TLJ News from February 21-25, 2013

Senate Debates Court of Appeals Nominees

2/25. The Senate confirmed Robert Bacharach to be a Judge of the U.S. Court of Appeals (10thCir), and engaged in debate regarding the confirmation process, and the nomination of Caitlin Halligan to be a Judge of the U.S. Court of Appeals (DCCir).

The Senate confirmed Bacharach by a vote of 93-0. Moreover, Senators present for the vote stated that the seven who did not vote were "necessarily absent". See, Congressional Record, February 25, 2013, at Page S805.

Bacharach has long been a Magistrate Judge of the U.S. District Court (WDOkla). His home state Senators, Sen. Tom Coburn (R-OK) and Sen. James Inhofe (R-OK), both spoke in support, as did Sen. Charles Grassley (R-IA), the ranking Republican on the Senate Judiciary Committee (SJC).

The full Senate considered his nomination late in the 112th Congress. For decades, the Senate has stopped confirming Court of Appeals nominees at some point during Presidential election years. However, Sen. Harry Reid (D-NV), the Senate Majority Leader, sought confirmation of several Court of Appeals nominees just before the August recess in 2012. Bacharach was blocked by filibuster at that time, but not due to personal opposition.

Sen. Coburn explained in the Senate on February 25 that his "nomination got caught up in the political shenanigans the majority leader and the chairman of the Judiciary Committee carried out at the end of the last Congress. Never before has a circuit court nominee come to the floor without notification of the very members of the Judiciary Committee who sponsored their nomination in the committee. So it was purely a political trick. And for that I think the Senate owes Judge Bacharach an apology for the delay." (See, pages S799-800.)

In contrast, Sen. Leahy blamed Republican obstructionism. He said that the filibuster of Bacharach last year "was the ne plus ultra of an unprecedented campaign of obstruction Senate Republicans have waged against President Obama's judicial nominees".

See also, stories titled "Confirmations and Presidential Elections" in TLJ Daily E-Mail Alert No. 2,417, August 1, 2012, and "Obama Re-Nominates 33 for Federal Courts" in TLJ Daily E-Mail Alert No. 2,503, January 3, 2013.

Bacharach's swift and overwhelming approval early in the 113th Congress was to be expected. It is another matter for some pending nominees, such as Caitlin Halligan, and some yet to be nominated persons.

Sen. Leahy said that "The longest pending of these nominations is that of Caitlin Halligan, who the President first nominated to the D.C. Circuit back in 2010. At that time, there were already two vacancies on that court, a number which has now doubled to four. The purported justification for the partisan Republican filibuster of the Halligan nomination was that the circuit did not need another judge. The circuit is now more than one-third vacant and needs several, including Caitlin Halligan. I urge that the Senate act quickly on long-pending nominations. Further delay does not serve the interests of the American people. Hardworking Americans deserve better."

Unlike the 10th Circuit, the DC Circuit hears a large number of often controversial appeals from, and petitions for review of, final orders in federal agency rulemaking proceedings and adjudications. For example, the challenge to the Federal Communications Commission's (FCC) rules that regulate the network management practices of broadband internet access service providers, also known as the open internet rules, is pending before the DC Circuit. Nominations to the 10th Circuit are less controversial.

Also, Halligan's record invites controversy, as does the history of the seat for which she has been nominated. Democrats long kept this seat vacant during the Bush administration.

See, stories titled "Obama Again Nominates Halligan for DC Circuit" in TLJ Daily E-Mail Alert No. 2,454, September 22, 2012, "Obama Nominates Caitlin Halligan for DC Circuit" in TLJ Daily E-Mail Alert No. 2,138, October 4, 2010, and "Senate Judiciary Committee Approves Halligan" in TLJ Daily E-Mail Alert No. 2,203, March 11, 2011. See also, Halligan's questionnaire responses.

Sen. Leahy argued that there is a "damagingly high level of judicial vacancies" due to "an unprecedented effort to obstruct President Obama's judicial nominations".

Sen. Grassley responded that "President Obama has been treated fairly". He then rattled off statistics.

He said that the Senate "confirmed 171 district and circuit nominations during President Obama's first term. We also confirmed two Supreme Court nominations during President Obama's first term. ... The last time the Senate confirmed two Supreme Court nominees was during President Bush's second term, and during that term the Senate confirmed a total of only 119 district and circuit court nominees. ... the Senate confirmed 52 more district and circuit nominees for President Obama than for President Bush."

Sen. Grassley also said that " During the 2008 Presidential election year, the Senate confirmed a total of 28 judges -- 24 district and 4 circuit. During the 2012 Presidential election year the Senate greatly exceeded those numbers, having confirmed a total of 49 judges -- 44 district and 5 circuit."

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2/25. The U.S. Patent and Trademark Office (USPTO) and National Institute of Standards and Technology's (NIST) Manufacturing Extension Partnership (MEP) released an "updated beta version" of their web site named "IP Awareness Assessment Tool". See also, USPTO release.

Japan May Join TPPA Negotiations

2/22. The US and Japan released a joint statement regarding participation by Japan in the Trans Pacific Partnership Agreement (TPPA) negotiations. However, this statement does not address technology related trade issues.

Currently, the only parties to the TPPA negotiations are Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the US.

The US and Japan stated that they "will continue their bilateral consultations with respect to Japan’s possible interest in joining the TPP. While progress has been made in these consultations, more work remains to be done, including addressing outstanding concerns with respect to the automotive and insurance sectors, addressing other non-tariff measures, and completing work regarding meeting the high TPP standards.

Also, "should Japan participate in the TPP negotiations, all goods would be subject to negotiation, and Japan would join others in achieving a comprehensive, high-standard agreement, as described in the Outlines of the TPP Agreement announced by TPP Leaders on November 12, 2011."

The just released statement adds that "Recognizing that both countries have bilateral trade sensitivities, such as certain agricultural products for Japan and certain manufactured products for the United States, the two Governments confirm that, as the final outcome will be determined during the negotiations, it is not required to make a prior commitment to unilaterally eliminate all tariffs upon joining the TPP negotiations."

Abe Advocates Rules for Trade, Investment and IP

2/22. The Prime Minister of Japan, Shinzo Abe, gave a speech titled "Japan is Back" in Washington DC at the Center for Strategic and International Studies (CSIS). See also, video [45:12 in YouTube] which also contains the question and answer session.

Shinzo AbeAbe (at right) stated that "when the Asia-Pacific, or the Indo-Pacific region gets more and more prosperous, Japan must remain a leading promoter of rules. By rules, I mean those for trade, investment, intellectual properties, labor, environment and the like."

"Secondly, Japan must continue to be a guardian of global commons, like maritime commons, open enough to benefit everyone. Japan's aspirations being such, thirdly, Japan must work even more closely with the U.S., Korea, Australia and other like-minded democracies throughout the region."

He repeatedly stressed the importance of the Japan US alliance. He also said that "In order for us, Japan and the United States, to jointly provide the region and the world with more rule of law, more democracy, more security and less poverty, Japan must stay strong."

He re-affirmed that the Senkaku islands are Japan's sovereign territory, but "At the same time, I have absolutely no intention to climb up the escalation ladder. In fact, my government is investing more into people to people exchanges between Japan and China."

He continued that "For me, Japan's relations with China stand out, as among the most important. I have never ceased to pursue what I called "Mutually Beneficial Relationship Based on Common Strategic Interests" with China. The doors are always open on my side for the Chinese leaders."

Abe also met with President Obama earlier in the day.

During the question and answer session, he discussed this meeting, North Korea, US Japan cooperation, Japan South Korea relations, and the Senkaku islands.

SEC Commissioner Aquilar Calls for More Regulation of Stock Market Technologies

2/22. Luis Aguilar, a Commissioner of the Securities and Exchange Commission (SEC), gave a speech in which he called for more SEC regulation of market technologies. This would include expanding the reach of the SEC's Automation Review Policy (ARP) and making it mandatory, regulating trading software and its testing, and possibly adopting a "kill switch" rule.

He said that "I am growing increasingly concerned about the stability of our market structure as we lurch from one crisis to another, be it the flash crash or the Knight trading fiasco."

He said that in the past two decades securities markets have transformed from a few "mostly manual markets" into "a large number of high-tech trading centers", which rely on "fully-electronic, automated technology to execute trades". This is associated with increased speed and volume of trading, and more trading venues.

This, he said, has "increased the potential for system failures to spread quickly and affect the entire market".

Aguilar (at left) also expressed concern about "reports that indicate that the recent market events caused by technology-related issues may have eroded investor confidence and impacted the stability and price-discovery function of our capital markets".

He announced that "It is clear this is an area that requires regulation and oversight that result in transparency, stability, and accountability, and it is the Commission’s responsibility to propose and adopt solutions."

He argued that the SEC must be "proactive to prevent future market disruptions due to breakdowns in back-office systems and technology".

He reviewed existing regulation in this area, including "single-stock circuit breakers, the ban on stub quotes, and rules banning naked access, and requiring pre-trade risk controls". (Footnotes omitted.) But, the SEC "needs to do much more".

He said that the regulatory "Kill Switch" proposal deserves "serious consideration".

Second, he also said that the SEC "should mandate robust and routine testing of trading software at exchanges and other liquidity centers".

Third, he said that "we need a regulatory scheme that would extend" the voluntary Automation Review Policy (ARP), adopted by the SEC in 1989 in response to the market events of October 19 and 20, 1987.

He said that the ARP should "include additional market participants such as alternative trading systems, plan processors, and clearing agencies."

He added that the SEC "is currently working on a rule proposal that will make this process mandatory, and I hope that we soon act on the proposal. The many malfunctions have amply demonstrated that a voluntary environment is not acceptable." (Footnote omitted.)

GAO Releases Report on Spectrum Management

2/22. The Government Accountability Office (GAO) released a report [53 pages in PDF] titled "Spectrum Management: Further Consideration of Options to Improve Receiver Performance Needed".

The report was prepared for the Senate Commerce Committee (SCC) and House Commerce Committee (HCC) pursuant to a requirement in HR 3630 [LOC | WW], the "Middle Class Tax Relief and Job Creation Act of 2012", the spectrum bill enacted last year by the 112th Congress.

The report notes that "Concern about interference, such as the potential interference between LightSquared’s planned network and GPS receivers, has been a factor in managing spectrum. Historically, FCC and NTIA have used guard bands -- idle spectrum that serves as a buffer between systems -- and focused on transmitters -- the equipment that emits signals, such as television and radio broadcasting -- to manage interference between users in adjacent spectrum. However, guard bands occupy valuable spectrum that could be allocated for current and future services and users and transmitters represent only half of a transmission system."

"The other half of a transmission system is the receiver, and receiver performance, such as a receiver's ability to filter out signals from undesired transmitters, can also affect interference and spectrum efficiency." Therefore, the report continues, "improved receiver performance can reduce the risk of interference and allow for more intensive and efficient use of spectrum."

At issue is what industry, the Congress, and the FCC and NTIA should do to provide for the more efficient use of spectrum.

The report addresses four questions: "(1) What actions have selected manufacturers and commercial licensees taken to improve receiver performance? (2) What actions has the federal government taken to improve receiver performance? (3) What are the challenges, if any, to improving receiver performance? (4) What options have stakeholders and reports identified to improve receiver performance?"

It finds that "manufacturers and commercial licensees have developed voluntary standards that are used to design and procure receiver equipment for some services. Manufacturers and commercials licensees have also used private negotiation, improvements to technology, and information sharing between and among spectrum users to improve receiver performance."

It also finds that "federal spectrum users have mandated use of industry standards for receivers, specified system requirements to procure equipment, and negotiated with other spectrum users to resolve interference concerns. NTIA has mandated the use of standards for many federal spectrum users while FCC has not done so for nonfederal spectrum users, but both spectrum management agencies have taken actions to resolve specific cases of interference and conducted research to improve receiver performance."

As for challenges to further improvement of receiver performance, the report states that the "challenges include the lack of coordination across industries when developing receiver standards, the lack of incentives to improve receivers, and the difficulty accommodating a changing spectrum environment."

The report explains that "there are no incentives for manufacturers to build more robust receivers, primarily because the manufacturers will not receive the benefits. Rather, those who want to make more spectrum available or share spectrum will benefit."

Instead, "companies have an incentive to make the cheapest receiver possible -- that is, a receiver with poor filtering capabilities that is more sensitive to emissions from other bands -- and no incentive to work with licensees in neighboring spectrum bands."

Also, "federal users currently have no incentive to improve the efficiency with which they use their own spectrum allocation, nor does the federal system as a whole have incentives to improve its overall efficiency".

Finally, this report reviews the "options that could be taken or led by FCC and NTIA, with the aim of increasing spectrum efficiency", such as voluntary industry standards and mandatory standards, and addresses their costs and benefits.

SEC Announces That Its Examination Priorities Include Crowd Funding and IT Systems

2/21. The Securities and Exchange Commission (SEC) released a document [13 pages in PDF] titled "Examination Priorities for 2013". Among the many priorities for the SEC's National Examination Program (NEP) are crowd funding under the JOBS Act, and information technology (IT) systems.

Crowd Funding and Tech Start Ups. The 112th Congress enacted HR 3606 [ LOC | WW], the "Jumpstart Our Business Startups Act" or "JOBS Act" in early 2012. It is Public Law No. 112-106. It reduces securities regulation for small and start up companies.

Its purpose is to incent the creation of new companies, and facilitate their raising of capital, particularly in the technology sector. It contains many provisions. Title III is titled the "Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act of 2012" or "CROWDFUND Act".

The CROWDFUND Act also requires that the SEC write implementing regulations "Not later than 270 days after the date of enactment of this Act".

The SEC has failed to comply with this statutory requirement. The SEC is acting as though it possesses Constitutional authority to delay or veto Acts of Congress.

The just released SEC document states that "Upon approval of a final rule relating to the JOBS Act, which creates a new exemption from registration under the Securities Act for qualified ``crowd funding´´ transactions, the staff intends to conduct reviews of entities participating in the crowd funding business, as appropriate." (At page 8.)

This document does not address the circumstance that when the SEC conducts a review, this imposes costs upon the business. Yet, many of the businesses that are likely to avail themselves of crowd funding opportunities will be starts ups without the resources to pay for these costs.

The SEC document also states that "Where feasible, the staff will also review changes in advertising practices related to the JOBS Act, which requires modification of the rules restricting general solicitations." (At page 4.)

This is a reference to Title II of the JOBS Act, regarding "Access to Capital for Job Creators". It requires the SEC to amend its rules within 90 days to provide that the prohibition against general solicitation or general advertising does not apply to certain securities offerers.

It amends Section 4 of the Securities Act of 1933, which is codified at 15 U.S.C. § 77d, to, among other things, remove the regulatory ban that prevents small privately held companies from using advertisements to solicit investors.

Here too, the SEC has not yet amended its rules, and has therefore failed to comply with its statutory obligations.

IT Systems. This document states the SEC will also focus on IT based trading systems.

It begins that "The capital markets have experienced an ongoing revolution in technology over several decades, and the increasing complexity, interconnectedness, and speed fostered by technology is a continual challenge to market participants and regulators. A number of market events over the past two years have underscored how important it is for the Commission and other regulators to stay current on new trading technologies and their implications for maintaining transparent, stable markets that do not give inappropriate advantages to some market participants over others." (At page 2.)

It states that "In 2013, the NEP may conduct examinations on governance and supervision of information technology systems for topics such as operational capability, market access, and information security, including risks of system outages, and data integrity compromises that may adversely affect investor confidence. Among other things, the NEP hopes that these examinations will help the industry and the Commission to better understand operational information technology risks and potential methods to help mitigate and effectively manage those risks." (At pages 2-3.)

In addition, "The staff intends to address certain trading risk areas, with particular focus on high frequency trading, algorithmic trading, proper controls around the use of technology, alternative trading systems and order routing practices." (At page 7.)

This document also states that SEC "staff has observed a series of technology system problems that have caused firms' significant losses and eroded customer confidence in the markets. These technology system errors have occurred at both the exchange level as well as at multiple broker-dealers. These events have raised questions as to the effectiveness of broker-dealers’ controls and oversight over technology systems and supervision of personnel, as well as the adequacy of firms' protocols to address systems that are acting counter to expectations, and the robustness of firms' risk management procedures". (At pages 8.)

People and Appointments

2/21. Larry Landis (Indiana Utility Regulatory Commission) and Nikki Hall (South Carolina Public Service Commission) were named Co-Chairs of the National Association of Regulatory Utility Commission's (NARUC) Washington Action program, the federal lobbying and advocacy arm of the NARUC. They will replace Philip Jones (Washington Utilities and Transportation Commission), who was recently elected NARUC President, and Kevin Gunn (Missouri Public Service Commission). See, NARUC release.

2/21. TechAmerica announced in a release that Kevin Callahan has joined the TechAmerica State Government Affairs team as the Director of the Northeast Region.

More News

2/21. The Department of Homeland Security (DHS) announced in a release that it has launched an initiative titled "National Initiative for Cybersecurity Careers and Studies" (NICCS).

Go to News from February 16-20, 2013.