offered this summary of the decision of the District Court. "The district court declined to certify a national class for Lozano's FCA and derivative DJA claims because to do so would require a state-by-state analysis of conscionability jurisprudence with respect to the enforceability of class action waivers. The court also denied Lozano’s request for class action status for his breach of contract claim. The district court certified a California class action for Lozano’s CLRA claim, based on AWS's inclusion of an unconscionable term in its agreement, i.e., the class action waiver; the district court declined to certify a class for Lozano’s other theories of liability pursuant to the CLRA. Finally, the district court certified a class action on two theories of liability under the UCL; one claim based on a violation of the CLRA (the ``derivative UCL claim´´) and a second claim based on the ``unfairness´´ prong of the UCL." (Parentheses in original.)

Both Lozano and AWS appealed. The Court of Appeals affirmed in part and reversed in part.

It wrote that "We reverse the district court’s order granting class certification of Lozano’s CLRA claim based on the inclusion of an unconscionable clause in the agreement. Similarly, we reverse the district court’s certification of Lozano’s UCL claim based on unlawful conduct, as it is dependent on Lozano’s CLRA claim. We otherwise affirm the district court’s order on class certification."

This case is Paul Lozano v. AT&T Wireless Services, Inc., U.S. Court of Appeals for the 9th Circuit, App. Ct. Nos. 05-56466 and 05-56511, appeals from the U.S. District Court for the Central District of California, D.C. No. CV-02-00090-AHS, Judge William Rea presiding. Judge James Robart, sitting by designation, wrote the opinion of the Court of Appeals, in which Judges Cynthia Hall and Consuelo Callahan joined.

Treasury Official Urges PRC to Foster Innovation, Entrepreneurship, and Competitive Markets

9/20. David McCormick, the new Under Secretary of the Treasury for International Affairs, gave a speech in Beijing, People's Republic of China, titled "Rebalancing the U.S.-China Economic Relationship".

David McCormickMcCormick (at right) said that "China's growth model for the past several decades has featured high levels of investment in physical inputs to production, such as plants for producing manufacturing exports, but has done comparatively less to foster innovation, entrepreneurship, and the development of the deep and competitive markets. The current growth model has served China well to this point, but it is now exacerbating some of the challenges in achieving balanced growth."

He said that the "development of the financial services sector -- including increased access to consumer finance for Chinese households -- will be particularly important to ensuring that strong Chinese growth continues." He added that "investment by foreign firms ... can play an important role".

He also said the the PRC has experienced "environmental degradation", and that "the Chinese people are capturing a smaller and smaller share of the benefits of growth".

He also called for "exchange rate adjustment". He argued that "currency flexibility" would provide "a growth strategy that brings higher consumption to Chinese households and more balanced, harmonious, and sustainable growth".

He also discussed protectionism. He said that the US "must also continue to strive to avoid the siren song of protectionism. We must not sacrifice the long-term gains of openness by pursuing short-term and misguided responses to the challenges presented by global international markets. President Bush and Secretary Paulson are committed to ensuring America's open trade and investment climate."

"Talk of protectionism can easily invoke national passions, and it is important for both our countries to keep in mind the tremendous benefits that openness to foreign investment has brought to our economies", said McCormick.

He did not address intellectual property rights.

USITC Reports on US Korea FTA

9/20. The U.S. International Trade Commission (USITC) released a report [392 pages in PDF] titled "U.S. Korea Free Trade Agreement: Potential Economy-wide and Selected Sectoral Effects". See also, USITC release.

Introduction. The report concludes that if this free trade agreement (FTA) were implemented, "U.S. GDP would likely increase by $10.1–11.9 billion as a result of tariff and tariff-rate quota (TRQ) provisions related to goods market access."

The report states that this FTA "would expand access to Korea's services market and would provide substantial opportunities for financial, telecommunications" and other services."

It also finds that this FTA would improve the regulatory environment in Korea. For example, Korea's "more secure and stable investment environment and enhanced implementation of intellectual property rights enforcement would likely increase trade and investment in a wide array of goods and services."

The President, through the Office of the U.S. Trade Representative (OUSTR), and Korea concluded this FTA in April. See, story titled "US and Korea Announce FTA" in TLJ Daily E-Mail Alert No. 1,559, April 2, 2007.

See also, text of the agreement and sections regarding telecommunications [17 pages in PDF], electronic commerce [4 pages in PDF], intellectual property rights [35 pages in PDF].

USTR Susan Schwab, and Korea's Trade Minister Kim Hyun-chong, signed this FTA on June 30, 2007. However, the Congress has not approved it.

Susan Schwab, the U.S. Trade Representative (USTR), stated in a release that "We welcome the ITC's finding that the U.S. -- Korea Free Trade Agreement will expand U.S. exports and U.S GDP. The ITC’s independent and comprehensive analysis reinforces the fact that the KORUS FTA is the most commercially significant free trade agreement the United States has concluded in over 15 years -- and that Congress should act to approve it".

Intellectual Property. The USITC report states that full and effective enforcement of the IPR provisions of this FTA "would likely benefit U.S. industries that rely on copyrights, patents, trademarks, and other intellectual property by reducing their losses from infringement and increasing export and foreign sales opportunities for their products. U.S. copyright industries report substantial losses in Korea as a result of hard goods and online infringement of software, music, motion pictures, and books. ... To the extent it successfully addresses these and other IPR issues, the U.S.-Korea FTA should improve the business environment in Korea for U.S. industries that rely on intellectual property protections."

It elaborates that "Full implementation and enforcement of the copyright and digital technology protection and enforcement provisions in the FTA likely would benefit the U.S. motion picture, music, business and entertainment software, and book publishing industries. U.S. industries that may benefit from patent and confidential data protections include pharmaceuticals and agricultural chemicals. A broad range of U.S. industries with valuable brand names may benefit from the strengthened trademark and enforcement provisions of the FTA."

It adds that "Implementation by the United States of its FTA obligations will likely have little effect on the U.S. economy, because the United States already meets or exceeds the standards of IPR protection contained in the FTA."

E-Commerce. The USITC report states that this FTA "is likely to facilitate" e-commerce activity between the two countries "as well as trade in the goods and services that enable e-commerce".

It continues that "U.S. suppliers of information and communication technology (ICT) products, which have a competitive advantage in the Korean marketplace in terms of technology and price, are the most likely to benefit from the FTA. Despite the steady progress of e-commerce in Korea, however, current laws and regulations continue to limit the growth of e-commerce." (Footnotes omitted from this and other quotations.)

It also summarizes the e-commerce provisions of this FTA "(1) would provide for nondiscriminatory and duty-free treatment of all digital products, whether delivered electronically or in physical form; (2) contains commitments by both parties to facilitate the use of electronic authentication in their respective markets; and (3) includes principles that ensure consumers’ reasonable access to the Internet to conduct electronic commerce."

Telecommunications. The report states that "The FTA would likely have minimal impact on U.S. cross-border exports of telecommunication services, largely due to already high levels of price competition for voice telephone services between the United States and Korea."

"By contrast", it continues, "the provisions of the FTA likely would facilitate the entry of U.S. firms into the Korean market, either through the establishment of a wholly owned subsidiary or through investment in existing telecommunication companies. Currently, Korea limits foreign direct investment (FDI) in facilities-based telecommunication-services firms to 49 percent of total voting shares."

However, it adds that while the FTA removes this restriction, allowing 100 percent foreign ownership after 2 years, "high levels of competition, the maturation of important market segments ..., and FTA exclusions pertaining to mobile services and nonfacilities-based service providers may deter U.S. firms from entering the domestic Korean market and/or impair the ability of U.S. firms to offer telecommunication services to residential and/or corporate customers within Korea".

However, "the FTA's investment provisions would likely benefit U.S. firms seeking to offer international corporate data, virtual private network, and Internet Protocol-based corporate customers in Korea."

Finally, the report states that "The FTA would likely have minimal impact on the entry of Korean telecommunication firms into the U.S. market, or the sales of existing Korean subsidiaries in the United States, due largely to the existing regulatory openness of the U.S. telecommunication services market."

People and Appointments

9/20. David McGuire, Director of Communications (DC) for the Center for Democracy & Technology (CDT), will depart on October 9, 2007. He will work for 463 Communications. The CDT is searching for a new DC. See, job listing.

More News

9/20. The Senate Judiciary Committee (SJC) amended and approved S 1845 [LOC | WW], an untitled bill that would limit communications between the staffs of the White House and the Department of Justice (DOJ).

9/20. Rep. John Conyers (D-MI), the Chairman of the House Judiciary Committee (HJC), released a statement regarding ownership of media by minorities. He stated that "It is unacceptable for the FCC to move ahead with plans to allow for more media consolidation without first addressing how to increase minority ownership. People of color own just 3 percent of all local TV stations and 8 percent of radio stations. This is shameful since people of color make up more than a third of the U.S. population. The FCC must first address the issue of minority ownership before moving forward with any new rule changes that would allow further media consolidation. I support Commissioner Jonathan Adelstein’s call for the FCC to create an independent task force to examine ways to increase minority ownership."

9/20. The Federal Communications Commission (FCC) held an event in Chicago, Illinois, regarding government regulation of the ownership of media. See, statement [PDF] by Chairman Kevin Martin, statement [PDF] by Commissioner Robert McDowell, statement [PDF] by Commissioner Deborah Tate, statement [PDF] by Commissioner Michael Copps, and statement [PDF] by Commissioner Jonathan Adelstein.

FCC Releases NPRM for Service Rules for 2155-2175 MHz Band

9/19. The Federal Communications Commission (FCC) released a Notice of Proposed Rulemaking (NPRM) [86 pages in PDF] in its proceeding titled "In the Matter of Service Rules for Advanced Wireless Services in the 2155-2175 MHz Band".

This band is one of the Advanced Wireless Service (AWS) bands, which is intended for use by wireless voice and data service providers, and is often associated with 3G wireless services and mobile broadband internet services. This band is sometimes referred to as AWS-3. The 90 MHz in the 1710-1755 MHz and 2110-2155 MHz bands are AWS-1. The 20 MHz in the 1915-1920 MHz, 1995-2000 MHz, 2020-2025 MHz, and 2175-2180 MHz bands are AWS-2.

FCC Chairman Kevin Martin wrote in a statement [PDF] associated with this NPRM that "Opening this proceeding will allow the Commission to take full consideration of the many suggestions for use of this band, and facilitate full input by all parties and the public as to the best use of this spectrum. For example, many have suggested that we should auction this spectrum band, while still others suggest that due to the high demand for this spectrum we should consider unlicensed use of the band. Some have also suggested that we should condition this band on requirements including openness to devices and/or with the winner being required to provide 384 kbps downstream and 128 kbps upstream of access for free."

This NPRM states that "Because the available spectrum is one 20-megahertz segment as opposed to two separate bands, the symmetrical pairing approach previously used by the Commission for AWS spectrum is not possible. We therefore seek comment on three different technological approaches to this band: (1) permitting both base station transmissions and mobile handset transmissions in the band, as needed to support the licensees’ choice of technology (“uplink/downlink approach”); (2) permitting both base station transmissions and mobile handset transmissions in the band, but only in particular parts of the band specifically designated by the Commission (“structured uplink/downlink approach”); or (3) allowing only base station transmissions in the band (“downlink approach”)." (Parentheses in original.)

The NPRM also states that "we specifically request comment on various proposals proffered recently by various parties that had previously filed applications to operate in this band, including M2Z Networks, Inc. (M2Z), NetfreeUS, and others. For example, M2Z has suggested that the licensees in this band should be subject to certain public interest requirements, including the provision of free broadband internet service at certain data rates and certain population-based build out benchmarks."

See, stories titled "FCC Accepts for Filing M2Z's Application for Free Spectrum" in TLJ Daily E-Mail Alert No. 1,532, February 5, 2007, and "Panel Debates M2Z Proposal" in TLJ Daily E-Mail Alert No. 1,541, February 21, 2007.

Initial comments will be due 30 days after publication of a notice in the Federal Register. As of the September 26, 2007, issue, the FCC has not yet made this publication. Reply comments will be due within 60 days of such publication.

The NPRM adds that "We commit to issuing an order adopting rules in this proceeding within nine months following the publication of this Notice in the Federal Register."

This NPRM is FCC 07-164 in WT Docket No. 07-195.

More News

9/19. The Government Accountability Office (GAO) submitted prepared testimony [15 pages in PDF] to the Senate Special Committee on Aging titled "Digital Television Transition: Preliminary Information on Initial Consumer Education Efforts".

9/19. The Government Accountability Office (GAO) released a report [52 pages in PDF] titled "Information Security: Sustained Management Commitment and Oversight Are Vital to Resolving Long-standing Weaknesses at the Department of Veterans Affairs". This report finds that the Department of Veteran's Affairs (DVA) "has not yet fully implemented most of the key GAO and IG recommendations to strengthen its information security practices", and that as a result "unnecessary risk exists that personal information of veterans and other individuals, such as medical providers, will be exposed to data tampering, fraud, and inappropriate disclosure."

7th Circuit Addresses Patent Misuse Doctrine and Jurisdiction in Patent Cases

9/18. The U.S. Court of Appeals (7thCir) issued its opinion in Country Materials v. Allan Block, a case regarding the doctrine of patent misuse.

Summary. A patent owner (regarding concrete block technology) licensed technology to a concrete block maker. The license agreement included a covenant that the licensee would not make or sell competing concrete blocks within a limited geographic area for 18 months after the termination of the agreement.

The concrete block maker later decided to terminate the agreement, and make and sell competing blocks, without waiting 18 months. It filed a declaratory judgment action in federal court asserting that the non-compete agreement was unenforceable for violating federal patent policy.

The Court of Appeals affirmed the summary judgment of the District Court for the patent owner. First, it rejected the argument that this appeal must be heard by the Federal Circuit.

Second, it rejected the patent misuse claim. It wrote that a patent misuse claim is essentially an antitrust claim to which principles of competition analysis apply. The Court of Appeals held that the rule of reason applies, and that for a misuse claim to succeed, there the patent holder's practice or act must hurt competition.

The Court of Appeals viewed this as a vertical restriction scenario, and noted that recent analysis shows that some of these are pro-competitive. Finally, the Court of Appeals held that since the plaintiff had not shown harm to competition in the market for concrete blocks, the patent misuse claim fails.

See, full story.

Rep. Sherman Introduces Bill to Create IP Enforcement Network

9/18. Rep. Brad Sherman (D-CA), Rep. Steve Chabot (R-IN), and Rep. Joe Donnelly (D-IN) and Rep. Steve Cohen (D-TN) introduced HR 3578 [LOC | WW], the "Intellectual Property Rights Enforcement Act" or IPREA.

This bill would not create, revise, or restrict any intellectual property rights. Rather, it would attempt to require greater coordination and information sharing among federal government agencies tasked with enforcing intellectual property rights.

It would create an "Intellectual Property Enforcement Network" (IPEN), comprised of eight members, including a new "Coordinator for Intellectual Property Enforcement". However, neither the Register of Copyright, or head of the U.S. Patent and Trademark Office (USPTO), would be members.

Rep. Sherman is a new member of the House Judiciary Committee (HJC) and its Subcommittee on Courts, the Internet, and Intellectual Property (SCIIP). He is also a member of the House Foreign Affairs Committee (HFAC), and the Chairman of its Subcommittee on Terrorism, Nonproliferation and Trade.

The bill recites in its findings that "The success of intellectual property rights enforcement requires that United States Government agencies form an effective network to take advantage of their diverse capabilities and to share information for the purpose of enhancing the enforcement capabilities of each agency and the United States Government-wide intellectual property rights enforcement effort."

Rep. Sherman stated in a release that "The staggering losses to the U.S. economy are more than enough reason to take strong action to stop intellectual property theft ... But this is more than just an economic issue.  This is also about public safety and national security. Bogus drugs and fake airplane parts are serious dangers in and of themselves, and more so since we know that terrorist groups have used the sale of counterfeit goods to finance their activities."

The Senate version of the IPREA is S 522 [LOC | WW], introduced by Sen. Evan Bayh (D-IN) and Sen. George Voinovich (R-OH) on February 7, 2007. That bill was referred to the Senate Judiciary Committee (SJC), which has taken no action.

John Engler, head of the National Association of Manufacturers (NAM) stated in a release that "Our ability to compete in the global marketplace depends increasingly on the protection of intellectual property rights, particularly patents, copyrights, brand names and trade secrets. America’s advantage is in innovation and reputation for quality, and this is being undercut by counterfeit products that don’t meet the high standards of legitimate U.S. brands and are often unsafe for consumers. The Intellectual Property Rights Enforcement Act would help channel more resources and attention to this global problem".

Chris Merida of the U.S. Chamber of Commerce stated in a release that "We will continue to work with the House to ensure that this legislation is given due consideration. ... We hope this will be one of many pieces of legislation addressing intellectual property theft. There is a lot of work to be done, but today's introduction is a great step in the right direction.".

FCC Files Brief with 6th Circuit in Challenge to Video Franchising Rules

9/17. The Federal Communications Commission (FCC) filed its brief [107 pages in PDF] with the U.S. Court of Appeals (6thCir) in Alliance for Community Media v. FCC.

This is the consolidation of challenges to the FCC's video franchising rules, announced late last December, following the 109th Congress's failed attempts to enact broad telecommunications reform legislation that addressed video franchising.

The FCC adopted its Order and Further Notice of Proposed Rulemaking on December 20, 2006, and released the text [109 pages in PDF] on March 5, 2007.

For a summary of the order, see story titled "FCC Releases Text of Video Franchising Order and Further NPRM" in TLJ Daily E-Mail Alert No. 1,548, March 7, 2007. For summaries of the arguments of FCC Commissioners and affected entities, see stories titled "FCC Adopts Order Affecting Local Franchising Authorities", "Adelstein Opposes Franchising Order", and "Reaction to FCC Franchising Order" in TLJ Daily E-Mail Alert No. 1,510, December 27, 2006.

The telecommunications companies providing video services are the main industry beneficiaries of this rule.

The FCC's order applies only to competitive entrants. It does not extend to incumbent cable operators. They oppose the rule.

The order also diminishes the power of the local franchising authorities (LFAs). They too oppose the rule.

The FCC's brief argues that the FCC has statutory authority to enact its video franchising rules.

Statute. Section 621 of the Communications Act of 1934, as amended by the Cable Television Consumer Protection and Competition Act of 1992, is codified at 47 U.S.C. § 541.

Subsection (a)(1) provides 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. Any applicant whose application for a second franchise has been denied by a final decision of the franchising authority may appeal such final decision pursuant to the provisions of section 555 of this title for failure to comply with this subsection."

The framework provided by Section 621 is that the LFAs have authority over the franchising process, and that applicants for a second franchise who have been refused by the LFA have a right of appeal to the courts. This section contains no express grant of authority to the FCC to write rules, make findings, or give direction to the LFAs.

FCC Brief. The FCC wrote in its brief that "Congress has given the FCC broad rulemaking authority to implement all of the provisions of the Communications Act, including section 621(a)(1). The Commission properly exercised that authority in this proceeding."

The FCC also offered an explanation of the purpose of the rules. It wrote that "For many years, incumbent cable operators dominated the market for cable television service. Consumers who wanted cable service typically had no choice but to purchase it from the lone cable company that served their franchise area. Without any competition to discipline the cable industry, cable rates rose dramatically."

"After receiving numerous complaints from dissatisfied cable subscribers, Congress moved to open the cable market to competition. Among other things, in 1992, it amended section 621(a)(1) of the Communications Act to prohibit cable franchising authorities from ``unreasonably refus[ing] to award´´ additional franchises", wrote the FCC.

It continued that "More than a decade later, the promise of cable competition remained unrealized for most Americans. The FCC - the agency that Congress entrusted with implementing the Communications Act -- was justifiably concerned about the sluggish development of cable competition. It initiated a proceeding to determine whether the operation of the franchising process was unreasonably impeding entry."

The FCC argued that "On the basis of the record compiled in this proceeding, the Commission found that the operation of the franchising process was stunting the growth of the competition in two ways. First, excessive delays in processing franchise applications had unnecessarily postponed -- or even derailed -- the onset of competition in many communities. Second prospective competitors could not obtain franchises without according the LFAs' unreasonable demands regarding build-out, franchise fees, PEG support, and the regulation of non-cable services. In the Commission's considered judgment, these unwarranted delays and unreasonable demands had caused violations of the statutory ban on unreasonable refusals to award competitive franchises set forth in section 621(a)(1). To ensure more effective enforcement of that ban, and to bring long-overdue cable competition to communities throughout the nation, the Commission reasonably adopted rules to implement section 621(a)(1)."

NCTA Brief. The National Cable & Telecommunications Association (NCTA) wrote in its July 18, 2007, brief  [very slow PDF download] that the FCC "has used Section 621(a)(1) to create a two-tiered regulatory framework, ruling that certain local franchising requirements and processes are -- or were -- permissible when applied to existing cable operators but are unreasonable and impermissible when applied to additional franchise applicants. It has not authority to do so."

"As a threshold matter", wrote the NCTA, the FCC "has no authority at all to implement or enforce the provisions of Section 621(a)(1). Congress specifically assigned to federal and state courts the task of determining, pursuant to Section 635, whether, in particular circumstances, there has been a "failure to comply with this subsection." 47 U.S.C. S 541(a)(1). ... Where Congress specifically has delegated enforcement responsibility to the courts, the FCC may not assert jurisdiction."

"Even if the FCC did have some general authority to implement Section 621(a)(1), that authority extends only to determining whether a particular franchise denial is or is not unreasonable, and not to identifying requirement that, if insisted upon by a franchising authority, would be unreasonable."

The NCTA also faulted the FCC's "decision to make its rulings applicable only to the franchising regulations and requirements of local governments and not to the laws, regulations and actions of state governments."

Finally, it wrote that while the FCC "does have general authority to interpret and enforce other provisions of the Communications Act where there is no such specific allocation of jurisdiction elsewhere -- such as the franchise fee provisions of Section 622 and the PEG access provisions of Section 611 -- those provisions apply generally to all cable operators. Therefore, the Commission's interpretations of those provisions in the Section 621 Order should apply immediately to all operators", that is, not only to new franchise applicants, but also to existing providers."

Case Information. This case is Alliance for Community Media, et al. v. FCC and USA, App. Ct. No. 07-3391, consolidated petitions for review of a final order of the FCC.

The item under review is FCC 06-180 in MB Docket 05-311. 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".

The FCC adopted a Notice of Proposed Rulemaking (NPRM) [26 pages in PDF] on November 3, 2005. The FCC released the text of this NPRM on November 18, 2005. It is FCC 05-189. See also, story titled "FCC Adopts NPRM Regarding Local Franchising of Video Services" in TLJ Daily E-Mail Alert No. 1,247, November 4, 2005.

Supporters Praise Gonzales's Crackdown on Internet Porn

9/17. The Department of Justice (DOJ) held a farewell ceremony for Alberto Gonzales. The speakers praised his work and accomplishments at the DOJ. Some focused on his activities related to online porn and predation. See, transcript.

Federal Bureau of Investigation (FBI) Director Robert Mueller said that "beyond his focus on the counterterrorism mission, Judge Gonzales has ... been tireless in his commitment to reduce the crimes that immediately affect the families across the country, gang violence, online predators."

He added that "as a father he has been struck by the horror of online predators. I know that he has been deeply affected by the pictures that all too often can invade the online space that children inhabit, and those pictures have spurred his dedication to, as he has put it, making America into a place where children's safety is a guarantee."

Johnny Sutton, U.S. Attorney for the Western District of Texas, and Chairman of the Attorney General’s Advisory Committee, said that Gonzales "saw there was an urgent need in this country to go after predators who prey on our children. He recognized that the Internet is an incredible tool to spread freedom and knowledge around the world, but it is also a very dangerous tool that can bring literally a child predator into your home. He recognized that and he began a program called Project Safe Childhood, which is now spread across this nation, and I predict to you that years from now this program will be remembered as one of the most important things that we did in this administration."

Sutton added that "Now we have a coordinated effort to go after these predators who do the most evil things to our kids and the coming disaster that is the proliferation of child pornography and child predators that come into our houses through the internet -- is being attacked on a national basis and a national awareness all because of this man right here."

10th Circuit Rules in CFAA Case Involving Computer Backup Tapes

9/17. The U.S. Court of Appeals (10thCir) issued its opinion [9 pages in PDF] in Triad Consultants v. Wiggins, a civil action involving the federal Computer Fraud and Abuse Act (CFAA), which is codified at 18 U.S.C. § 1030.

This case, like some other Section 1030 cases, is a post employment dispute between a company and an ex-employee. There are numerous claims and counterclaims. However, one claim, asserted by the former employer, is that its former employee engaged in unauthorized access to a protected computer system.

The Court of Appeals held that pleading the making and possessing backup tapes, without also pleading accessing and using information from those tapes, does not satisfy the "obtains anything of value" requirement of Section 1030(a)(4). The Court of Appeals ducked a number of other questions that might have provided guidance as to the meaning of the CFAA.

Jeffrey Wiggins was President and Chief Operating Officer of Triad. His job responsibilities included creating backup tapes of Triad's computer system, and safeguarding them off premises. Triad terminated his employment.

Triad soon after filed a complaint in U.S. District Court (DColo) against Wiggins asserting various state law claims not at issue in this appeal, and unauthorized access to a protected computer system in violation of Section 1030.

Triad alleged that Wiggins made back up tapes, and took them home. It also alleged that he communicated with Triad employees after his termination regarding the tapes. However, it did not allege that he deleted anything from a computer, used any information from a computer to compete, or gave any information to a competitor. It did not allege that he obtained any information from the tapes.

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

Wiggins counterclaimed, asserting several state law claims not at issue in this appeal, including that compensation was owing to him.

Federal jurisdiction in this case rests solely on the Section 1030 claim.

The District Court granted Wiggins motion to dismiss the Section 1030 claim for failure to state a claim upon which relief can be granted, pursuant to Rule 12(b)(6). Additionally, it granted summary judgment on the Section 1030 claim pursuant to Rule 56. The District Court then declined to exercise supplementary jurisdiction over the state law claims and counterclaims.

The Court of Appeals affirmed the judgment of dismissal on Rule 12(b)(6) grounds, and did not address the Rule 56 grounds.

The Court of Appeals ruled that the complaint failed plead sufficient facts to support the element of "obtains anything of value".

It reasoned that "value" under the statute is relative to the needs and objectives of the defendant. The Court of Appeals explained that "the value of the tapes to Wiggins (and to Triad, for that matter) lay in the information the tapes contained, not in the physical objects themselves. Because Triad alleged no facts showing that Wiggins accessed the information on either tape, it cannot establish one of the elements of a claim under § 1030(a)(4), that Wiggins obtained ``anything of value.´´" (Parentheses in original. Footnote omitted.)

The Court of Appeals' opinion does not address the question of whether accessing backup tapes falls within the statutory requirement of "accesses a protected computer". That is, is a backup tape a "computer" within the meaning of the statute? The Court of Appeals recited the statute's definition of "computer", but provided not further discussion.

Also, the Court of Appeals' opinion does not address the question of whether possessing backup tapes, after termination of employment, constitutes "without authorization" within the meaning of the statute.

Nor does the Court of Appeals' opinion speculate as to whether the Section 1030 claim was included by Triad for the purpose of obtaining federal jurisdiction of an otherwise state law case.

This case is Triad Consultants, Inc. v. Jeffrey Wiggins, U.S. Court of Appeals for the 10th Circuit, App. Ct. No. 07-1007, an appeal from the U.S. District Court for the District of Colorado, D.C. No. 06-CV-1771-PSF-MEH.

Bush Nominates Mukasey to Be Attorney General

9/17. President Bush nominated Michael Mukasey to be Attorney General of the United States. If confirmed by the Senate, he would replace former AG Alberto Gonzales, who resigned. See, transcript of President Bush's announcement.

President Bush reiterated that Gonzales is an "honorable and decent man" who "served with distinction".

Michael MukaseyMukasey (at right) was previously a Judge of the U.S. District Court (SDNY), where he presided in numerous high profile terrorism related proceedings.

Leslie Harris, head of the Center for Democracy and Technology (CDT), stated in a release that "Before Congress confirms Michael Mukasey as Attorney General, he must promise to provide a detailed account of the administration's warrantless surveillance of Americans".

She added that "Releasing the information Congress needs to make informed decisions about the laws that safeguard innocent Americans' privacy rights -- and assuring Congress that he will not go outside the laws adopted by Congress -- are two things the new Attorney General needs to do to win the confidence of Congress and the American people."

Sen. Arlen Specter (R-PA) stated at a news conference that "It is my hope that the Judiciary Committee and the Senate will move promptly on the confirmation proceedings as to Judge Michael Mukasey."

He added that "It is my hope that we will not get bogged down in preconditions on his nomination with respect to certain pending requests which the committee has outstanding to the administration, such as the background documents on the determination for constitutionality of the Foreign Intelligence -- Terrorist Surveillance Program, or on the background materials on the issue of the resignations of the United States attorneys, or on the witnesses to come forward -- the White House personnel, where we have not had an opportunity to question them yet. But it is my hope that those issues will be separated."

Sen. Patrick Leahy (D-VT), the Chairman of the Senate Judiciary Committee (SJC), stated in a release that "The Judiciary Committee will approach consideration of the nomination of an Attorney General in a serious and deliberate fashion. The Administration took months determining that a change in leadership was needed at the Department of Justice and then the President spent several weeks before making a nomination. Our focus now will be on securing the relevant information we need so we can proceed to schedule fair and thorough hearings. Cooperation from the White House will be essential in determining that schedule. The next Attorney General needs to be someone who can begin the process of restoring the Department of Justice to its proper mission. I am hopeful that once we obtain the information we need and we have had the opportunity to consider the nomination, we will be able to make progress in this regard."

Bush Names Peter Keisler Acting Attorney General

9/17. President Bush announced that Peter Keisler will be the acting Attorney General pending confirmation by the Senate of Michael Mukasey.

Solicitor General Paul Clement was previously designated to be the acting AG. However, Bush announced that Keisler will be the acting AG.

Peter KeislerKeisler (at right) had previously announced that he would resign from his position as Assistant Attorney General in charge of the DOJ's Civil Division. See, story titled "Keisler to Resign from DOJ" in TLJ Daily E-Mail Alert No. 1,638, September 11, 2007.

The following is from the White House press office's transcript of President Bush's of September 17, 2007, regarding the Department of Justice (DOJ): "Until the Judge is confirmed, Assistant Attorney General Paul [sic] Keisler will serve as acting Attorney General. Accepting this assignment requires -- Peter -- I said -- Peter Keisler. Accepting this assignment requires Peter to delay the departure date he announced earlier this month, and I appreciate his willingness to do so. Peter is the acting Attorney General. Paul Clement, who agreed to take on this role, will remain focused on his duties as Solicitor General, so he can prepare for the Supreme Court term that begins just two weeks from today." (Brackets in original.)

There are numerous vacancies in key positions at the DOJ. The position of Deputy Attorney General (DAG) is vacant. Craig Morford is the acting DAG. The position of Associate Attorney General is vacant. Gregory Katsas is the acting Associate AG.

The position of AAG in charge of the Office of Legal Policy (OLP) is also vacant. The acting AAG since July has been Brett Gerry. The previous AAG, Rachel Brand, recently resigned. Other key units of the DOJ without permanent heads include the Civil Rights Division (CRD) and the Environment and Natural Resources Division.

However, the key crime and terrorism related offices have permanent heads. Robert Mueller remains Director of the Federal Bureau of Investigation (FBI), Karen Tandy remains Administrator of the Drug Enforcement Administration (DEA), Alice Fisher remains AAG for the Criminal Division, and Kenneth Wainstein remains AAG for the National Security Division (NSD).

DOJ Antitrust Chief Criticizes European Court's Microsoft Ruling

9/17. Thomas Barnett, Assistant Attorney General in charge of the Department of Justice's (DOJ) Antitrust Division, criticized the opinion [238 pages in PDF] of the Court of First Instance of the European Communities (CFI) in the Microsoft case.

The CFI largely denied Microsoft's appeal of the European Commission's order of April 2004, which directed Microsoft to pay it nearly one half billion Euros, redesign its software, and license certain proprietary technology and intellectual property rights to its competitors.

Thomas BarnettBarnett (at left) stated in a release that "We are, however, concerned that the standard applied to unilateral conduct by the CFI, rather than helping consumers, may have the unfortunate consequence of harming consumers by chilling innovation and discouraging competition."

The content of the criticism is not new. Barnett's predecessor, Hewitt Pate, publicly criticized the European Commission's regulatory action in this case on several occasions. What is new is that Barnett has elevated the target of the criticism -- from European regulators, to the European judiciary.

Barnett wrote that "In the United States, the antitrust laws are enforced to protect consumers by protecting competition, not competitors. In the absence of demonstrable consumer harm, all companies, including dominant firms, are encouraged to compete vigorously. U.S. courts recognize the potential benefits to consumers when a company, including a dominant company, makes unilateral business decisions, for example to add features to its popular products or license its intellectual property to rivals, or to refuse to do so."

US technology companies now face inconsistent regulatory regimes in the US and EU.

Barnett added the "The Justice Department looks forward to continuing its wide-ranging and positive relationship with the EC on antitrust matters, including matters affected by today's decision. This cooperation is particularly important given the global nature of many markets, including in the high technology sector. The Justice Department will work with the EC to develop sound antitrust enforcement policies that benefit consumers on both sides of the Atlantic."

See also, story titled "European Court of First Instance Rejects Key Parts of Microsoft's Appeal" in TLJ Daily E-Mail Alert No. 1,639, September 14, 2007. For coverage of prior DOJ criticism of the EU's approach to single firm conduct, see, September 10, 2004 speech by Hewitt Pate titled "Securing the Benefits of Global Competition", and stories titled "Pate Criticizes EC Decision Regarding Microsoft" in TLJ Daily E-Mail Alert No. 869, April 5, 2004, "Pate Addresses US EU Differences on Antitrust, Microsoft, and IPR" in TLJ Daily E-Mail Alert No. 913, June 8, 2004, and "Pate Addresses US Competition Law And Differences With EU" in TLJ Daily E-Mail Alert No. 975, September 13, 2004.

9th Circuit Rules on Effect of Bankruptcy on FCC Spectrum Licenses

9/17. The U.S. Court of Appeals (9thCir) issued its opinion [20 pages in PDF] in In Re Magnacom Wireless, a bankruptcy case involving spectrum licenses.

In 1996 Magnacom Wireless obtained spectrum usage licenses at a Federal Communications Commission (FCC) auction. As a designated entity, it made only down payments, and signed security agreements that required periodic payments over ten years. The total purchase price was $55 Million.

Magnacom signed security agreements that provided that it possessed no underlying right to the spectrum, that the FCC's security interest in the licenses did not derogate from the FCC's regulatory authority over the licenses, that the licenses would be automatically cancelled if an event of default occurred, that Magnacom would not be entitled to any proceeds from the sale of new licenses following cancellation, and that the Security Agreement would be subject to the Act, FCC regulations, and federal law.

Magnacom was unable to make payments, and filed a voluntary Chapter 11 bankruptcy petition. The FCC sought and received from the U.S. Bankruptcy Court relief from the stay. The FCC then cancelled the licenses. The FCC then filed a proof of claim as an unsecured creditor to obtain the approximately $48 Million that the Magnacom bankruptcy estate still owed.

The FCC later auctioned the same spectrum in 2001 for $287 Million.

The bankruptcy trustee filed a complaint against the FCC in the Bankruptcy Court seeking the return of any proceeds from the auction of the new licenses that exceeded the amount Magnacom owed to the FCC. The Bankruptcy Court dismissed the complaint for failure to state a claim upon which relief can be granted. The trustee appealed to the U.S. District Court (WDWash). It affirmed.

The trustee then brought the present appeal. The Court of Appeals affirmed.

The Court of Appeals wrote that, pursuant to 47 U.S.C. § 301, "once Magnacom's licenses were cancelled by the FCC, Magnacom's licenses had no value and Magnacom's interest in the underlying spectrum was extinguished. This valueless asset could not generate any traceable proceeds for purposes of the Bankruptcy Code. Moreover, nothing in the Security Agreement or applicable law requires us to treat the FCC’s license cancellation as a lien-enforcement proceeding subject to the UCC. Therefore, Magnacom had no entitlement to the proceeds from any subsequent sale of new licenses covering the same spectrum."

The Court of Appeals held that "the FCC’s cancellation of Magnacom’s licenses extinguished Magnacom’s interest in those licenses and the underlying spectrum. Such cancellation did not result in any traceable proceeds, and did not constitute a lien-enforcement remedy. Therefore, Magnacom is not entitled to such proceeds."

This case is In Re Magnacom Wireless, LLC, U.S. Court of Appeals for the 9th Circuit, App. Ct. No. 05-35839, an appeal from the U.S. District Court for the Western District of Washington, D.C. No. CV-04-05681-FDB, Judge Franklin Burgess presiding. Judge Sandra Ikuta wrote the opinion of the Court of Appeals, in which Judges Betty Fletcher and Harry Pregerson joined.

European Court of First Instance Rejects Key Parts of Microsoft's Appeal

9/17. The European Court of First Instance (CFI) released its opinion [PDF] upholding much of the European Commission's (EC) 2004 decision regarding Microsoft.

The CFI's ruling is a victory of European regulators, a defeat for Microsoft, and a sign that successful U.S. technology companies may face further fines and regulation of their business practices by European regulators.

In July, the EC commenced an action against Intel. US competition regulators have not brought a parallel or related action against Intel. See, story titled "European Commission Initiates Proceeding Against Intel Alleging Anticompetitive Behavior" in TLJ Daily E-Mail Alert No. 1,617, July 26, 2007.

The EC asserts in both the Microsoft and Intel cases that single firm conduct of successful US companies, in the absence of mergers, acquisitions, or collusive conduct among competitors, is anti-competitive and a violation of European law.

European regulators have not yet initiated actions against Google, Qualcomm, or Apple.

The present proceeding is Microsoft's appeal of the EC's decision that mandated that Microsoft remove certain code from its products sold in the Europe, and that it license certain proprietary technology and intellectual property rights to its competitors, and that it pay 497 Million Euros to the EC.

See, full story.

More People and Appointments

9/17. Federal Communications Commission (FCC) Chairman Kevin Martin announced his intent to appoint Dana Shaffer to be Bureau Chief of the FCC's Wireline Competition Bureau. She will replace Tom Navin. See, FCC release [PDF].

More News

9/17. The Federal Communications Commission's (FCC) Public Safety and Homeland Security Bureau (PSHSB) announced the creation of its Disaster Information Reporting System (DIRS), a voluntary web based system that communications providers can use to report communications infrastructure status and situational awareness information during times of crisis. See, FCC's Public Notice [2 pages in PDF] (DA 07-3871) and notice in the Federal Register, September 17, 2007, Vol. 72, No. 179, at Pages 52879-52880.

9/17. Department of Agriculture's (USDA) Rural Utilities Service (RUS) published a notice in the Federal Register that announces that it received no adverse comments regarding the direct final rule amending its regulations to update the eligibility criteria for the Community Connect Broadband Grant Program. This notice adds that effective date of this direct final rule is September 17, 2007. See, notice in the Federal Register, September 17, 2007, Vol. 72, No. 179, at Pages 52779-52780. See also, notice containing the direct final rule, Federal Register: August 3, 2007, Vol. 72, No. 149, at Pages 43131-43137.

9/17. The U.S. Court of Appeals (5thCir) issued its divided opinion [77 pages in PDF] in Texas v. USA, a case regarding 11th Amendment immunity as announced in Seminole Tribe, judicial deference to federal agencies as announced in Chevron, and a conflict between the federal government, the state of Texas, and an Indian tribe over regulation of Indian gambling. There is a 42 page opinion by Judge Edith Jones, a short concurrence by Judge King, and a 23 page dissent by Judge Dennis. This case is Texas v. USA, et al., U.S. Court of Appeals for the 5th Circuit, App. Ct. No. 05-50754, an appeal from the U.S. District Court for the Western District of Texas.

Go to News from September 11-15, 2007.