TLJ News from August 21-25, 2012

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8/25. The Department of Commerce's (DOC) National Telecommunications and Information Administration (NTIA) released more details about its meeting on August 27 regarding consumer data privacy in the context of mobile applications. See, original notice in the Federal Register, Vol. 77, No. 149, Thursday, August 2, 2012, Pages 46067-46068. This event will be at 9:30 AM to 1:00 PM in the DOC Auditorium, Hoover Building, 14th Street and Constitution Ave., NW.

Trial Jury Returns Verdict In Apple v. Samsung

8/24. A trial jury of the U.S. District Court (NDCal) returned its verdict in Apple v. Samsung, on Friday evening, August 24. The jury found that Samsung infringed six of Apple's patents, and awarded just over $1 Billion in damages. See, Amended Verdict Form [20 pages in PDF].

This is the patent infringement (and related claims) case involving technology used by Apple in its smartphones and tablets. The defendants are several Samsung companies, which make competing products that use the Android operating system for mobile devices.

However, Apple's suit is also directed at limiting competition to the Apple iPhone and iPad from all competing Android based devices. Hence, this verdict is a victory for Apple and its shareholders, and a defeat not only for Samsung and its shareholders, but also for other Android based device makers, and Google, the developer of Android.

Apple alleged in its complaint, the original of which it filed on April 15, 2011, that numerous Samsung mobile phones and computer tablets infringe patents, trade dress, and trademarks related to Apple's iPhone and iPad. See, story titled "Apple Files Patent Infringement Complaint Against Samsung" in TLJ Daily E-Mail Alert No. 2,222, April 18, 2011. Samsung counterclaimed for patent infringement.

The jury found valid all seven of the patents that Apple alleged Samsung infringed. The jury found that some or all of the 28 Samsung devices at issue infringed six of the seven patents in suit. The jury awarded a total of $1,049,343,540 in damages to Apple. The jury also found willful infringement as to five patents.

The jury found that Apple did not infringe any of the Samsung patents in suit.

The jury found for Apple, in a more limited way, on Apple's trade dress dilution and trade dress infringement claims.

The jury issued no verdict regarding injunctive relief. In cases in which a jury has been demanded, the jury renders a verdict on factual issues involving legal rights and remedies (which include damages for patent infringement). The court (in this case Judge Lucy Koh) tries factual issues involving equitable rights and remedies (which include injunctive relief). See also, 35 U.S.C. § 283.

Hence, following the jury verdict, Apple filed a motion for injunctive relief, which the court has not yet decided.

Also, while the jury found willful infringement, 35 U.S.C. § 284 provides in part that "the court may increase the damages up to three times the amount found or assessed". And, Judge Koh has not yet ruled regarding awarding up to treble damages for willful infringement.

Apple stated in a release that "We are grateful to the jury for their service and for investing the time to listen to our story and we were thrilled to be able to finally tell it. The mountain of evidence presented during the trail showed that Samsung's copying went far deeper than even we knew. The lawsuits between Apple and Samsung were about much more than patents or money. They were about values. At Apple, we value originality and innovation and pour our lives into making the best products on earth. We make these products to delight our customers, not for our competitors to flagrantly copy. We applaud the court for finding Samsung's behavior willful and for sending a loud and clear message that stealing isn't right."

Samsung stated in a release that "Today's verdict should not be viewed as a win for Apple, but as a loss for the American consumer. It will lead to fewer choices, less innovation, and potentially higher prices. It is unfortunate that patent law can be manipulated to give one company a monopoly over rectangles with rounded corners, or technology that is being improved every day by Samsung and other companies. Consumers have the right to choices, and they know what they are buying when they purchase Samsung products. This is not the final word in this case or in battles being waged in courts and tribunals around the world, some of which have already rejected many of Apple's claims. Samsung will continue to innovate and offer choices for the consumer."

This case is Apple, Inc. v. Samsung Electronics Co., Ltd., et al., U.S. District Court for the Northern District of California, D.C. No. CV-11-1846-LHK, Judge Lucy Koh presiding. Apple is represented in this action by the law firm of Morrison & Foerster. Samsung is represented by the law firm of Quinn Emanuel.

Public Knowledge Argues for IP Balance In TPPA

8/24. The Public Knowledge (PK) released a short piece titled "Intellectual Property in the TPP: How About a Little Balance?" The authors are the PK's Rashmi Rangnath, who focuses on intellectual property (IP) in the information and communications technology (ICT) sectors, and the Public Citizen's Peter Maybarduk, who focuses on IP in biotech.

The two wrote that "intellectual property practices and rules can stifle innovation and limit needed competition: abusive copyright claims intended to prevent introduction of new and innovative products and services; overbroad patents that hold back research and invention; trademark claims designed to stifle competition rather than prevent consumer confusion about the origin of goods and services. While protecting trademarks, copyrights, and patents can be useful, so is placing smart limits on exclusivity."

Rashmi RangnathRangnath (at right) and Maybarduk continued that "Inadequate balance in copyright law would prevent the creation and distribution of new creative works, like news reports and documentary films that use existing films, music, and photographs".

They also wrote that "many industry sectors, like consumer electronics and information technology -- which add significant value to the economy -- would be unable to function without limits to copyright protection. These industries make products that let people use content in convenient ways. For instance, MP3 players let people transfer songs they have already bought from their computer to these devices. The making and marketing of these products would have been jeopardized without the protections provided by fair use. Such limits are an essential part of US law but are extremely weak in the TPP."

Update on DOJ Domain Name Seizures

8/24. TLJ published a story titled "DOJ/FBI Seize Domain Names by Warrant" in TLJ Daily E-Mail Alert No. 2,433, August 21, 2012. After publication a Department of Justice (DOJ) spokesman returned a call from TLJ to state that the DOJ will not release the seizure order(s), or any other orders or pleadings in this case, or cases.

Nor will the DOJ disclose whether a grand jury has returned any indictment(s), or the DOJ has served or filed any complaint, information, or other charging document(s). Nor will the DOJ disclose any information other than that which it has already disclosed in it news release.

The activities and operations of the federal government in seizing domain names, and related actions to prevent users from accessing domain names of infringing web sites, are relevant to several ongoing legislative and policy debates. The DOJ's secrecy in the present matter may be directed at limiting public understanding, and advocacy in ongoing policy debates.

Interest groups in the US, including the Electronic Frontier Foundation (EFF), Public Knowledge (PK) and Center for Democracy and Technology (CDT), have engaged in judicial advocacy regarding the seizure of domain names. For example, the EFF, PK and CDT filed an amicus curiae brief with the U.S. District Court (SDNY) in Puerto 80 Projects, S.L.U. v. Department of Homeland Security Immigration and Customs Enforcement, regarding the DHS/ICE seizure of and in 2010. See also, August 4, 2011, order of the District Court, and amicus curiae brief filed with the U.S. Court of Appeals (2ndCir) by the EFF, PK and CDT. That case is D.C. No. 11 Civ. 3983 (PAC) and App. Ct. No. 11-3390-cv.

Groups have also filed comments regarding federal domain name seizures with the Executive Office of the President's (EOP) Office of the Intellectual Property Enforcement Coordinator, or IPEC, to assist it in preparing the "Joint Strategic Plan Against Counterfeiting and Infringement". See, stories in TLJ Daily E-Mail Alert No. 2,428, August 14, 2012.

Also, there are legislative proposals, such as those contained in the PROTECT IP Act and Stop Online Piracy Act, that would mandate the disabling of access, by a variety of means, to foreign domain names used for infringing activities. See, HR 3261 [LOC | WW], the "Stop Online Piracy Act" or "SOPA", and S 968 [LOC | WW], the "Preventing Real Online Threats to Economic Creativity and Theft of Intellectual Property Act of 2011", "PROTECT IP Act", or "PIPA".

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8/24. The Executive Office of the President's (EOP) Office of Management and Budget (OMB) issued a memorandum to the heads of executive departments and agencies regarding government records. This memorandum contains much of the usual pretenses about transparency and accountability. Much of this memorandum pertains to government e-mail. For example, it states that "Federal agencies will manage all permanent electronic records in an electronic format" and "manage both permanent and temporary email records in an accessible electronic format". Its release follows letters from House Commerce Committee (HCC) Republicans to Obama aides on August 8 regarding use of personal e-mail accounts for official business. See, letter and letter.

Copyright Office Seeks Comments on Creating a Process for Adjudicating Small Copyright Claims

8/23. The Copyright Office (CO) published a notice in the Federal Register (FR) that requests comments regarding establishing a process for adjudicating small copyright claims.

The deadline to submit comments is September 26, 2012. The CO will also hold two hearings, in New York City on November 15-16, and in Los Angeles on November 26-27. See, FR, Vol. 77, No. 164, August 23, 2012, at Pages 51068-51071.

This long and detailed notice contains 32 numbered topics, most of which contain numerous questions.

The CO is conducting an inquiry, and writing a report for Congress, pursuant to a request from Rep. Lamar Smith (R-TX), Chairman of the House Judiciary Committee (HJC). He has essentially asked that the CO implement language in several orphan works bills that were introduced in the 109th and 110th Congresses, but that were not enacted into law. See, related story in this issue titled "Orphan Works Legislation and Adjudicating Small Copyright Claims".

Currently, many rights holders, especially individuals and small businesses, do not sue those who copy their works without authorization because the expected costs of litigation far exceed the expected returns. Theft goes unanswered, and this encourages more theft.

This inquiry by the CO pertains to the possibility of establishing a new process that would enable such rights holders to obtain adjudication of claims of infringement, and perhaps some related claims, with simplified procedure, accelerated time schedules, limited discovery, virtual courts, maximum damage awards, and/or other limitations on remedies.

The CO published a shorter first notice in the FR last year requesting comments. See, FR, Vol. 76, No. 208, October 27, 2011, at Pages 66758-66761. See also, CO's web page with hyperlinks to the comments that it received. And see, related story in this issue titled "First Round of Comments on Creating a Process for Adjudicating Small Copyright Claims".

Summary of Questions in Just Released Notice. The second notice asks more questions, and more detailed questions. It may also reveal some of the preliminary conclusions or thoughts of the CO regarding adjudicating small copyright claims.

For example, one approach to creating a copyright small claims adjudication process would be to allow the state courts, which have long and broad experience in operating small claims courts, and providing expedited, simplified and pro se relief in specific cases, such a landlord tenant disputes and domestic violence, to also be a venue for adjudicating small copyright claims.

This could be accomplished by allowing state courts to adjudicate claims arising under the Copyright Act. Alternatively, the federal copyright preemption statute (17 U.S.C. § 301) could be amended to allow states to create a state law copyright cause of action, or small claims copyright cause of action. However, the CO notice relegates use of state court to a brief inquiry in question number 28.

This notice also discloses that the CO has already exonerated itself. This notice also does not ask any questions regarding whether the CO's activities and operations currently contribute to small claims not being adjudicated, or would contribute further to small claims not being adjudicated under a new process.

For example, the CO does not ask if high CO registration fees are a deterrent. Nor does it ask if lengthy CO delays in issuing registrations (a prerequisite under 17 U.S.C. § 411 for bringing a claim for infringement) is a deterrent. Nor does it ask if the CO's failure to provide clear guidance regarding how to register certain copyrights (and the resulting uncertainty as to whether a work has been validly registered) is another deterrent.

These issues were raised in the first round of comments. The National Writers Union (NWU), for example, devoted most of its comments to registration issues.

The CO notice asks about what body should adjudicate small claims. It asks about voluntary and mandatory participation.

It asks about arbitration, including about how decisions would be enforced. Currently, 9 U.S.C. § 2, provides that a "written ... contract ... to settle by arbitration a controversy thereafter arising out of such contract ... shall be valid, irrevocable, and enforceable ..." Rights holders have contracts containing arbitration clauses with few, if any, of their would be infringers.

The CO notice asks questions regarding whether small claims proceedings should be limited as to types of works, types of claims, or size or types of damages. It also asks about limiting defenses and counterclaims. It also asks if small claims courts should have authority to grant declaratory or equitable relief.

The CO notice ask about whether trial by jury should be available, what sort of discovery should be available, the role of attorneys, motion practice, rules of evidence, and paper and teleconference only proceedings.

Public Hearings. The CO will hold a public meeting in the Jerome Greene Annex at Columbia Law School, 410 West 117th Street, New York City, New York, on November 15 from 9:30 AM to 5:30 PM, and on November 16 from 9:30 AM to 3:30 PM.

The CO will hold a public meeting in Room 1314, UCLA School of Law, 405 Hilgard Avenue, Los Angeles, California, on November 26 from 9:30 AM to 5:30 PM, and on November 27 from 9:30 AM to 3:30 PM.

The CO has not yet set a deadline or process for requesting to make a presentation at either of these two meetings.

Orphan Works Legislation and Adjudicating Small Copyright Claims

8/23. The Copyright Office (CO) published a notice in the Federal Register (FR) that requests comments regarding establishing a process for adjudicating small copyright claims. This is the second such request for comments.

This issue is intertwined with the matter of reducing the rights and remedies of rights holders via legislation described by its proponents as "orphan works" bills. Several large organized interests have actively sought such legislation for years.

The CO released a report [133 pages in PDF] titled "Report on Orphan Works" in January of 2006 urging the Congress to enact such legislation. Almost all of the major interests that are well organized to lobby the Congress on copyright issues have either backed, or not opposed, orphan works legislation. See, story titled "Copyright Office Recommends Orphan Works Legislation" in TLJ Daily E-Mail Alert No. 1,302, February 2, 2006.

Maria PallanteMaria Pallante (at right), the Register of Copyright, who in 2006 was employed by the Guggenheim Museum, advocated passage of orphan works legislation, and testified at a hearing on March 8, 2006. See, story titled "House CIIP Subcommittee Holds Hearing on Orphan Works" in TLJ Daily E-Mail Alert No. 1,326, March 9, 2006

Orphan works proposals would limit the remedies of rights holders when a defendant infringer asserts that he did not know who owned the copyright, or could not locate the owner. While such a defense could not be credibly asserted by someone who copies blockbuster movies or popular songs, the defense would substantially harm individual and small business rights holders of lesser known works.

Moreover, orphan works legislation could have a devastating impact upon the holders of rights in visual works, such as those created by graphic artists, illustrators, and photographers, in part because of the absence of effective search methods for visual works.

Visual artists and others made their positions known to members of Congress, and the Congress did not enact any of these orphan works bills. Contrary to the arguments of some advocates of campaign finance and lobbying reform, the large corporate interests, and better funded lobbying efforts, do not always prevail.

Nevertheless, there remains strong interest in enacting orphan works legislation.

Rep. Bob Goodlatte (R-VA), Chairman of the House Judiciary Committee's (HJC) Subcommittee on Intellectual Property, Competition, and the Internet, stated in response to question from TLJ on January 17 of this year that he is still interested in enacting an orphan works bill.

Rep. Bob GoodlatteTLJ asked Rep. Goodlatte (at right), "is an orphan works bill a possibility for the 2nd session?"

He stated that "We have been discussing that. There is no definitive plan to do that, but it is something that certainly has been on my larger list of things that we ought to be figuring out what we can do."

He continued that "One of the big problems there is figuring out what to do with photographs. With a lot of the things it is a lot easier to figure out whether it really is an orphan work or not. But one of the issues with orphan works is, is it really an orphan work. And, since photographs don't come labeled in a way that it is really easy to determine whether it is or not, we have got to figure out a way to handle stuff like that." (Source: TLJ audio file ...\2012a\stateofthenet\7.wma, unpublished.)

Also, Google and book publishers have tried to use class action litigation settlement, that was legislative in scope, to impose an orphan regime for book publishing. However, the U.S. District Court rejected it.

See, story titled "DOJ Files Pleading in Google Books Case" in TLJ Daily E-Mail Alert No. 1,985, September 21, 2009, and story titled "DOJ Criticizes Amended Google Books Settlement" in TLJ Daily E-Mail Alert No. 2,043, February 12, 2010. See also, stories titled "District Court Rejects Google Books Class Action Settlement" in TLJ Daily E-Mail Alert No. 2,206, March 22, 2011, and "Orphan Works and the Court's Rejection of the Google Book Deal" in TLJ Daily E-Mail Alert No. 2,207, March 23, 2011.

If the Congress is to enact orphan works legislation, the vehement opposition of professional photographers, and other visual and authorial rights holders, would have to be overcome. One way to do this would be to pair orphan works legislation with legislation that would create an effective small copyright claims process. Thus, the combined legislation would balance the harm done to small and visual rights holders by orphan works legislation with the benefit to them that would result from a new simplified small claims process.

The bills in the 109th and 110th Congress would not have created such a process. However, they did contain provisions requiring the CO to conduct a study.

Rep. Lamar Smith (R-TX), the Chairman of the House Judiciary Committee (HJC) sent a letter on October 11, 2011 to the CO requesting that it "undertake a study to assess: (1) The extent to which authors and other copyright owners are effectively prevented from seeking relief from infringements due to constraints in the current system; and (2) furnish specific recommendations, as appropriate, for changes in administrative, regulatory and statutory authority that will improve the adjudication of small copyright claims and thereby enable all copyright owners to more fully realize the promise of exclusive rights enshrined in our Constitution."

Rep. Bob GoodlatteRep. Smith (at right) and the CO are essentially proceeding as if Section 6 of HR 5889 [LOC | WW], the "Orphan Works Act of 2008", or Section 5 of S 2913 [LOC | WW], the "Shawn Bentley Orphan Works Act Of 2008", had been enacted into law during the 110th Congress, or Section 4 of HR 5439, the "Orphan Works Act of 2006", had been enacted into law during the 109th Congress.

Section 6 of HR 5889 provided as follows:

Others have also proposed creating a small claims process for copyright. See for example, article [72 pages in PDF] titled "The Copyright Principles Project: Directions for Reform" in Berkeley Technology Law Journal, 2010, Vol. 25, Page 1175, at pages 1207-1208. It proposes that the CO adjudicate small claims.

For more on orphan works bills in the 109th Congress, see stories titled "House CIIP Subcommittee Holds Hearing on Orphan Works" in TLJ Daily E-Mail Alert No. 1,326, March 9, 2006, "Rep. Smith Introduces Orphan Works Act of 2006" in TLJ Daily E-Mail Alert No. 1,377, May 24, 2006, and "House CIIP Subcommittee Approves Orphan Works Act of 2006" in TLJ Daily E-Mail Alert No. 1,378, May 25, 2006.

For more on orphan works bills in the 110th Congress, see stories titled "House IP Subcommittee Approves Orphan Works Bill" in TLJ Daily E-Mail Alert No. 1,762, May 7, 2008, "Senate Judiciary Committee Amends and Approves Orphan Works Bill" in TLJ Daily E-Mail Alert No. 1,767, May 15, 2008, and "Orphan Works Bills Discussed" in TLJ Daily E-Mail Alert No. 1,798, July 23, 2008.

Summary of First Round of Comments on Creating a Process for Adjudicating Small Copyright Claims

8/23. The Copyright Office (CO) published a notice in the Federal Register (FR) on August 23, 2012 that requests comments regarding establishing a process for adjudicating small copyright claims. See, FR, Vol. 77, No. 164, August 23, 2012, at Pages 51068-51071.

This is the second such request for comments. The CO published a shorter first notice in the FR last year requesting comments. See, FR, Vol. 76, No. 208, October 27, 2011, at Pages 66758-66761.

See, CO's web page with hyperlinks to the comments that it received. And see, related stories in this issue titled "Copyright Office Seeks Comments on Creating a Process for Adjudicating Small Copyright Claims" and "Orphan Works Legislation and Adjudicating Small Copyright Claims".

While the CO received 55 comments, taken as a whole, they did not provide the CO with an extensive body of data, analysis, and opinion. First, many were one page comments of individuals. Second, few law professors with expertise in civil procedure and/or copyright law submitted comments. But see, comments of June Besek (Columbia law school).

Third, few practicing attorneys submitted comments. However, David Nimmer (Irell & Manella, and author of Nimmer on Copyright) submitted very extensive comments on behalf of the American Photographic Artists (APA). See also, comments of Michael Traynor, Katherine Spelman, and Sophie Cohen of the Cobalt law firm, brief comments of Atkinson & Atkinson, and brief comments of Megan Gray (now at the FTC).

Fourth, many of the entities that might be relied upon by the CO to provide extensive and informed comments, either submitted nothing, or stated that they have not yet developed their positions.

See for example, comments of the Recording Industry Association of America (RIAA) and comments of the Association of American Publishers (AAP), taking no positions.

Most of the large companies, and trade groups that represent the large companies, that aggregate and distribute copyrighted works did not submit comments. No major record or movie companies submitted comments. Neither the Motion Picture Association of America (MPAA), Business Software Alliance (BSA), Entertainment Software Association (ESA), nor International Intellectual Property Alliance (IIPA) submitted comments.

In contrast, numerous individuals and small businesses that create visual works or written works, and the groups and attorneys who represent them, submitted comments in support of creation of a small claims process. These are the prospective plaintiffs who find little recourse under the current copyright litigation process, and who would be most harmed by enactment of orphan works legislation.

These comments state the views book authors and other writers, artists, medical illustrators, but especially photographers

The American Society of Media Photographers (ASMP) submitted extensive comments that address the nature of the photography profession, the nature and extent of infringement, and the high costs of copyright litigation.

The ASMP comments, written by Victor Perlman, state that current procedures "allow a defendant with a deep pocket to put a sole proprietor plaintiff in the poor house through endless discovery requests, depositions and motions".

The ASMP proposes a small claims process that dispenses with the requirement of registration, proceeds on a mandatory pro se basis, in some kind of federal tribunal (none is specified), with "very limited" pretrial discovery, and an accelerated schedule. Most hearings and trials conducted by video conferencing. Claims would be limited to somewhere between $10,000 to $25,000 maximum, and injunctive remedies would be available.

Nimmer (APA) wrote that the current system works well "when the stakes are high and both sides are financially prepared to enforce their rights to the hilt", but that the "rules can actually serve to hinder justice when the stakes are relatively low, with one party more intent on erecting procedural roadblocks and multiplying expenses than on reaching resolution of the matter at hand".

Nimmer and the APA, who submitted the only comments with the proposed text of statutory and rules changes, suggest adjudication before magistrate judges of the U.S. District Courts, without a jury, of claims up to $80,000, in cases in which both parties agree to small claims process. Only infringement claims would be heard. Remedies would be damages and final (but not preliminary) injunctive relief. The Court would apply a "rocket docket" with limited discovery. Also, Nimmer and the APA would maintain the registration requirement.

The National Press Photographers Association (NPPA) also submitted comments. It wrote that the CO "should create a less burdensome method for adjudicating copyright claims -- so long as rights holders are not unreasonably pressured to settle their claims for less than rights-managed market values."

The Songwriters Guild of America (SGA) and the Nashville Songwriters Association International (NSAI) submitted a comment to state that they "strongly endorse the concept of establishing a forum in which individual copyright owners could pursue infringement claims that have a relatively small economic value".

Google, owner of YouTube, submitted comments. Its business model benefits from its users posting and viewing infringing copies of copyrighted works. As an interactive computer service it avoids liability for the actions of its users, provided that it complies with the notice and take down regime of 17 U.S.C. § 512. Hence, providing all rights holders processes that enable them to effectively enforce their copyrights is not in Google's interest.

However, some people post content to YouTube, which is either not infringing, or falls within the scope of fair use, which is taken down as a result of wrongful take down demands. Providing persons who post such content a small claims process to litigate their claims of wrongful take down notices could be in the interest of Google and other similarly situated interactive computer services.

Google's comments argue that if a small claims process is created, there should be limitations. These limitations would have the effect of rendering the process ineffective and toothless. First, Google argues that claims should be drastically limited. For example, the small claims process should not have authority to adjudicate any claims involving allegations of secondary liability, or defenses of fair use. On the other hand, Google advocates allowing small claims that allege wrongful take down notices.

Google argues against any discovery. Google also argues that remedies should be drastically limited. Damages should have a very low cap -- no more than $10,000. And, there should be no injunctive relief.

Google argues that there should be an "appeal" process for "defendants". Although, what Google describes is actually a trial de novo in the U.S. District Court, with the full panoply of FRCP discovery and other procedures.

Google also argued that states should have no role in this.

Google also references use of the small claims process by "a movie studio that wants to bring 10,000 cases against P2P downloaders".

There is a history of mass P2P litigation, but it has stopped. These actions were brought by record companies, and were limited to defendants who made copies available over P2P systems, not mere downloaders. Moreover, the large movie and record companies can afford to hire lawyers to bring expensive lawsuits, while most P2P defendants cannot afford to defend such suits.

Google may have more to worry about from hundreds of thousands of individual creators filing small claims, that Google could not remove to full scale litigation, that allege vicarious liability, or direct liability notwithstanding the Section 512 safe harbor due to its failure to comply with the notice and take down procedures.

The Public Knowledge (PK), whose advocacy on many issues, including copyright, spectrum, and FCC regulation, often parallels that of Google, submitted comments that made some of the same points as Google's comments. The Electronic Frontier Foundation (EFF) and Future of Music Coalition (FOMC) joined in the PK's comments.

They argue that a small claims process should only have authority to adjudicate cases in which both the rights holder and alleged infringer "voluntarily submit their dispute to the new forum". Then damages should be limited to $5,000 per dispute. And, "Statutory damages, injunctions, attorney’s fees and costs, seizure, and forfeiture should not be available as remedies".

The large movie and record industry interests have not shown any enthusiasm for a small claims process either.

On the on hand, the movie and record companies can afford to bring actions in the U.S. District Court under ordinary procedure. On the other hand, record companies may have reason to fear that a small claims process would be used by singers and songwriters to litigate copyright ownership and contract disputes with record companies.

The National Music Publishers Association (NMPA) and American Society of Composers, Authors and Publishers (ASCAP) wrote in their comment that "we have not recognized a discernible grass roots desire in the copyright community to create a copyright small claims court", and creating one could have "unintended consequences".

The ASCAP and SESAC (once an acronym for Society of European Stage Authors & Composers), both of which are music performing rights organizations (PROs) or societies within the meaning of 17 U.S.C. § 101, wrote in a joint comment that "no alternative adjudication or resolution system need be implemented to hear actions concerning the public performance of copyrighted musical works. For these actions, an alternative system is simply unnecessary." Moreover, "an alternative system for small claims can potentially be damaging" to PROs such as the ASCAP and SEAC.

In contrast, the third PRO in the US, Broadcast Music, Inc. (BMI), submitted a comment in which it stated that it "supports the Office’s interest in investigating other possible legal or regulatory processes that would be available to adjudicate a small claim".

Microsoft submitted comments, written by Jule Sigall. It states that "Microsoft does not have a view on whether any particular method of resolving small claims would be effective or desirable". However, it goes on to express more detailed views than most commenters.

This comment may be particularly important to the CO, because Sigall is the former CO attorney who wrote the 2006 orphan works report. See, story titled "Jule Sigall Joins Microsoft" in TLJ Daily E-Mail Alert No. 1,510, December 27, 2006.

FCC Approves Verizon Wireless SpectrumCo License Transfers

8/23. The Federal Communications Commission (FCC) released an order [88 pages in PDF] that approves multiple applications to transfer Advanced Wireless Services (AWS-1) licenses to Verizon Wireless, subject to data roaming and build out obligations. The order also asserts FCC authority to review agreements between the parties.

The FCC has statutory authority to review licenses transfers, under an undefined public interest standard. This matter does involve license transfers. Also, since shortly after passage of the Telecommunications Act of 1996, the FCC has leveraged its license review authority to also conduct antitrust reviews of mergers of license holding companies, as if it had statutory authority under the Clayton Act (15 U.S.C. § 18) to do so. However, this matter involves no merger. But, it does involve commercial agreements. The FCC in this matter leveraged its license review authority to conduct an antitrust review of these agreements, as if it had authority under Section 1 of the Sherman Act (15 U.S.C. § 1) to do so.

The order concludes, "The Commission has authority to review the Commercial Agreements and to impose conditions". This sets a precedent. (See, order at Paragraph 143.)

The Department of Justice's (DOJ) Antitrust Division approved these transactions last week. The DOJ and state of New York filed a complaint [19 pages in PDF] on August 16 in the U.S. District Court (DC) against Verizon, Verizon Wireless, Comcast, Time Warner Cable, Cox Communications, and Bright House Networks that alleges violation of Section 1 of the Sherman Act in connection with a series of agreements between Verizon and cable companies. But, the parties also simultaneously reached a settlement. See, story titled "DOJ Approves Verizon Cable Deals" and story titled "Genachowski Says FCC to Approve Verizon Cable Deals Subject to Concessions" in TLJ Daily E-Mail Alert No. 2,429, Wednesday, August 15.

In December of 2011 these companies entered into agreements, under which Verizon Wireless agreed to acquire unused Advanced Wireless Services (AWS) spectrum licenses from several cable companies, and Verizon and Verizon Wireless and cable companies agreed to market each other's services. The DOJ reviewed the entirety of the deals under its authority to enforce the Sherman Act. The FCC reviewed the license transfers, pursuant to statutory authority, and the associated agreements, without statutory authority.

The settlement with the DOJ provides that the cross marketing agreements are allowed, but must be amended, and be of limited duration -- four years. See, Stipulation and Order and proposed Final Judgment.

The FCC does not file lawsuits where is lacks statutory authority. Rather, it leverages it authority to review license transfers to extract concessions, and then announces its approval. In the present matter, it conditioned its approval upon commitments by Verizon Wireless to assume data roaming and build out obligations.

If the Court of Appeals overturns the FCC's data roaming rules, Verizon Wireless will still have data roaming obligations, under this order for five years.

Also, in order to obtain DOJ and FCC approvals, Verizon Wireless agreed to sell 700 MHz A and B block licenses to T-Mobile USA.

This FCC order approves the license transfers. One is the assignment of AWS-1 licenses held by Cox and SpectrumCo, which is a a joint venture among subsidiaries of Comcast, Time Warner Cable, and Bright House Networks, to Verizon Wireless. Another is a spectrum swap between Verizon Wireless and Leap. The third is a Verizon Wireless assignment of AWS-1 licenses to T-Mobile.

In its review of the agreements, the FCC order concludes that the agreements, "as originally drafted had the potential to reduce competition". However, the order continues, the DOJ consent decree "requires that the parties to the agreements alter them in multiple, fundamental ways that address the key potential harms to consumers and competition". Hence, the FCC order states that "we conclude that we do not need to impose further conditions at this time, except as discussed below."

The order elaborates: "we will continue to monitor closely any effects the Commercial Agreements have on the marketplace, and on the development of emerging product markets. To assist in that monitoring, we direct the Wireline Competition Bureau to take all actions necessary to open a docket for the public to file complaints or petitions alleging that the parties are acting in violation of the conditions imposed by this order or engaging in anticompetitive conduct relating to this transaction that implicates the public interest or otherwise violates the Act or Commission rules."

And, "We intend to exercise Commission jurisdiction fully and take corrective action whenever necessary". (The order addresses the agreements at paragraphs 139 through 169.)

Commissioner Robert McDowell wrote in his statement that "I disagree with the data roaming obligation undertaken by Verizon Wireless. As an initial matter, I cast a dissenting vote when the mandatory data roaming rule was adopted in 2010, citing primarily the Commission's lack of authority over broadband information services such as data roaming. Moreover, the record in the instant proceeding neither cites nor discusses any concrete examples where Verizon Wireless has failed to offer data roaming. On the other hand, today's order does nothing to disturb the appeal of the 2010 data roaming order, which is currently pending with the D.C. Circuit."

See, McDowell's dissent to the FCC's Second Report and Order [79 pages in PDF] that imposes common carrier like regulations for data roaming. The FCC adopted and released that order on April 7, 2011. It is FCC 11-52 in WT Docket No. 05-265. See also, story titled "FCC Adopts Data Roaming Rules" in TLJ Daily E-Mail Alert No. 2,219, April 7, 2011.

McDowell also wrote that "I cannot support the assertion that the Commission has jurisdiction over the commercial agreements at issue in this transaction. In this case, review of these documents should have fallen exclusively to the Department of Justice because the tasks pertain solely to antitrust matters."

He also wrote that "I have concerns regarding possible attempts to revisit these agreements in the future".

Commissioner Ajit Pai wrote in his statement that "the order should not and need not assert authority over the Commercial Agreements, which the Antitrust Division of the Department of Justice (DOJ) ably analyzed. It is a shibboleth that the Commission’s authority to review mergers or transactions is broad, but we must be mindful that broad is not boundless." See, Shibboleth [Wikipedia].

Pai also disagreed "with the imposition of a ``voluntary´´ data roaming commitment upon Verizon. First, such a condition is not voluntary in any meaningful sense of the word, insofar as the parties would not agree to it independently but know that its acceptance is a predicate for regulatory approval of these transactions. Moreover, the Commission’s authority to impose such a condition generally is doubtful."

Comcast's David Cohen stated in a release that, following these DOJ and FCC approvals, "Comcast will be able to market Verizon Wireless products and services across our entire footprint under a renewable agent agreement (for the first five years, we will be exclusive to Verizon Wireless, but Verizon Wireless will not be able to enforce the exclusivity provisions after five years)." (Parentheses in original.)

Cohen added that "Comcast and Verizon Wireless will be able to work together for at least five years in an R&D partnership to develop innovative technologies that integrate wireless and wireline products and services; after five years, we can continue that partnership with the agreement of the DOJ."

Cathy Sloan of the Computer and Communications Industry Association (CCIA) stated in a release that "The agreements between the nation's largest telephone company and the largest cable companies are unprecedented.  Rather than compete as the Telecom Act of 1996 intended, the nation's dominant broadband Internet access providers have chosen to collaborate. And now the FCC has given this bad deal its blessing."

Sloan added that "we are moving much closer to an unregulated duopoly in mobile wireless markets and a monopoly in residential Internet access".

Gigi Sohn, head of the Public Knowledge (PK), stated in a release that the agreements "turn former competitors into allies". She wrote that "The FCC rightly asserted jurisdiction over the joint marketing, wireless reseller, and JOE agreements. But it has merely set up a system where parties can file complaints. While this may allow parties to bring attention to anticompetitive or otherwise illegal conduct, it does nothing to affirmatively prevent it. The JOE is still a vehicle that empowers former competitors to suppress new rivals. The FCC should have protected competition by blocking the commercial agreements altogether."

Berin Szoka and Gregory Manne of the Tech Freedom stated in a release that this action by the FCC "sets a dangerous precedent. The FCC has authority to review license transfers but not other ``related´´ transactions. Nevertheless, it devotes fourteen pages of its order to just such a review of the commercial agreements. The fact that the FCC ultimately approved the agreements is no defense of its lengthy and misplaced critique of them. By not leaving review of such provisions to the DOJ under its more rigorous antitrust analysis, the FCC may ensure that future transfers and mergers aren’t even contemplated, even if they would benefit consumers. This effectively grants the FCC the unchecked power to stop transactions it doesn't even have the authority to review."

This order, titled "Memorandum Opinion and Order and Declaratory Ruling", is FCC 12-95 in WT Docket No. 12-4 and WT Docket 12-175. The FCC adopted it on August 21, 2012, and released it on August 23, 2012. See also, FCC release.

Divided FCC Adopts Special Access Order

8/23. The Federal Communications Commission (FCC) released a Report and Order [107 pages in PDF] that suspends the FCC's rules, which have been in effect for 13 years, that allow for automatic grants of pricing flexibility for special access services.

Introduction. This pertains to FCC price regulation for connections that provide voice and data for government entities and businesses. For example, mobile communications companies use these connections to link cell towers to wireline backbone networks.

This R&O states that its sets "a path to update our rules". It adds that "we currently lack the necessary data to identify a permanent reliable replacement approach". Nevertheless, this item contains no NPRM, NOI, or any request for "the necessary data". This R&O does state that the FCC will issue a "comprehensive data collection order within 60 days".

This action is controversial. The five member Commission divided along party lines, with Democrats voting for it, and Republicans against. Congressional Republicans condemned it. Congressional Democrats praised it. Price cap carriers who will lose pricing flexibility hate it.

How one concludes this will affect consumers, investment, competition, and innovation depends on one's economic analysis of communications and internet protocol networks. Such conclusions vary widely.

The FCC adopted this R&O on August 15, but did not release it until August 22, 2012. It is FCC 12-92 in WC Docket No. 05-25.

See, full story.

Congressional Reaction to Special Access Order

8/23. Members of Congress who commented on the Federal Communications Commission's (FCC) special access Report and Order [107 pages in PDF], released on August 22, 2012, divided along party lines. Republicans criticized the R&O will Democrats praised it.

Rep. Fred Upton (R-MI) and Rep. Greg Walden (R-OR) stated in a joint release that "The FCC has once again handed down a decision without providing sufficient evidence that action is needed. The decision violates good process and is difficult to square with Chairman Genachowski's previous statements about how this issue would be addressed. The FCC told the D.C. Circuit Court in an October 2011 filing that the commission lacked `an evidentiary record that is sufficient to evaluate current conditions in the special access market,´ in part because of `the failure of some parties to produce information clearly documenting their claims that special access rates are unreasonable.´ Further, the FCC Wireline Bureau Chief said in April that the FCC was still faced with `an incredible dearth of data.´"

Rep. Upton is the Chairman of the House Commerce Committee (HCC), which oversees the FCC. Rep. Walden is the Chairman of the HCC's Subcommittee on Communications and Technology (SCT).
The two continued that HCC members recently urged the FCC "to engage in a mandatory data collection and to refrain from taking any action before then. The Chairman acknowledged that the FCC did not have all the information it needed and said that he would move forward expeditiously with a data collection. He made no mention of his plans to suspend the regime and propose changes before gathering the additional material. The FCC has a responsibility as an expert agency to justify its actions with data before intervening in the status quo."

They added that "Genachowski has said that the House-approved FCC Process Reform Act is unwarranted. Actions such as these provide further evidence to the contrary". See, HR 3309 [LOC | WW], the "Federal Communications Commission Process Reform Act of 2011". See also, story titled "House Passes FCC Process Reform Act" and related stories in TLJ Daily E-Mail Alert No. 2,361, March 30, 2012.

In contrast, Rep. Henry Waxman (D-CA), the ranking Democrat on the HCC, stated in a release that the FCC's special access rules "are not working as intended and may actually harm consumers, competitors, and incumbents."

Rep. Henry WaxmanRep. Waxman (at right) wrote that "Chairman Genachowski, Commissioner Clyburn, and Commissioner Rosenworcel should be commended for focusing on the record and rejecting calls to allow this broken system to remain in place for no reason other than adherence to deregulatory policies. By temporarily suspending new grants of pricing flexibility as it develops a new path for such flexibility in the future, the Commission demonstrates the sensible and reasoned decision making we expect of an expert agency."

Rep. Ed Markey (D-CA) stated in a release that "The outdated rules currently governing the special access market need to be reformed so the businesses, competitive carriers, wireless service providers and others who rely on it can take full advantage of robust and competitive broadband services".

Rep. Doris Matsui (D-CA) also praised the R&O.

Outside Reaction to Special Access Order

8/23. Many persons commented on the Federal Communications Commission's (FCC) special access Report and Order [107 pages in PDF], released on August 22, 2012.

Walter McCormick, head of the US Telecom, stated in a release that "We are disappointed that the Commission has chosen to take this action despite its recent repeated admissions that it does not have adequate information to evaluate the competitiveness of the high-capacity services marketplace. For more than two years, USTelecom has been urging the Commission to undertake a mandatory data request to obtain the necessary information, particularly in light of the recalcitrance of the very competitors that have sought this action to provide such data voluntarily."

McCormick continued that "It is surprising that the majority has chosen to move forward without even issuing such a data request – let alone without evaluating the results. It also is perplexing why the Commission continues to contemplate changes in policy that serve only to prop up outdated technologies in a manner that will discourage the deployment of new, higher capacity facilities. We urge the Commission to move forward with its promised mandatory data request and hope that future actions will be driven by such data and by policies that encourage the deployment of broadband facilities."

AT&T's Bob Quinn stated in a release that "the FCC is placing the cart before the horse by suspending the existing special access rules before receiving and analyzing the data submissions.  If, as the FCC itself stated earlier this year, it does not have the data to support `claims that special access rates are unreasonable,´ then suspending the existing triggers seems premature."

He continued that "industry -- fueled by demand for mobile Internet data -- is rapidly moving yesteryear's copper-based special access services to fiber-based, IP services".

He argued that "If the goal is to encourage new fiber investment and more broadband to transition to an all-IP world, the Commission must establish the conditions necessary to create incentives for all carriers to continue to invest in new IP technology, not further regulate yesterday’s technology."

Kathy Sloan of the Computer and Communications Industry Association (CCIA) stated in a release that "these 12-year-old regulatory mechanisms are dysfunctional and need to be reformed. We are relieved that the agency has decided to hold the line on further wholesale rate increases by Verizon, AT&T and others while it mandates their production of the market data the FCC needs to determine whether and where American businesses actually do enjoy realistic competitive choices for their telecommunications needs or are captive customers facing monopoly pricing."

Jerry James, head of the Comptel, praised the R&O in a release.

John Bergmayer of the Public Knowledge (PK) praised this R&O. He stated in a release that "While consumers don't pay high special access fees directly, they still bear their cost. When competitive carriers have to pay unreasonably high rates for connectivity they may have to pass the costs along to users, or slow down new deployment."

Matt Wood of the Free Press (FP) praised this R&O in a release. He said that "special access has been little more than a special advantage for AT&T and Verizon, and they've used it to choke off competition and keep prices high".

More News

8/23. The U.S. Patent and Trademark Office (USPTO) announced in a release that it has selected the Byron Rogers Federal Building in downtown Denver, Colorado, as the location of its Denver satellite patent office.

8/23. Dennis Newsome pled guilty in the U.S. District Court (EDVa) to violations of federal law in connection with his copying and selling copyrighted computer software and computer-based training materials. The Office of the U.S. Attorney for the Eastern District of Virginia stated in a release that he "owned and operated an online business, known as PCTech101, which sold computer software, education, and training materials to customers via the Internet and by means of websites". The USAO added that "Newsome illegally sold copies of valuable, copyrighted works from his websites at a fraction of the true cost of the genuine copyrighted works. For example, Newsome sold illegal copies of several copyrighted computer security training products made and sold by the SANS Institute for $24.99, when the SANS Institute sold such products at prices ranging from $750 to $4,295."

8/23. The CTIA released a document [3 pages in PDF] titled "Guidelines for Federal Political Campaign Contributions via Wireless Carrier's Bill, Version 1.0". The release of these guidelines follows the Federal Election Commission's (FEC) release of its Advisory Opinion 2012-28 on August 2, 2012.

8/23. The Copyright Office (CO) published a notice in the Federal Register (FR) that requests comments regarding adjudicating small copyright claims. The deadline to submit comments is September 26, 2012. The CO will hold two hearings, in New York City on November 15-16, and in Los Angeles on November 26-27. See, FR, Vol. 77, No. 164, August 23, 2012, at Pages 51068-51071.

8/23. Verizon announced that it will enable campaign contributions via text messaging. "Starting today, Verizon Wireless will put into operation a new program, recently authorized by the Federal Election Commission (FEC), which will enable Verizon customers to use text messaging to contribute to the campaign committees of the presidential campaigns of the two major political parties. Verizon Wireless intends to implement this new program carefully and in full compliance with the FEC's recent direction. The program is currently being limited to the two presidential campaigns in order to assess the service." See, release.

8/23. The Department of Justice's (DOJ) Antitrust Division published a notice in the Federal Register (FR) that sets the deadline of October 22 for submitting comments regarding the proposed final judgment in US v. Verizon, D.C. No. Case 1:12-cv-01354. See, FR, Vol. 77, No. 164, August 23, 2012, at Pages 51048-51064. See also, story titled "DOJ Approves Verizon Cable Deals" in TLJ Daily E-Mail Alert No. 2,429, August 15, 2012.

Update on DOJ v. Apple eBooks Case

8/22. The Department of Justice's (DOJ) Antitrust Division filed with the U.S. District Court (SDNY) its reply memorandum [PDF] in support of its motion for entry of final judgment in the e-books antitrust case against Apple and five e-book publishers. The DOJ and three publishers settled. Apple does not want the District Court to approve the proposed final judgment (PFJ) that implements that settlement.

The DOJ wrote that "A recurring theme in the various oppositions to entry of the consent decree is that the government fails to understand that the sale of e-books is unlike other businesses, and that the application here of long-settled prohibitions against price-fixing risks ruin for the industry. While e-books are a relatively new arrival on the publishing scene, a plea for special treatment under the antitrust laws is an old standby. Railroads, publishers, lawyers, construction engineers, health care providers, and oil companies are just some of the voices that have raised cries against ``ruinous competition´´ over the decades. Time and time again the courts have rejected the invitation to exempt particular businesses from the reach of the Sherman Act."

The DOJ initiated this action on April 11, 2012. Simultaneously, three publisher defendants (Hachette, Harper Collins, and Simon & Schuster) settled with the DOJ. See, complaint [36 pages in PDF] and proposed final judgment (PFJ). See also, stories titled "DOJ Sues Apple and Book Publishers Alleging E-Book Price Collusion" and "Analysis of DOJ's Sherman Act Claim Against Apple and E-Book Publishers", and related stories in TLJ Daily E-Mail Alert No. 2,368, April 11, 2012.

Apple and two publisher defendants (Penguin and Holtzbrink, which includes Macmillan) continue to contest the allegations. Some best selling authors and brick and mortar stores are working in alliance with the contesting defendants to, among other things, generate public comments in opposition to the PFJ.

See also, story titled "Scott Turow Criticizes DOJ E-Books Action" in TLJ Daily E-Mail Alert No. 2,371, April 14, 2012.

As required by the Tunney Act, 15 U.S.C. § 16, the DOJ solicited public comments on the PFJ.

On July 23, 2012, the DOJ filed with the District Court the comments that it received in response to its this notice. See, DOJ web page with hyperlinks to comments. The DOJ also filed with the District Court its response [66 pages in PDF].

Apple submitted a blunt and angry comment [9 pages in PDF] in opposition to the settlement. Apple is not a party to the settlement, and is not bound by its terms. However, the PFJ requires that the settling defendants, among other things, terminate certain contracts with Apple.

Apple wrote that "the Government has intervened in a rapidly growing and evolving market about which it appears to understand very little. Indeed, the Government's actions to date reflect a fundamental misunderstanding of eBook competition, Apple's role in the market, and the potential impact of this Proposed Judgment."

Barnes & Noble, a book retailer, and not a party to the case, submitted a comment [27 pages in PDF] in opposition to the proposed settlement. It argues that the PFJ would harm brick and mortar book stores.

The Consumer Federation of America (CFA) submitted a comment [25 pages in PDF] defending the PFJ. It wrote that "The self-interested claims of brick-and-mortar retailers and celebrity authors who profit from price fixing at the expense of consumers must not mislead the court into thinking that (1) the public interest lies in anything short of restoring full price competition to the book publishing marketplace or (2) that the harm to competition inflicted by the agency cartel price-fixing for digital distribution of books at a critical moment in the nascent development of new digital business models can be repaired without a significant period of close oversight and scrutiny."

The DOJ filed a motion for final judgment, and memorandum in support [7 pages in PDF], on August 3, 2012.

Apple filed an opposition on August 15. It argues that it has not yet settled, but the PFJ would penalize it, by terminating the contracts between the settling defendants and Apple.

The Authors Guild filed an opposition [5 pages in PDF] on August 15.

Holtzbrinck/MacMillan filed an opposition on August 15, while Penguin filed its "observations" on August 15. Both filings are published online here.

WaylandPenguin wrote that "The Emperor has no clothes."

Joe Wayland (at right, with clothes) is the acting Assistant Attorney General in charge of the DOJ's Antitrust Division.

He signed the complaint, which alleges that "Apple and Publisher Defendants reached an agreement whereby retail price competition would cease (which all the conspirators desired), retail e-book prices would increase significantly (which the Publisher Defendants desired), and Apple would be guaranteed a 30 percent ``commission´´ on each e-book it sold (which Apple desired)." (Parentheses in original.)

Apple and the publishers "jointly agreed to alter the business model governing the relationship between publishers and retailers. Prior to the conspiracy, both print books and e-books were sold under the longstanding ``wholesale model.´´ Under this model, publishers sold books to retailers, and retailers, as the owners of the books, had the freedom to establish retail prices. Defendants were determined to end the robust retail price competition in e-books that prevailed, to the benefit of consumers, under the wholesale model. They therefore agreed jointly to replace the wholesale model for selling e-books with an ``agency model.´´ Under the agency model, publishers would take control of retail pricing by appointing retailers as ``agents´´ who would have no power to alter the retail prices set by the publishers. As a result, the publishers could end price competition among retailers and raise the prices consumers pay for e-books through the adoption of identical pricing tiers. This change in business model would not have occurred without the conspiracy among the Defendants."

The complaint alleges that "Apple facilitated the Publisher Defendants' collective effort to end retail price competition by coordinating their transition to an agency model across all retailers."

The complaint explains that "Over three days in January 2010, each Publisher Defendant entered into a functionally identical agency contract with Apple that would go into effect simultaneously in April 2010 ..."

Moreover, these contracts with Apple also provided that "the Publisher Defendants would raise retail e-book prices at all other e-book outlets, too", so that "electronic versions of bestsellers and newly released titles would be priced according to a set of price tiers contained in each of the Apple Agency Agreements ..."

Then, after executing the Apple agency contracts, these publishers "acted to complete the scheme by imposing agency agreements on all their other retailers", who thereby "lost their ability to compete on price".

The effect, the complaint alleges, was to raise prices that consumers pay. Previously, the most popular e-books were sold for $9.99. After the defendants implemented their scheme, these same e-books sold for $12.99 or $14.99.

Penguin argued that "The Government has made and critically relied upon the naked assertion that the advent of the agency method of selling eBooks ... resulted in a steep increase in overall eBook prices, ... and its prohibition is necessary to reduce prices and allow competition to re-emerge ... Yet the Government has offered no empirical proof to clothe this claim."

"It is too complicated for purposes of this short submission to in any substantive way get into all of what the data show about pre- and post-agency eBook prices."

But, Penquin continued, "what is absolutely clear from that data is that the price of new release Penguin eBooks did not unvaryingly move from $9.99 to $12.99 post-agency. And, ... many of these eBook prices would have been less under the agency model."

The DOJ responded in its August 22 reply that Penguin used data that predated culmination of the conspiracy. The DOJ wrote that "straightforward analysis of Penguin's prices before and after conspiracy culmination reveals that Penguin did indeed raise its prices as soon as it gained the power to do so. In four weeks spanning the time when Penguin took retail pricing power from Amazon, the average price for a Penguin e-book sold through Amazon increased 17 percent, and the average price for a Penguin ``new release´´ e-book sold through Amazon increased 21 percent."

This case is U.S. v. Apple, et al., U.S. District Court for the Southern District of New York, D.C. No. 1:12-cv-02826-UA.

FTC Sends No Action Letters for Facebook's Acquisition of Instagram

8/22. The Federal Trade Commission (FTC) sent a letters to Facebook and Instagram informing them that the FTC will take no action at this time to block Facebook's acquisition of Instagram.

The FTC sent one letter to Thomas Barnett (Covington & Burling) legal counsel for Facebook, and a substantially identically letter to Patricia Ziegler (Orrick Herrington), legal counsel for Instagram. Barnett is a former Assistant Attorney General in charge of the Department of Justice's (DOJ) Antitrust Division.

Both letters state that "The Commission has been conducting an investigation to determine whether the proposed acquisition of Instagram, Inc. by Facebook, Inc. may violate Section 7 of the Clayton Act or Section 5 of the Federal Trade Commission Act."

The letters add that "Upon further review of this matter, it now appears that no further action is warranted by the Commission at this time. Accordingly, the investigation has been closed. This action is not to be construed as a determination that a violation may not have occurred, just as the pendency of an investigation should not be construed as a determination that a violation has occurred. The Commission reserves the right to take such further action as the public interest may require."

Section 7 of the Clayton Act, which is codified at 15 U.S.C. § 18, is the statute that gives the FTC and DOJ authority to block mergers and acquisitions that may substantially lessen competition, or tend to create a monopoly.

Section 7 of the Clayton Act provides, in part, that "No person engaged in commerce or in any activity affecting commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no person subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of another person engaged also in commerce or in any activity affecting commerce, where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly."

Section 5 of the FTC Act, which is codified at 15 U.S.C. § 45, is an anti-fraud consumer protection statute, which the FTC, under the Chairmanship of Jonathan Leibowitz, asserts is also an antitrust statute.

The FTC has statutory authority to enforce antitrust laws under the Sherman Act and Clayton Act. Moreover, there are well developed bodies of judicial case law that construe and give meaning to the various sections of the Sherman Act and Clayton Act. In contrast, Section 5 of the FTCA has hardly been invoked as an antitrust statute for decades. There is no body of case law that gives meaning to Section 5 as an antitrust statute. There now is almost nothing to put companies on notice as to what might constitute a violation of Section 5 in the antitrust context. There is almost nothing to constrain the FTC. This is what makes Section 5 so attractive to this FTC. See also, story titled "Commentary on Antitrust Processes" in TLJ Daily E-Mail Alert No. 2,118, August 4, 2010.

AT&T Rebuts PK/FP Net Neutrality Allegations

8/22. AT&T published a short piece in its web site titled "Enabling FaceTime Over Our Mobile Broadband Network". The author is AT&T's Bob Quinn.

It responds to the allegations made by the Public Knowledge (PK) and Free Press (FP) last week that AT&T has violated the Federal Communications Commission's (FCC) December 2010 rules regulating the network management practices of broadband internet access service (BIAS) providers. This is also know as the network neutrality order and open internet order.

See, story titled "PK and FP Allege AT&T Wireless BIAS Offerings Violate FCC Net Neutrality Rules " in TLJ Daily E-Mail Alert No. 2,430, August 16, 2012.

AT&T states that "FaceTime is a video chat application that has been pre-loaded onto every AT&T iPhone since the introduction of iPhone 4. Customers have been using this popular app for several years over Wi-Fi. AT&T does not have a similar preloaded video chat app that competes with FaceTime or any other preloaded video chat application. Nonetheless, in another knee jerk reaction, some groups have rushed to judgment and claimed that AT&T’s plans will violate the FCC’s net neutrality rules. Those arguments are wrong."

AT&T continues that the BIAS order includes "a no-blocking requirement under which they are prohibited, subject to reasonable network management, from blocking applications that compete with the provider’s voice or video telephony services.

"The FCC's net neutrality rules do not regulate the availability to customers of applications that are preloaded on phones. Indeed, the rules do not require that providers make available any preloaded apps. Rather, they address whether customers are able to download apps that compete with our voice or video telephony services. AT&T does not restrict customers from downloading any such lawful applications, and there are several video chat apps available in the various app stores serving particular operating systems. ... Therefore, there is no net neutrality violation."

AT&T also argued that "Although the rules don’t require it, some preloaded apps are available without charge on phones sold by AT&T, including FaceTime, but subject to some reasonable restrictions. To date, all of the preloaded video chat applications on the phones we sell, including FaceTime, have been limited to Wi-Fi. With the introduction of iOS6, we will extend the availability of the preloaded FaceTime to our mobile broadband network for our Mobile Share data plans which were designed to make more data available to consumers. To be clear, customers will continue to be able to use FaceTime over Wi-Fi irrespective of the data plan they choose. We are broadening our customers’ ability to use the preloaded version of FaceTime but limiting it in this manner to our newly developed AT&T Mobile Share data plans out of an overriding concern for the impact this expansion may have on our network and the overall customer experience."

The PK's John Bergmeyer promptly responded in a release that "The FCC's Open Internet rules do not distinguish between pre-loaded and downloaded apps. They prevent carriers from blocking certain kinds of apps -- period. AT&T is blocking FaceTime for all of its iPhone customers who do not subscribe to its premium 'Mobile Shared' plans, and this runs afoul of the rules."

Consumer Watchdog Petitions FCC for Rulemaking on Mobile Broadband Speed Disclosures

8/22. The Consumer Watchdog filed a petition [51 pages in PDF] for rulemaking with the Federal Communications Commission (FCC) that "proposes a rule that would require wireless carriers in the United States to provide clear and accurate disclosures of mobile broadband performance to the public."

This petition, dated August 22, 2012, states that "Almost all advertisements by the major U.S. wireless carriers for mobile network service are centered on a promise of faster ``4G´´ speeds. Most Americans would be startled to learn that there is no accepted definition of 4G."

The Consumer Watchdog (CW) states that 4G is a "useless definition", and that "wireless carriers ... have successfully turned 4G into a deceptive marketing term used to label and rebrand products and services as ``faster,´´ either without actually making improvements to existing products and services or without disclosing the meaning of ``faster.´´"

FTC to Raise Fees for Accessing Do Not Call Registry

8/22. The Federal Trade Commission (FTC) released a notice [5 pages in PDF], to be published in the Federal Register, that announces, describes, recites, and sets the effective date for, its changes to its Telemarketing Sales Rule (TSR). The FTC is increasing the fees that it charges to entities that access the National Do Not Call Registry. The effective date is October 1, 2012.

This notice states that "the revised rule increases the annual fee for access to the Registry for each area code of data from $56 to $58 per area code; increases the fee per area code of data during the second six months of an entity’s annual subscription period from $28 to $29; and increases the maximum amount that will be charged to any single entity for accessing area codes of data from $15,503 to $15,962."

The "Do-Not-Call Registry Fee Extension Act of 2007", Public Law No. 110-188, requires that the FTC raise fees with the Consumer Price Index. This was S 781 [LOC | WW] in the 110th Congress.

People and Appointments

8/22. Jerome Pender was named Executive Assistant Director of the Federal Bureau of Investigation's (FBI) Information and Technology Branch (ITB). He was previously Deputy Assistant Director of the FBI's Criminal Justice Information Services Division (CJIS). FBI Director Mueller did not promote someone from within the ITB. Pender has worked for the FBI since 2003. Previously, he worked for UBS. See, FBI release.

More News

8/22. Google, which owns YouTube, began operation of a web section in YouTube titled "2012 Election". Google stated in a release that this is a "channel for key political moments from now through the upcoming U.S. election day on November 6", including "live speeches from the floor of the upcoming Republican and Democratic National Conventions" and "a live stream of the official Presidential and Vice Presidential debates".

8/22. PayPal announced in a release that "PayPal and Discover are teaming up to bring the convenience, security and functionality of PayPal to millions of participating in-store locations starting in 2013. What that means in a nutshell is that PayPal can be enabled as a payments option for our 50+ million active users in the U.S. at any in-store location that accepts Discover."

OUSTR Files WTO Complaint Against Argentina

8/21. The Office of the U.S. Trade Representative (OUSTR) filed a complaint (nominally a request of consultations) with the World Trade Organization (WTO) against Argentina.

The OUSTR alleges that Argentina is in violation of its WTO obligations "concerning certain measures imposed by Argentina on the importation of goods into Argentina".

The complaint alleges that Argentina subjects imports to non-automatic import licensing. The OUSTR added in a release that this licensing regime covers, among other things, laptop computers and home appliances.

The complaint also alleges that "Argentina often requires the importers of goods to undertake certain commitments, including, inter alia, to limit their imports, to balance them with exports, to make or increase their investment in production facilities in Argentina, to increase the local content of products manufactured in Argentina (and thereby discriminate against imported products), to refrain from transferring revenue or other funds abroad and/or to control the price of imported goods." (Parentheses in originals.)

FCC Addresses Confidentiality of Filings in License Transfer Proceedings

8/21. The Federal Communications Commission's (FCC) Wireless Telecommunications Bureau (WTB) adopted and released an Order [3 pages in PDF] in its proceeding regarding the applications of Verizon Wireless (VW) and SpectrumCo, and VW and Cox TMI, for consent to assign AWS-1 licenses.

The FCC released protective orders in January designating the Joint Operating Entity (JOE) as Highly Confidential. The Public Knowledge (PK) submitted a petition [18 pages in PDF] on May 9, 2012, in which it argued that this JOE is not entitled to any confidentiality treatment by the FCC.

The just released order changes the designation of certain portions of the JOE from Highly Confidential to Confidential.

The PK's Harold Feld stated in a release on May 9 that "There is no reason for the FCC to allow Verizon, Comcast and their proposed cartel partners to keep secret the organizational details of their new organization. If this information were made public, it would be clear to everyone that this is not a 'procompetitive R&D joint venture', as the companies have claimed in their filings with the Commission ... The JOE is in reality at the center of the effort to create a new cartel."

The PK's Jodie Griffin stated in a release on August 21 that "we are glad that the new lower level of protection will allow parties that could be affected by the transaction to more comprehensively review the documents".

This proceeding is WT Docket No. 12-4.

Divided FCC Adopts Section 706 Report

8/21. The Federal Communications Commission (FCC) released a large document [181 pages in PDF] titled "Eighth Broadband Progress Report". This document bears some relationship to the statutory requirement of Section 706 of the Telecommunications Act of 1996, which requires regular reports in which the FCC makes factual determinations regarding the "availability of advanced telecommunications capability".

This document, which a divided Commission adopted on a straight party line vote, asserts that broadband is not yet being deployed in a reasonable and timely fashion.

It states "we conclude that broadband is not yet being deployed to all Americans in a reasonable and timely fashion. Our analysis shows that the nation’s broadband deployment gap remains significant and is particularly pronounced for Americans living in rural areas and on Tribal lands. We find that as of June 30, 2011, approximately 19 million Americans did not have access to fixed broadband." (Footnote omitted. See, pages 59-60.)

To reach this conclusion, this report construes the statutory language contrary to its plain meaning. Then, this report presumes that the data fits Chairman Julius Genachowski's policy goals. That is, with this Section 706 report, and the two prior reports, the extant policy objectives have driven the FCC's determination of what facts exist, rather than actual data being employed in making determinations regarding what would constitute sound policy.

However, both of these are time honored practices at the FCC that predate Genachowski's tenure as Chairman, and transcend party affiliation.

The FCC's underlying statutory authority has not been significantly revised since passage of the 1996 Act. Chairman Genachowski is endeavoring to expand or create regulatory and universal service regimes that go beyond FCC statutory authority, but which he and many in Congress want to have implemented. Hence, he has turned to reconstruing statutory language to serve new purposes. One of the provisions which he has asserted as authority for a variety of initiatives is Section 706.

Section 706 of the Telecommunications Act of 1996, which is codified at 47 U.S.C. § 157 notes, provides, in part, that the FCC shall regularly "initiate a notice of inquiry concerning the availability of advanced telecommunications capability to all Americans (including, in particular, elementary and secondary schools and classrooms) ... In the inquiry, the Commission shall determine whether advanced telecommunications capability is being deployed to all Americans in a reasonable and timely fashion. If the Commission's determination is negative, it shall take immediate action to accelerate deployment of such capability by removing barriers to infrastructure investment and by promoting competition in the telecommunications market." (Parentheses in original.)

This report replaces the term "advanced telecommunications" with wireline broadband internet access. This report in places confuses the term "availability" with adoption and affordability. This report also assumes that the term "removing barriers" means imposing regulatory mandates.

The FCC under Chairmen Kennard, Powell and then Martin issued Section 706 reports that found in the positive -- that advanced telecommunications capability is being deployed to all Americans in a reasonable and timely fashion. The FCC under Chairman Genachowski reversed, and since 2010 has issued three reports that find in the negative.

That this report would again find in the negative was foreordained by Genachowski's policy objectives. The conclusion of this report, regardless of the actual facts and data, was to be expected.

For example, in July of 2010 the FCC released its 6th Section 706 report asserting that broadband is not being deployed in a reasonable and timely fashion. Then, it adopted rules regulating broadband internet access service (BIAS) providers in December of 2010, asserting authority under Section 706, and the finding of its July 2010 report.

The December 2010 Report and Order (R&O) [194 pages in PDF] asserts that Section 706 "authorizes the Commission to address practices, such as blocking VoIP communications, degrading or raising the cost of online video, or denying end users material information about their broadband service, that have the potential to stifle overall investment in Internet infrastructure and limit competition in telecommunications markets." (See, R&O at Paragraph 120. That R&O is FCC 10-201 in GN Docket No. 09-191 and WC Docket No. 07-52. It is also sometimes referred to as the network neutrality order and the open internet order.)

Were the FCC to revert back to a positive Section 706 finding, that would undermine the FCC's asserted legal authority for issuing the BIAS order, which is now under review by the U.S. Court of Appeals (DCCir).

Similarly, the FCC's massive December 2011 Report and Order and Further Notice of Proposed Rulemaking [752 pages in PDF] regarding the FCC's universal service tax and subsidy programs bases its authority, not only upon 47 U.S.C. § 254 (which actually addresses universal service, but not for broadband), but also upon the assertion that "Section 706 provides the Commission with independent authority to support broadband networks in order to ``accelerate the deployment of broadband capabilities´´ to all Americans". (See, pages 21-22.)

That R&O continues that "We also have independent authority under section 706 of the Telecommunications Act of 1996 to fund the deployment of broadband networks", because the FCC's 6th and 7th Section 706 reports found in the negative. (See, pages 25-29.)

The report reaches its conclusion in part by construing advanced telecommunications service to be terrestrial fixed wireline broadband internet access at download and upload speeds of 4 Mbps and 1 Mbps. It disregards data on wireless broadband, as well as increasing data speeds.

The 7th report found that "26 million Americans live in areas unserved by broadband". This just released 8th report finds that "approximately 19 million Americans live in areas still unserved by terrestrial-fixed broadband". This report thus finds that a reduction from 26 to 19 million in one year does not constitute "is being deployed".

Democratic Chairman Genachowski wrote in his statement that "Our data also show that a significant broadband adoption gap remains -- fewer than 70% of Americans have subscribed to fixed broadband".

Democratic Commissioner Jessica Rosenworcel wrote in her statement that "nearly one in three Americans do not subscribe to broadband, citing lack of relevance, lack of affordability, and lack of digital literacy".

Republican Commissioner Ajit Pai wrote in his statement that this "conclusion rests on a flawed interpretation of the statute" and "sets aside this evidence". He wrote that the report should not have excluded wireless broadband, and that without this error, "it would have concluded that 5.5 million Americans -- not 19 million -- lack access to advanced telecommunications capability".

Pai also wrote that the report "misidentifies the primary barriers to infrastructure investment and broadband deployment." He stated that investors "indicate that their caution stems primarily from regulatory uncertainty and in particular their concerns about whether and how Internet Protocol-based (IP) networks are going to be regulated in the future."

He noted that the FCC's proceeding regarding reclassifying broadband as a Title II service "remains open, a sword of Damocles hanging over every broadband investor’s head".

He concluded that "The directive from Congress may not be easy to carry out, but it is clear: Promote competition. Eliminate regulatory uncertainty. Repeal archaic twentieth-century regulations that assumed regulated monopolies running copper networks. Empower small businesses, large businesses, entrepreneurs, and others with capital to invest in broadband infrastructure, unfettered by government mandate and unshackled from outdated restraints. To be sure, all of this will not happen overnight. But we should begin immediately down this path by creating an IP Transition Task Force that would develop a holistic set of recommendations for facilitating and expediting our transition to an all-IP world. If the private sector came to the conclusion that the Commission was committed to a deregulatory approach to IP networks and was serious about eliminating the regulatory uncertainty surrounding the IP transition, I am confident that broadband infrastructure investment would increase substantially and quickly."

Republican Commission Robert McDowell, who dissented from the FCC's 6th and 7th Section 706 reports, dissented again. He wrote that "In reality, the growth of broadband deployment in America, especially regarding the mobile marketplace, has been swift and strong".

He wrote that "the Section 706 process should be used to assess the progress of broadband deployment in our nation, as Congress intended. Unfortunately, that has not been the majority’s practice for the past three years. Instead, the majority has used this process as an opportunity to create a pretext to justify more regulation. The fact that the report’s closing paragraph heralds the use of Section 706 for the majority’s adoption of unprecedented regulation of Internet network management, or “net neutrality” rules, underscores my point. Referencing the net neutrality order, the majority says “the open Internet rules were adopted to ensure the continuation of the Internet’s virtuous cycle of innovation and investment, and the Commission must continue to prioritize those efforts consistent with the mandate of section 706.” In reality, the 706 process has been co-opted by the majority, and used in the course of a “cynical cycle” of regulation."

Richard Bennett of the Information Technology and Innovation Foundation (ITIF) stated in a release that this report "reaches the erroneous conclusion that we're not making reasonable progress toward bringing broadband networking to all Americans. The report's conclusions are not supported by the evidence, do not conform to the statutory direction of the 1996 Telecommunications Act, and overlook the non-adoption problem that actually dwarfs the deployment problem by an enormous degree."

Walter McCormick, head of the US Telecom, stated in a release that this "report undervalues the extraordinary scope of broadband deployment that has been achieved and understates the significance of private sector investment. Certainly the conclusion that broadband deployment to rural areas remains neither timely nor reasonable suggests that the FCC would be well-served by acting expeditiously on concerns expressed by the broadband companies that are seeking to serve rural America. In this regard, Members of Congress representing some of the rural areas that are the focus of the commission’s report, and the companies committed to serving those areas, have implored the commission to get money flowing by investing the Connect America Fund amounts it has already allocated to rural deployment through timely approval of currently pending USF petitions. And, both price-cap and rate-of-return carriers have told the Commission that it needs to act quickly to provide more clarity and predictability regarding Connect America Fund support so they can move forward with the multi-year planning and investments necessary to bring broadband to unserved and underserved areas.  We hope that today’s report will serve as a catalyst for new resolve and speedy Commission action on these critical matters."

The Free Press praised the FCC's report in a release. And, the Public Knowledge (PK) praised the FCC's report in a release.

The FCC's previous report [99 pages in PDF] in this series was titled "Seventh Broadband Progress Report". The FCC adopted and released it on May 20, 2011. It is FCC 11-78 in GN Docket No. 10-159. See also, story titled "FCC Releases 7th Section 706 Report" in TLJ Daily E-Mail Alert No. 2,246, May 27, 2011.

Before that, the FCC released a report [79 pages in PDF] titled "Sixth Broadband Deployment Report" on July 20, 2010. It is FCC 10-129 in GN Docket No. 09-137. See also, "FCC Releases 6th Section 706 Report" in TLJ Daily E-Mail Alert No. 2,114, July 29, 2010.

See also, story titled "FCC Releases NOI for 8th Section 706 Report" in TLJ Daily E-Mail Alert No. 2,283, August 8, 2011.

This report is FCC 12-90 inGN Docket No. 11-121.

DOJ/FBI Seize Domain Names by Warrant

8/21. The Department of Justice (DOJ)  issued a vaguely worded release at 7:30 PM on August 21 that announces the seizure of three domain names by warrant, rather than following adjudication. See also, identical Federal Bureau of Investigation (FBI) release.

The three domains are,, and Attempts to access these web sites now produces a notice that displays the seals of the DOJ, FBI, and National Intellectual Property Rights Coordination Center.

These notices state that "This domain has been seized by the FBI -- Federal Bureau of Investigation pursuant to a seizure warrant issued by a United States District Court under authority of Title 18, United States Code, Sections 981 and 2323."

The DOJ and FBI releases state that "Seizure orders have been executed against three website domain names engaged in the illegal distribution of copies of copyrighted Android cell phone apps".

See, full story.

More News

8/21. The House Commerce Committee (HCC) announced in a release that its Subcommittee on Communications and Technology will hold a hearing sometime in September regarding how to free more federal spectrum for commercial use.

8/21. The Department of State's (DOS) Advisory Committee on International Communications and Information Policy (ACICIP) published a notice in the Federal Register that announces that it will hold a public meeting on October 2, 2012, to discuss preparations for the World Conference on International Telecommunications to be held in Dubai, UAE, on December 3-14, 2012. See, notice in the FR, Vol. 77, No. 162, August 21, 2012, at Page 50543.

8/21. The Department of Commerce's (DOC) National Telecommunications and Information Administration (NTIA) published a notice in the Federal Register (FR) that announces the requirements for the State and Local Implementation Grant Program authorized by section 6302 of the spectrum bill enacted in February of 2012. This section creates a grant program related to the creation of a nationwide public safety broadband network. See, FR, Vol. 77, No. 162, August 21, 2012, at Pages 50481-50486. This section is in Title VI of HR 3630 [LOC | WW], the "Middle Class Tax Relief and Job Creation Act of 2012". See also, stories titled "House and Senate Negotiators Reach Agreement on Spectrum Legislation", "Summary of Spectrum Bill", and "Reaction to Spectrum Bill" in TLJ Daily E-Mail Alert No. 2,339, February 17, 2012, story titled "House and Senate Pass Spectrum Bill" in TLJ Daily E-Mail Alert No. 2,340, February 18, 2012, and story titled "Obama Signs Spectrum Bill into Law" in TLJ Daily E-Mail Alert No. 2,345, February 23, 2012.

Go to News from August 16-20, 2012.