| WTO Appellate Body Affirms
FSC Decision |
1/14. The Appellate Body of the World Trade Organization (WTO)
issued its report
[PDF] holding that the U.S. tax regime regarding
extraterritorial income violates the WTO obligations of the
U.S.
The Foreign Sales Corporation (FSC) tax regime, and its
replacement legislation passed in late 2000, benefit U.S.
companies, such as Microsoft, Cisco, and Motorola, that sell
products abroad. The FSC tax scheme allowed a portion of a
U.S. taxpaying firm's foreign source income to be exempt from
U.S. income tax. The European Union (EU)
filed a complaint about the FSC scheme with the WTO,
alleging that it was a prohibited export subsidy. A WTO
dispute settlement panel sided with the EU in 1999, and the
WTO Appellate Body upheld its findings in early 2000. As a
consequence, the Congress passed the Foreign Sales Corporation
Repeal and Extraterritorial Income Exclusion Act of 2000,
which preserved the benefits to U.S. exporters. The EU again
filed a complaint. And again, a WTO panel sided with the EU.
And now, that finding has been affirmed.
U.S. Trade Representative
Robert Zoellick stated in a release
that "We are disappointed with the outcome ... Given
prior decisions, we knew this would be an uphill struggle, but
we believed it was important to make our case for a level
playing field on tax rules. The United States respects its WTO
obligations, which serve America's interests, and we intend to
continue to seek to cooperate with the EU in order to manage
and resolve this dispute."
Zoellick added that "This is an especially sensitive
dispute that, at its core, raises questions of a level playing
field with regard to tax policy ... We will be consulting
closely with Congress and affected U.S. interests regarding
next steps."
Zoellick and U.S. exporters argue that there is an unlevel
playing field because most nations have a territorial tax
regime, under which they tax the income of corporations within
their territory, while the U.S. has a global tax regime dating
back to the 19th Century. American corporations are taxed by
the United States government for their domestic and foreign
income. That is, under the basic rules, if an American
corporation sells its products in France, the U.S. taxes the
income. However, if a French corporation sells its products in
the U.S., France does not tax the income of the corporation
operating in the U.S.
This puts U.S. corporations at a competitive disadvantage with
respect to their foreign competitors when competing in a
global economy. Hence, Congress has enacted various exceptions
to the general rule, through such methods as the foreign tax
credit, the Domestic International Sales Corporation (DISC),
the Foreign Sales Corporation (FSC), and finally, the bill
passed in 2000. U.S. exporters, and their supporters in
Congress and the administration, argue that this is simply
leveling the playing field between U.S. and European
companies.
In contrast, the EU contends that by giving tax breaks to U.S.
exporters, the U.S. is, in effect, subsidizing exports, in
violation of its trade agreements.
EU Trade Commissioner Pascal Lamy stated in a release
that "We now have a definitive legal ruling on the FSC
case. Of course I'm pleased that the WTO has confirmed what we
always believed. We have made a point of handling this dispute
in a very reasonable manner. Now it is up to the US to comply
with the WTO's findings and to settle this matter for once and
for all. As to how, we look forward to rapid US
proposals."
It is possible that Europe might now retaliate by imposing
high tariffs on the products of U.S. companies. Neither Europe
nor the U.S. seek a trade war, and the EU is likely pursuing
the FSC issue to obtain a bargaining chip to use in other
trade negotiations. However, if there were a trade war, Europe
would likely target U.S. technology and aircraft companies. |
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| 5th Circuit Denies
Rehearing in PSLRA Class Certification Case |
1/14. The U.S.
Court of Appeals (5thCir) issued its opinion
in Berger
v. Compaq denying Berger's petition for
rehearing en banc. This is a case involving the heightened
class certification requirements under the Private
Securities Litigation Reform Act of 1995 (PSLRA).
A three
judge panel of the Court of Appeals issued its
original opinion
on July 25, 2001 reversing the District Court's class
certification order. See, 257 F.3d 475.
District Court. Mark Berger and others filed a
complaint in U.S. District Court (SDTex)
against Compaq and some
of its directors alleging violations of §§ 10(b) and
20(a) of the Securities and Exchange Act of 1934 (15 U.S.C.
§§ 78j(b) and 78t(a)), and Rule 10b-5 thereunder (17 C.F.R.
§ 240.10b-5). Berger and others sought class action
status. The District Court certified a plaintiff class and
appointed class representatives.
Appeals Court. Defendants sought interlocutory review
of the certification order, on the grounds that it failed to
meet requirements of the PSLRA. Congress passed the PSLRA in
1995 to insulate defendants from abusive suits, particularly
technology related companies with volatile stock prices. The
Appeals Court held that the District Court "improperly
shifted the burden of proof to the defendants by adopting a
presumption that the class representatives and their counsel
are adequate in the absence of specific proof to the contrary.
Second, it applied an impermissibly lax standard for adequacy
that ignores the PSLRA's mandate that class representatives,
and not lawyers, must direct and control the litigation."
Petition for Rehearing. On petition for rehearing the
plaintiffs argued that the Court's original opinion created an
additional, independent requirement for the adequacy standard
for class certification under FRCP 23 by reading the
provisions of the PSLRA into FRCP 23(a)(4). In denying
rehearing, the Appeals Court wrote: "This we have not
done, nor have we changed the law of this circuit regarding
the standard for conducting a rule 23(a)(4) adequacy inquiry.
Rather, we mean to emphasize that Congress enacted the
"lead plaintiff" provisions of the PSLRA, 15 U.S.C.
§ 78u-4(a)(3)(B), to direct courts to appoint, as lead
plaintiff, the most sophisticated investor available and
willing so to serve in a putative securities class
action." |
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| BellSouth Chairman Wants
Regulatory Relief |
1/13. BellSouth
Chairman & CEO Duane
Ackerman gave a speech
in Amelia Island, Florida, in which he advocated changes to
the regulatory environment in which phone companies and other
communications companies operate. He wants deregulation of DSL
service. He also discussed a regulatory model in which
competition would be facilities based, rather than based on
the requirement that the incumbent phone companies, such as
BellSouth, provide unbundled networks elements to competitors.
He stated that "I see four basic observations about the
reigning regulatory model. By that I mean the model, applied
to the wireline segment of the communications industry, a
model that continues to constrain residential retail prices
while creating a wholesale market of UNEs, UNE-p
in particular, priced at TELRIC."
He elaborated: "First, the reigning model does not
protect consumers. Second, it has distorted the investment of
CLECs and ILECs -- to the detriment of consumers; its most
visible and serious outcome being the glut of capital it
enticed into high-speed, wireline facilities to serve
businesses in metro areas. It discourages competitors from
investing in their own facilities. Third, by distorting
investment, it contributed heavily to the current capital
scarcity in the industry; these capital woes turned out to be
one of the substantive drivers of America's economic slowdown.
Fourth, this regulatory model slows the delivery of advanced
services to consumers, especially in under-served areas. The
upshot of these four observations is plain: A new regulatory
model is needed."
He stated that a new regulatory model is also warranted
because technologies and markets have changed dramatically
since passage of the Telecom Act of 1996. Wireless competes
with wireline phone service. Data is a major portion of
network traffic. Computers and the Internet are now a part of
communications. Cable broadband competes with DSL. |
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| People and Appointments |
| 1/11. Mark Schneider rejoined the Washington DC
office of the law firm of Sidley & Austin.
Until January 11, he was Associate General Counsel for the Federal Communications Commission
(FCC), focusing on spectrum issues. Before that, he was Senior
Legal Advisor to former FCC Commissioner Susan Ness, focusing
on wireless and international telecommunications issues. And
before that, he was a partner at Sidley & Austin, where he
focused on representing clients before the FCC. See, FCC
release. |
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| More News |
1/14. President Bush gave a speech
in Aurora, Missouri, in which he addressed economic issues. He
stated that "the role of government is not to create
wealth. The role of government is to create an environment in
which people are willing to take risk, an environment in which
people are willing to risk capital, an environment that
heralds the entrepreneur and the small business person."
He defended tax cuts and free trade.
1/14. The Federal Communications
Commission (FCC) published a notice
in the Federal Register of its final rule regarding spectrum
aggregation limits for commercial mobile radio services (CMRS).
The FCC eliminated the CMRS spectrum cap rule effective
January 1, 2003; it also raised the cap to 55 MHz in all
markets until the sunset date, and eliminated the cellular
cross interest rule in Metropolitan Statistical Areas (MSAs),
but retained the rule in Rural Service Areas (RSAs). The FCC
first announced this action on November 8, 2001. See, November
8 release [PDF]. See also, Federal Register, January 14,
2002, Vol. 67, No. 9, at Pages 1626 - 1643.
1/14. The Securities and
Exchange Commission (SEC) released an order
in which it censured KPMG,
for engaging in improper professional conduct because it
purported to serve as an independent accounting firm for an
audit client at the same time that it had made substantial
financial investments in the client. The SEC found that KPMG
violated the auditor independence rules by engaging in such
conduct. KPMG consented to the SEC’s order without admitting
or denying the SEC’s findings. See, SEC release.
1/14. The U.S.
District Court (DDC) issued its opinion [PDF]
in U.S
ex rel. Fisher v. Network Software Associates,
a case involving the six year statute of limitations of the
False Claims Act.
1/14. The U.S. Court
of Appeals (DCCir) heard oral argument in Sinclair
Broadcast Group v. FCC, No. 01-1079.
1/14. The U.S. Court
of Appeals (DCCir) heard oral argument in COMSAT Corp
v. FCC, No. 00-1458. |
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| 3rd Circuit Rules in
Sherman § 2 Case |
1/14. The U.S.
Court of Appeals (3rdCir) issued its divided opinion
in Lepage's
v. 3M, an antitrust case involving transparent
tape. The majority reversed a District Court order denying 3M
judgment as a matter of law on a Sherman Act Section 2 claim.
The dissenter wrote that the majority's opinion "would
weaken § 2 of the Sherman Act to the point of impotence ... a
consummation greatly to be desired by the behemoths of
industry, such as Microsoft
..."
Background. LePage filed a complaint in U.S.
District Court (EDPenn) against 3M alleging violation of
antitrust law. It alleged, among other things, that 3M used
its monopoly over its Scotch tape brand to gain a competitive
advantage in the private label tape portion of the transparent
tape market in the U.S. through the use of 3M's multi-tiered
bundled rebate structure, which offered higher rebates when
customers purchased products in a number of 3M's different
product lines.
The jury returned a verdict in favor of 3M on unlawful
agreements in restraint of trade and exclusive dealing, and
against 3M on monopolization and attempted monopolization
claims under Section 2 of the Sherman Act. 3M filed motions
for judgment as a matter of law (JMOL) and for a new trial.
The District Court granted 3M's motion for JMOL on the
attempted maintenance of monopoly power claim, but denied 3M's
motion JMOL in all other respects, and denied the motion for a
new trial. The District Court entered a judgment for trebled
damages of $68,486,679. The present appeal followed.
Appeals Court. The Appeals Court affirmed the order
granting the motion for JMOL of law with respect to the
attempted maintenance of monopoly claim, but reversed the
order denying the motion for JMOL in all other respects.
Hence, the case was remanded to the District Court with
instructions to enter judgment in favor of 3M. Judge Morton
Greenberg wrote the opinion of the Court, in which Judge
Samuel Alito joined.
Dissent. Judge Dolores Sloviter wrote a long and
stirring dissent. She wrote that "the majority applies
reasoning that would weaken § 2 of the Sherman Act to the
point of impotence. While that may be a consummation greatly
to be desired by the behemoths of industry, such as Microsoft or 3M, it would
be an incalculable loss to business generally and to the
consumer. Section 2, the provision of the antitrust laws
designed to curb the excesses of monopolists and near
monopolists, is the equivalent in our economic sphere of the
guarantees of free and unhampered elections in the political
sphere. Just as democracy can thrive only in a free political
system unhindered by outside forces, so also can market
capitalism survive only if those with market power are kept in
check." |
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| Tuesday, Jan 15 |
8:30 AM - 5:00 PM. The North American Numbering Council (NANC)
will meet. Location: FCC, 445 12th Street, SW, Room TW-C305
(Commission Meeting Room).
9:30 AM. The Communications
for Coordinated Assistance and Response to Emergencies
Alliance (Comcare) will hold a press conference to release
a report titled "The E-Safety Program -- Making Americans
Safer". For more information contact Alan Kitey at akitey@comcare.org or 202
429-0574. See, Comcare
release. Location: Zenger Room, National Press Club, 529 14th
St. NW, 13th Floor.
1:30 PM. The U.S. International Telecommunication Advisory
Committee (ITAC) will hold a meeting. See, notice
in Federal Register, October 17, 2001, Vol. 66, No. 201, Page
52825. Location: State Department. |
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| Wednesday, Jan 16 |
8:30 AM - 5:00 PM. The North American Numbering Council (NANC)
may continue its meeting of January 15, if necessary.
Location: FCC, 445 12th Street, SW, Room TW-C305 (Commission
Meeting Room).
11:00 AM. The Cato Institute
will host a panel discussion titled "Closing 'Windows' on
Antitrust or Opening a New Era of Intervention? Competition
Policy after the Microsoft Settlement". The participants
will be Jeffrey Eisenach (Progress
and Freedom Foundation), Robert Levy (Cato), Kenneth Starr
(Kirkland & Ellis), Jonathan Zuck (Association for Competitive
Technology), and James Miller (Citizens for a Sound
Economy). A luncheon will follow. See, online
registration page. Location: Cato Institute, 1000
Massachusetts Avenue, NW. |
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| Thursday, Jan 17 |
9:30 AM. The Federal
Communications Commission (FCC) will hold a meeting that
will focus on a review of FCC policies and procedures by the
Commissioners and senior agency officials. There will be three
panel presentations. Panel One will include Chiefs of the Mass
Media Bureau, Cable Service Bureau and Common Carrier Bureau.
Panel Two will include the Chiefs of the Consumer Information
Bureau and the Enforcement Bureau. Panel Three will include
the Chiefs of the Office of Engineering and Technology, the
International Bureau, and the Wireless Telecommunications
Bureau. See, FCC
release. Location: FCC, Commission Meeting Room (Room
TW-C305), 445 12th Street, SW.
7:00 PM. Jim
Dempsey (Deputy Director of the CDT) and David Cole (Georgetown law school)
will discuss the newly revised and expanded edition of their
book titled "Terrorism and the Constitution: Sacrificing
Civil Liberties in the Name of National Security". See, Amazon
listing. Location: Politics and Prose
Bookstore, 5015 Connecticut Ave., NW. (This is at the
corner of Connecticut and Nebraska. It is one mile north of
the Van Ness Metro stop.) |
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