2/25. The Supreme Court issued its opinion [24 pages in PDF] in Pacific Bell v. Linkline Communications, reversing the judgment of the U.S. Court of Appeals (9thCir).

The plaintiffs are LinkLine Communications and other internet service providers (ISPs) that sell DSL internet access to their retail customers. However, in order to be able to do this, they purchase access to the facilities of the defendant, Pacific Bell Telephone Co.

The plaintiffs assert that the wholesale prices which AT&T charges them (which they assert are too high), combined with the retail prices which AT&T charges its customers (too low), leave them no room for profit. That is, the high wholesale prices raise their costs, while AT&T's the low retail price force them to offer service at the same low price.

In the terminology used by many judges and attorneys in this case, this is a "price squeeze". Also, wholesale transactions are referred to as "upstream", while retail sales are referred to as "downstream". Also, Pacific Bell is referred to as "AT&T", an abbreviated name of its parent company.

The plaintiffs filed a complaint in the U.S. District Court (CDCal), which allowed the plaintiffs to proceed under Section 2 of the Sherman Act with a price squeeze theory.

Section 2, which is codified at 15 U.S.C. § 2, makes it unlawful to "monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations."

AT&T appealed, interlocutorily, to the 9th Circuit, which also allowed the plaintiffs to proceed under their price squeeze theory.

The 9th Circuit issued its divided opinion, which is reported at 503 F. 3d 876, on September 11, 2007. The majority wrote that the issue is whether the Supreme Court's January 13, 2004, opinion [22 pages in PDF] in Verizon v. Trinko, 540 U.S. 398, "bars a plaintiff from claiming a violation of §2 of the Sherman Antitrust Act by virtue of an alleged price squeeze perpetrated by a competitor who also serves as the plaintiff's supplier at the wholesale level, but who has no duty to deal with the plaintiff absent statutory compulsion." It held that it does not. Judge Gould wrote a dissenting opinion.

AT&T filed a petition for writ of certiorari with the Supreme Court.

The Supreme Court requested a brief from the Department of Justice's (DOJ) Office of the Solicitor General (OSG). See, story titled "Supreme Court Requests Solicitor General Brief in Telecom Antitrust Case" in TLJ Daily E-Mail Alert No. 1,704, January 23, 2008.

The OSG submitted an amicus curiae brief in May in which it urged the Supreme Court to grant certiorari because the 9th Circuit opinion is contrary to the Supreme Court's antitrust jurisprudence.

The Supreme Court granted certiorari on June 23, 2008. See, story titled "Supreme Court Grants Certiorari in Pacific Bell v. Linkline" in TLJ Daily E-Mail Alert No. 1,786, June 25, 2008.

The Supreme Court wrote that the question presented [PDF] is "Whether a plaintiff states a claim under Section 2 of the Sherman Act by alleging that the defendant -- a vertically integrated retail competitor with an alleged monopoly at the wholesale level but no antitrust duty to provide the wholesale input to competitors -- engaged in a “price squeeze” by leaving insufficient margin between wholesale and retail prices to allow the plaintiff to compete."

AT&T filed its brief [PDF] on August 28, 2008. LinkLine filed its brief [PDF] on October 14, 2008.

On September 12, 2008, the OSG filed an amicus curiae brief in which it argued that "In the absence of an antitrust duty to deal, an allegation that a vertically-integrated defendant's wholesale prices are too high in relation to its retail prices for retail-level rivals to compete does not allege a claim under Section 2 of the Sherman Act."

The OSG added that "Because petitioners had no antitrust duty to deal with respondents at the wholesale level, petitioners had no duty under the antitrust laws to provide respondents with any particular wholesale price terms. Accordingly, respondents' claim that petitioners' wholesale prices were too high for respondents to compete at retail fails to state a Section 2 claim."

See, story titled "Solicitor General Files Amicus Brief in Pacific Bell v. Linkline" in TLJ Daily E-Mail Alert No. 1,825, September 15, 2008.

Both the OSG and the American Antitrust Institute (AAI) moved for, and were granted permission to, participate in oral argument. See, "More Supreme Court News" in TLJ Daily E-Mail Alert No. 1,858, November 18, 2008.

The AAI argued in its amicus brief that the "potential anticompetitive effects of a price squeeze by a vertically integrated monopolist, like other forms of vertical foreclosure, are significant and well known" and that "a price squeeze may constitute exclusionary conduct under Section 2".

However, it also argued that the Supreme Court should dismiss the case as moot, or in the alternative, not even "decide whether a price squeeze should ever be an independent basis for a violation of Section 2".

A group of free market antitrust scholars, including Greg Sidak, Robert Crandall, and Robert Bork, argued in an amicus brief [PDF] that "any rule of price-squeeze liability that threatens liability based on the claim that the difference between a firm's upstream and downstream prices leaves downstream rivals insufficient margin substitutes a rule of competitor welfare for consumer welfare".

The also wrote that "a price squeeze is a regulatory issue, which makes sense only as a rule of price regulation in an industry already subject to duties to deal and to control by institutionally competent regulators. Attempting to implement regulatory policy through Section 2 of the Sherman Act is ill-advised, both because it makes no sense for courts to re-regulate deregulated or lightly regulated industries, and because courts lack the institutional competence to implement regulation."

The Supreme Court heard oral argument on December 8, 2008. It issued its opinion on February 25, 2009.

Supreme Court Opinion. The Supreme Court reversed and remanded to the 9th Circuit. Chief Justice John Roberts wrote the opinion of the Supreme Court, in which Justices Scalia, Kennedy, Alito and Thomas joined.

The Court first summarized the plaintiffs' claim. They "allege that a competitor subjected them to a ``price squeeze´´ in violation of §2 of the Sherman Act. They assert that such a claim can arise when a vertic ally integrated firm sells inputs at wholesale and also sells finished goods or services at retail. If that firm has power in the wholesale market, it can simultaneously raise the wholesale price of inputs and cut the retail price of the finished good. This will have the effect of ``squeezing´´ the profit margins of any competitors in the retail market. Those firms will have to pay more for the inputs they need; at the same time, they will have to cut their retail prices to match the other firm's prices."

The Court then wrote that "The question before us is whether such a price-squeeze claim may be brought under §2 of the Sherman Act when the defendant is under no antitrust obligation to sell the inputs to the plaintiff in the first place."

The Court held that "no such claim may be brought", and therefore reversed the judgment of the Court of Appeals.

Concurring Opinion. Justice Stephen Breyer wrote a concurring opinion, in which Justices Stephens, Souter and Ginsburg joined.

He wrote that "I would accept respondents' concession that the Ninth Circuit majority's ``price squeeze´´ holding is wrong, I would vacate the Circuit's decision, and I would remand the case in order to allow the District Court to determine whether respondents may proceed with their ``predatory pricing´´ claim as set forth in Judge Gould's dissenting Ninth Circuit opinion."

Reaction. The AAI issued a release [PDF]. It wrote that the Supreme Court "continued its assault on antitrust", and that "the Court ruled in favor of the defendant for the tenth straight time in a private antitrust case in the last five years".

Albert Foer, head of the AAI, stated in this release that "The Supreme Court’s decision is a gift to monopolists and their recently-departed laissez-faire cheerleaders in the Bush Administration".

He continued that "this decision hands vertically integrated monopolists such as local telephone companies a potent new tool which will be utilized to cause the exit of many businesses, some quite large, unless federal regulatory agencies suddenly become much more favorably disposed to regulating against price squeezes".

He also argued that "This decision highlights the need for Congress to resuscitate the antitrust laws, which have been left for dead in the Supreme Court ... Otherwise, the new administration's plans to reinvigorate antitrust enforcement may well be stymied by a hostile Supreme Court."

Chris Riley of the Free Press told TLJ that "the Supreme Court's holding here is a fairly straightforward and non-controversial extension of the Trinko precedent -- that's why it went 9-0."

He added that "it clarifies that there is no antitrust check against extortionate pricing for these services ... To me, the take-home from this case is that the FCC needs to take a bigger role in investigating these types of disputes."

He also said that the Supreme Court's statements regarding "robust competition" in the broadband market are "dicta". "There is no binding effect here from that language, either on cases or administrative proceedings -- the weight is merely rhetorical."

This case is Pacific Bell Telephone Company, et al. v. Linkline Communications, Inc., et al., Supreme Court of the U.S., Sup. Ct. No. 07-512, a petition for writ of certiorari to the U.S. Court of Appeals for the 9th Circuit. The Court of Appeals case is App. Ct. No. 05-56023. See also, Supreme Court docket.

2/25. Chief Justice of the United States John Roberts wrote in the opinion [24 pages in PDF] of the Supreme Court in Pacific Bell v. Linkline Communications that "DSL now faces robust competition from cable companies and wireless and satellite services".

This opinion added, "the market for high-speed Internet service is now quite competitive; DSL providers face stiff competition from cable companies and wireless and satellite providers."

Proponents of various types of regulation of broadband internet access services, and video services, argue that there is little competition between service providers in the retail market for broadband internet access because in most places there is only a cable company and a phone company, with either DSL service over copper lines, or faster service over fiber optic cable.

Some proponents of network neutrality mandates, and other forms of regulation, argue that this two provider duopoly is not real competition.

The just released Supreme Court opinion states otherwise.

Kyle McSlarrow, head of the National Cable and Telecommunications Association (NCTA), lamented during a panel discussion in Washington DC on February 26, 2009, that critics once complained that there was no competition in video or phone service. He continued that now that cable and phone companies engage in competition, critics still complain that they are a duopoly. He predicted that with a third major competitor these critics will complain about the "terrible triumvirate".

There remains the question of whether the Supreme Court's statements regarding broadband competition set legal precedent that is binding upon the Supreme Court, other courts, and agencies under the doctrine of stare decisis, or are non-binding obiter dicta.

This article offers an explanation and analysis for why these statements are non-binding dicta.

The Supreme Court reversed the judgment of the Court of Appeals. The basis of this holding is that a plaintiff cannot bring a price squeeze claim under Section 2 of the Sherman Act when the defendant (Pacific Bell, a subsidiary of AT&T) is under no antitrust obligation to sell the inputs to the plaintiff (Linkline and other ISPs that sell DSL service by obtaining access to AT&T's facilities) in the first place.

In the Supreme Court's reasoning, whether or not there is an obligation to sell inputs depends upon whether the defendant had a antitrust duty to deal.

The Supreme Court wrote that "businesses are free to choose the parties with whom they will deal, as well as the prices, terms, and conditions of that dealing". But, "there are rare instances in which a dominant firm may incur antitrust liability for purely unilateral conduct", such as "below-cost prices that drive rivals out of the market and allow the monopolist to raise its prices later and recoup its losses".

The Supreme Court added that "it seems quite unlikely that AT&T would have an antitrust duty to deal with the plaintiffs. Such a duty requires a showing of monopoly power".

However, the Supreme Court's reasoning was not quite so simple as AT&T is not a broadband monopoly, therefore it has no duty to deal, and therefore there is no price squeeze claim under Section 2. Had this been the Court's reasoning, the conclusion that there is "robust competition" would have been part of the holding, and arguably, binding precedent.

Rather, the Supreme Court broke down the price squeeze claim into two components -- operating in the wholesale market (selling access to ISPs), and operating in the retail market (selling DSL service to consumers).

It explained that a price squeeze occurs when one company that operates in both markets raises the price of wholesale inputs, while lowering the price that it charges to its own retail customers, thereby raising the costs of ISPs that purchase wholesale inputs, forcing them to lower their retail prices be competitive, and thereby squeezing out their ability to make a profit.

The Supreme Court reasoned that its 2004 opinion [22 pages in PDF] in Verizon v. Trinko forecloses any challenge under Section 2 to AT&T conduct in wholesale transactions. It wrote that "the defendant has no antitrust duty to deal with its rivals at wholesale; any such duty arises only from FCC regulations, not from the Sherman Act."

See also, story titled "Supreme Court Holds That There is No Sherman Act Claim in Verizon v. Trinko" in TLJ Daily E-Mail Alert No. 815, January 14, 2004.

The Supreme Court then analyzed the retail transactions. It concluded that there is no Section 2 claim for charging retail customers too low of a price, except when the elements of a predatory pricing claim are met, and AT&T did not meet these.

Finally, the Supreme Court wrote that the "Plaintiffs' price-squeeze claim, looking to the relation between retail and wholesale prices, is thus nothing more than an amalgamation of a meritless claim at the retail level and a meritless claim at the wholesale level. If there is no duty to deal at the wholesale level and no predatory pricing at the retail level, then a firm is certainly not required to price both of these services in a manner that preserves its rivals' profit margins." (Footnote omitted.)

Notably, neither the conclusion as to the wholesale component, or the retail component, depend on the statement that there is "robust competition".

The wholesale transaction conclusion turned on an application of Trinko, and whether or not AT&T had an antitrust duty to deal, which for the purpose of this analysis turned on FCC regulations, not whether or not there is competition in this wholesale market, or in the retail market. The retail transaction conclusion turned upon whether or not AT&T engaged in predatory pricing, not whether or not it is a monopoly.

Thus, one could make the argument that the Supreme Court's statements about "robust competition", and the "now quite competitive" retail broadband market, are dicta. And, in the context of the retail broadband market, while the Supreme Court stated that there is competition, since it based its decision on the FCC's decision to change its rules in August of 2005, the FCC may change those rules, and the Supreme Court would then rely on those new rules.

The FCC adopted these rules in its proceeding titled "In re Appropriate Framework for Broadband Access to Internet over Wireline Facilities". See, story titled "FCC Classifies DSL as Information Service" in TLJ Daily E-Mail Alert No. 1,190, August 8, 2005. See also, related stories in the same issue titled "Reaction to the FCC's Classification of DSL" and "FCC Adopts a Policy Statement Regarding Network Neutrality". The FCC released the text [133 pages in PDF] of this item on September 23, 2005. It is FCC 05-150 in CC Docket Nos. 02-33, 01-337, 95-20, 98-10, and WC Docket No. 04-242.

2/25. The Supreme Court issued its opinion [24 pages in PDF] in Pacific Bell v. Linkline Communications, reversing the judgment of the U.S. Court of Appeals (9thCir).

This is a Sherman Act, Section 2, case involving a price squeeze theory of liability.

This article advances five likely impacts of this opinion. First, this opinion is a victory for AT&T, Verizon, and other phone companies that sell access to their facilities. Second, this opinion contains notable dicta about "robust competition" in the broadband market. Third, this opinion will impact the threat posed by Section 2 price squeeze claims to IP based companies, and companies that sell product bundles to consumers. Fourth, this opinion comes close to overturning U.S. v. Alcoa. Fifth, this opinion adds to the divergence between the US and the EU on antitrust.

First, this is a victory for AT&T and other phone companies that are involved in both wholesale and retail transactions of the sort involved in this case.

Second, this opinion includes dicta about "robust competition" in the market for broadband services. This is only dicta. See, related story in this issue titled "Supreme Court: There Is Robust Competition in the Broadband Market".

However, it is a statement of the Supreme Court. It is likely to be cited in judicial and regulatory proceedings, and invoked in legislative and policy debates. It may have persuasive effect in some proceedings and debates.

Effect on Other Business Practices. Third, this case will impact other industries where companies might be subjected to price squeeze claims.

"This opinion is bad for the price squeeze theory in any area," Harold Feld, a telecommunications lawyer and consultant, told TLJ.

Also, Abbott Laboratories, which holds pharmaceutical patents, filed an amicus curiae brief [PDF] with the Supreme Court in support of AT&T.

This opinion could impact patent based businesses. For example, a patent holder can exclude others from using their patented technology for the duration of the term of the patent. They have a monopoly. It is a legal monopoly. And, they can charge a monopoly price for licensing that patent. The rationale for this is that it is the pursuit of these monopoly revenues that incent investment and effort in inventive activities, and bring about discoveries and innovations, that advance consumer welfare.

However, IP based companies may also integrate patented technologies into products that they then sell at retail. Under the 9th Circuit's opinion a company that licenses a patent (upstream or wholesale) to other companies, and also sell products to consumers that incorporate that patent (downstream or retail) might have found itself subjected to Section 2 price squeeze claims from competitors.

Under the Supreme Court's opinion, such companies would not be subjected to Section 2 price squeeze liability, absent some further showing, such as predatory pricing.

This opinion may also affect bundling of consumer products, which are common in the telecommunications and technology sectors.

Verizon filed an amicus brief [PDF] with the Supreme Court. It wrote that "the problems are still worse given the prevalence of ``bundling´´ throughout the economy -- the offering of several ``products´´ together at a single price different from the sum of the prices of each ``product´´ offered alone. In the telecommunications world, the efficiency reasons that drive bundling generally, including shared costs and transactional savings, have produced familiar bundles of services: e.g., voice (landline or wireless); Internet access; video." (Parentheses in original.)

Verizon argued that "In this common situation, there is uncertainty even about determining at the threshold what the effective prices of the defendant are, on a product specific basis, let alone what they ``should´´ be on some price squeeze theory.

No amicus parties filed briefs addressing whether spectrum leasing and selling wireless phone service might have given rise to price squeeze claims.

U.S. v. Alcoa. Fourth, the Supreme Court stopped just short of expressly overruling the relevant portion of the landmark 1945 opinion of the U.S. Court of Appeals (2ndCir), written by Judge Learned Hand, in U.S. v. Alcoa, 148 F. 2d 416.

The Supreme Court wrote that "In that case, the Government alleged that Alcoa was using its monopoly power in the upstream aluminum ingot market to squeeze the profits of downstream aluminum sheet fabricators."

However, it concluded that "Given developments in economic theory and antitrust jurisprudence since Alcoa, we find our recent decisions in Trinko and Brooke Group more pertinent to the question before us."

US EU Differences. Fifth, this opinion may reflect a widening gap between the U.S. and the European Union on their fundamental approaches to antitrust. A basic premise of the U.S. is that the purpose of antitrust is to protect consumers, and advance consumer welfare, as opposed to protecting competitors. A basic premise of the EU is that protecting competitors is a purpose of antitrust.

Greg Sidak, who filed an amicus brief [PDF], told TLJ that the "gulf between the European approach and the American approach is wider now".

This opinion reflects a strict adherence to the consumer welfare approach. Moreover, while it is a consumer welfare based opinion, the opinion does not bother to set forth the importance of consumer welfare. It would appear that it is so settled in the minds of the Justices that it is no longer requires mentioning.

Yet, it should be noted that while the shift to a consumer welfare based antitrust system has been developing in the U.S. courts, Antitrust Division, and Federal Trade Commission for decades, it remains to be seen how committed President Obama's appointees to the FTC and DOJ will be to this approach. In contrast, Chief Justice Roberts and his colleagues have life tenure.

This issue contains the following items:
 • Supreme Court Reverses in Pacific Bell v. Linkline
 • Supreme Court: There Is Robust Competition in the Broadband Market
 • Commentary: Impact of Pacific Bell v. LinkLine
 • En Banc Panel Affirms Nacchio Conviction
 • 8th Circuit Applies Filed Rate Doctrine in Cable Case
 • Consumer Group Complains About Google

The Senate will meet at 9:30 AM.

The House will not meet.

FULL. 12:15 - 1:30 PM. The Federal Communications Bar Association's (FCBA) Legislative, Wireless and Wireline Committees will host a brown bag lunch titled "Broadband and the Economy: What should be the role of Broadband in Stimulating U.S. Economic Recovery". Location: USTelecom, Suite 400, 607 14th St., NW.

Deadline to submit reply comments to the Federal Communications Commission (FCC) in response to its notice of proposed rulemaking (NPRM) regarding application of the closed captioning rules to digital broadcasting, specifically to broadcasters that choose to use their digital allotment to multicast several streams of programming. The FCC adopted this item on November 3, 2008, and released the text [57 pages in PDF] on November 7, 2008. It is FCC 08-255 in CG Docket No. 05-231. See, notice in the Federal Register, January 13, 2009, Vol. 74, No. 8, at Pages 1654-1661.

Deadline to submit initial comments to the Federal Communications Commission (FCC) to assist it in preparing a report to the Congress on the status of competition in markets for the delivery of video programming. The FCC engaged in the legal fiction of adopting a Notice of Inquiry (NOI) on November 27, 2007. It did not release the text [41 pages in PDF] of a NOI until January 16, 2009. It is FCC 07-207 in MB Docket 07-269. This NOI requests comments regarding "changes in the marketplace between 2006 and 2007". See, notice in the Federal Register, February 11, 2009, Volume 74, No. 27, at Pages 6875-6882.

5:00 PM. Deadline to submit comments to the National Institute of Standards and Technology's (NIST) Computer Security Division regarding its draft [149 pages in PDF] of Special Publication 800-85A-1, titled "PIV Card Application and Middleware Interface Test Guidelines".

The House will meet at 12:30 PM.

The Senate will meet at 2:00 PM. It will begins consideration of HR 1105 [LOC | WW], the "Omnibus Appropriations Act, 2009".

10:00 - 11:30 AM. The Interactive Advertising Bureau (IAB) will host an event titled "Political Online Advertising in the 2008 Election: Politics Will Never Be the Same Again". See, notice and registration page. Location: Venable, 575 7th St., NW.

10:00 AM. Deadline for foreign governments to submit comments to the Office of the U.S. Trade Representative (OUSTR) regarding countries that deny adequate and effective protection of intellectual property rights or deny fair and equitable market access to U.S. persons who rely on intellectual property protection. These comments assist the OUSTR in fulfilling its obligations under Section 182 of the Trade Act Act of 1974. See, notice in the Federal Register, January 23, 2009, Vol. 74, No. 14, Page 4263-4264.

Deadline to submit comments to the Federal Communications Commission (FCC) regarding possible revision or elimination of rules under the Regulatory Flexibility Act. See, notice in the Federal Register, December 30, 2008, Vol. 73, No. 250, at Pages 79667-79683.

EXTENDED TO MARCH 16. Deadline to submit FCC Form 477to the Federal Communications Commission (FCC). This is the FCC semi-annual form for collection of data on local telephone and broadband internet access lines. See also, February 12, 2009, Public Notice [2 pages in PDF]. See, February 23, 2009, order [3 pages in PDF].

9:00 AM - 5:15 PM. Day one of a two day meeting of the Department of Energy's (DOE) Advanced Scientific Computing Advisory Committee (ASCAC) will meet. The agenda for March 3 includes "View from Washington", "ASCR Update", "Changes to INCITE Program", "Update on Extreme Scale Science Workshops", "Cyber Security R&D Planning", "Realizing Petascale Computing", "ESnet Update", "ASCAC Subcommittee Updates", and "Public Comment". See, notice in the Federal Register, February 10, 2009, Vol. 74, No. 26, at Page 6608. Location: American Geophysical Union (AGU), 2000 Florida Ave., NW.

10:00 AM. The House Judiciary Committee's (HJC) Subcommittee on Commercial and Administrative Law will hold a hearing titled "Circuit City Unplugged: Why Did Chapter 11 Fail To Save 34,000 Jobs?". See, notice. The HJC will webcast this hearing. Location: Room 2141, Rayburn Building.

The Department of Energy (DOE) Office of Electricity Delivery and Energy Reliability (OE) will hold a conference titled "Design Concepts of Future Electric Transmission". See, notice in the Federal Register, February 2, 2009, Vol. 74, No. 20, at Page 5826. Location?

9:00 AM - 4:15 PM. The U.S.-China Economic and Security Review Commission will hold a meeting titled "China's Military and Security Activities Abroad". See, notice in the Federal Register, February 2, 2009, Vol. 74, No. 20, at Pages 5896-5897. Location: Room 562, Dirksen Building, Capitol Hill.

9:00 AM - 12:00 NOON. Day one of a two day meeting of the Department of Energy's (DOE) Advanced Scientific Computing Advisory Committee (ASCAC) will meet. The agenda for March 4 includes "Gordon Bell Petascale Application -- Superconductors International Collaboration", "INCITE User Perspective", and "Public Comment". See, notice in the Federal Register, February 10, 2009, Vol. 74, No. 26, at Page 6608. Location: American Geophysical Union (AGU), 2000 Florida Ave., NW.

10:00 AM. The House Judiciary Committee (HJC) will hold a hearing on HR 848 [LOC | WW], the "Performance Rights Act". See, notice. The HJC will webcast this hearing. See also, story titled "Performance Rights Act Reintroduced" in TLJ Daily E-Mail Alert No. 1,896, February 10, 2009. Location: Room 2141, Rayburn Building.

2:00 PM. The Senate Judiciary Committee (SJC) will hold a hearing titled "Getting to the Truth Through a Nonpartisan Commission of Inquiry". The SJC will webcast this event. See, notice. Location: Room 226, Dirksen Building.

3:00 - 5:00 PM. The Federal Communications Commission's (FCC) Consumer Advisory Committee will meet. See, FCC notice [PDF] and notice in the Federal Register, February 17, 2009, Vol. 74, No. 30, at Page 7435. Location: FCC, Commission Meeting Room (Room TW-C305), 445 12th St., SW.

TIME? The Office of the U.S. Trade Representative (OUSTR) will hold a hearing regarding its plans to initiate negotiations on a Trans-Pacific Partnership free trade agreement with Singapore, Chile, New Zealand, Brunei Darussalam, Australia, Peru and Vietnam. See, notice in the Federal Register, January 26, 2009, Vol. 74, No. 15, at Pages 4480-4482. Location?

Deadline to register for the National Institute of Standards and Technology's (NIST) Office of Law Enforcement Standards' (OLES) March 11, 2009, meeting via the internet to bring Project 25 Compliance Assessment Program stakeholders together to discuss what the process will be to assess software based test tools for the Project 25 Compliance Assessment Program. See, notice in the Federal Register, February 17, 2009, Vol. 74, No. 30, at Pages 7397-7398.

9:30 - 11:00 AM. The Information Technology and Innovation Foundation (ITIF) will host an event titled "The Need for Speed: The Importance of Next-Generation Broadband Networks". Location: ITIF, Suite 200, 1250 Eye St., NW.

The Federal Communications Commission (FCC) will hold an event titled "Open Meeting". Location: FCC, Commission Meeting Room (Room TW-C305), 445 12th St., SW.

10:00 AM. The U.S. Court of Appeals (FedCir), Panel I, will hear oral argument in Digital Impact v. Bigfoot Interactive, App. Ct. No. 2008-1255, a patent case regarding e-mail distribution technology. See, Federal Circuit oral argument calendar for March, 2009. Location: Courtroom 201, 717 Madison Place, NW.

2/25. An en banc panel of the U.S. Court of Appeals (10thCir) issued its divided opinion [106 pages in PDF] in U.S. v. Nacchio, affirming the District Court's conviction of Joseph Nacchio, a former CEO of Qwest Communications International, and a former Chairman of the National Security Telecommunications Advisory Committee.

Summary. This opinion contains 106 pages of arguments regarding whether or not the District Court judge committed reversible error in excluding from testifying an expert witness proferred by the defense at trial.

The witness in question is not one of the many charlatans who are routinely allowed to testify as expert witnesses in the U.S. District Courts, but a law professor at a leading law school who has published a huge volume of scholarly articles in leading legal, business and economics journals.

Moreover, the District Court judge decided to exclude him, without notice, without allowing an opportunity for the defense to be heard, and without following applicable criminal trial procedure. The exclusion gutted the defense's case. The jury convicted on 19 of 42 counts.

And now, by a 5-4 vote, the conviction is allowed to stand. Nacchio's only recourse is to petition the Supreme Court for writ of certiorari.

District Court. The Department of Justice (DOJ) criminally prosecuted Nacchio for securities fraud. It charged insider trading based upon allegations that he traded shares of Qwest while knowing that the company was unlikely to continue to meet its announced earnings.

At trial the District Court prevented him from presenting the testimony of an expert witness, Daniel Fischel, a professor at the University of Chicago law school, whose testimony would have provided economic analysis of Nacchio's trading patterns, and the economic importance of the allegedly material inside information.

On April 19, 2007, a trial jury returned a verdict of guilty on 19 counts of violation of federal securities laws involving insider trading. It acquitted Nacchio on 23 other counts.

On July 27, 2007, the District Court imposed a sentence of 72 months in prison.

Three Judge Panel. Nacchio appealed. On March 17, 2008, a three Judge panel issued its divided opinion reversing the conviction of the District Court. It held that the District Court committed reversible error in excluding the expert witness.

See, story titled "10th Circuit Reverses Nacchio's Conviction" in TLJ Daily E-Mail Alert No. 1,732, March 18, 2008.

En Banc Majority. The just released en banc opinion vacates the panel opinion. Nacchio's conviction stands. He goes to prison for six years.

These opinions are lengthy discussions of whether or not the District Court should have allowed Nacchio's expert witness to testify. The majority concluded that the District Court properly performed its gatekeeping role in excluding Fischel's testimony as inadmissible for lack of reliability under Rule 702, Federal Rules of Evidence.

The five member majority wrote that "the district court's exclusion of the testimony was not arbitrary, capricious, whimsical, or manifestly unreasonable; nor are we convinced that the district court made a clear error of judgment or exceeded the bounds of permissible choice in the circumstances."

Judge Jerome Holmes wrote the opinion of the en banc panel, in which Judges Deanell Tacha, Mary Briscoe, Carlos Lucero and Harris Hartz joined.

En Banc Dissents. The four member dissent wrote that the District Court "judge disqualified the witness without hearing argument from defense counsel or testimony from the witness regarding the reliability of his methodology. The judge based this ruling on what is now agreed was a mistaken interpretation of the rules of criminal procedure. The panel reversed that ruling, and in its petition for rehearing en banc the government did not even attempt to defend the district court's rationale. Instead, the government argues -- and the en banc majority agrees -- that the exclusion of this witness was the defendant’s fault, for failing to establish the foundation for his testimony in advance of putting him on the stand or to file a motion for permission to establish the foundation through testimony."

"The flaw in the government’s argument is that the rules of criminal procedure, unlike the rules of civil procedure, do not require a criminal defendant to establish the foundation for expert testimony through advance written submissions", wrote the dissenters. "It was the district judge, not defense counsel, who misunderstood the procedural rules. We dissent on the ground that the defense did everything it was required to do -- but that even if counsel somehow slipped up, it was an abuse of discretion for the court to shut down the primary line of defense in a criminal case on the basis of what was at worst an understandable and inconsequential mistake."

Judge Kelly wrote an additional dissent with less courtesy towards the other judges. He wrote that "It is indeed unfortunate that the court chooses expediency over due process. It is equally unfortunate that the court attempts to spin the facts".

After recapping the actions of the District Court, he concluded that "Our founders must have had similar scenarios in mind when they wrote ``nor shall any person ... be deprived of life, liberty, or property, without due process of law ....´´"

He reminded them that "We reverse judgments when a district court exercises its discretion on a material matter based upon an incorrect view of the law and when a defendant has not been given an adequate opportunity to be heard -- that is what happened here."

Judge Michael McConnell wrote a 44 page dissenting opinion, in which Chief Judge Robert Henry, and Judges Paul Kelly, and Michael Murphy joined. Judge Kelly also wrote a separate dissent. Judge Henry also wrote a separate dissent, in which Judge Kelly joined.

Other Issues. The en banc panel only considered the expert testimony issue. Neither the just released en banc opinion, nor the March 17, 2008, panel opinion address whether or not the DOJ brought criminal charges against Nacchio in retaliation for refusal to comply with National Security Agency (NSA) requests for customer call record data in violation of 47 U.S.C. § 222.

Nor do these opinions address whether or not Nacchio's claims regarding Qwest's business prospects were anticipated contracts with the NSA, or whether those contracts were also withheld in retaliation.

Judges Terrence O'Brien, Neil Gorsuch, and Timothy Timkovich did not participate in the en banc panel.

There was no partisan pattern in the Judges' voting. Three members of the majority were appointed by Republican Presidents (Holmes, Tacha, and Hartz), and two were appointed by Clinton (Briscoe and Lucero). Two members of the dissent were appointed by the Republicans (McConnell and Kelly), and two were appointed by Clinton (Henry and Murphy).

This case is U.S.A. v. Nacchio, U.S. Court of Appeals for the 10th Circuit, App. Ct. No. 07-1311, an appeal from the U.S. District Court for the District of Colorado, D.C. No. 05-CR-545-N.

2/25. The U.S. Court of Appeals (8thCir) issued its opinion [5 pages in PDF] in Crumley v. Time Warner Cable. The District Court, and Court of Appeals, held that the filed rate doctrine applies to rates filed by cable companies with state regulators.

This is a class action in which the plaintiff, Patricia Crumley, a Time Warner Cable (TWC) customer, alleges that TWC overcharged her and others for cable service.

The Cable Act of 1992 give cable regulatory authority to local franchising authorities (LFAs). However, it precludes the regulation of cable rates as long as the
cable system is subject to effective competition, as determined by the Federal Communications Commission (FCC).

TWC filed a form with the City of Minneapolis, the relevant LFA, adding a network upgrade surcharge to its regulated service rates for basic cable service, without having completed the required upgrades to support the upgrade surcharge. The LFA took no action.

Crumley objects to charges disclosed in this form.

Crumley filed a complaint in the U.S. District Court (DMinn) against TWC alleging unjust enrichment and violation of the Minnesota Prevention of Consumer Fraud Act. The District Court dismissed the complaint for failure to state a claim, reasoning that the filed rate doctrine precludes this action.

The Court of Appeals affirmed. In so doing, it held that the filed rate doctrine encompasses rates filed with state regulatory agencies, and that it applies to rates filed by cable companies.

It wrote that the filed rate doctrine "forbids a regulated entity from charging a rate for its services other than the rate on file with the appropriate regulatory authority". It added that its purpose is to preserve the regulatory authority of the regulatory agency "primary jurisdiction over reasonableness of rates and the need to insure that regulated companies charge only those rates". Moreover, it applies "equally to the regulation of rates for cable service in areas lacking ``effective competition´´ as controlled by the Cable Act. And furthermore, there is no fraud exception to the filed rate doctrine.

This case is Patricia Crumley v. Time Warner Cable, Inc., U.S. Court of Appeals for the 8th Circuit, App. Ct. No. 08-2212, an appeal from the U.S. District Court for the District of Minnesota.

2/23. Jamie Court, head of the Consumer Watchdog (CW), sent a letter [PDF] to Eric Schmidt, CEO of Google, in which he alleged that Bob Boorstin, Google's Director of Corporate and Policy Communications, wrote to a group that funds CW requesting that its end its financial support for CW. Jamie Court describes CW as a "consumer group critical of your lack of privacy protections".

Court wrote that "Goliath companies always believe they can crush their critics, but they give more power to reformers by ignoring their concerns, when our criticisms are based on important, popular values like privacy."

Court also made this statement: "As our staff and other consumer advocates sought stronger privacy protections in the stimulus bill on Capitol Hill, they were told Google was lobbying to weaken the current prohibition on the sale of medical records and shave off protections."

"For a company that states ``our corporate mission is to organize the world’s information and make it universally accessible and useful,´´ the degree of secrecy that surrounds Google's public policy positions about privacy issues is deeply troubling", said Court.

He also asked, "Why will Google not disclose all the specific public policy communications it makes to Congress, regulatory agencies and the white house on matters of medical and personal privacy? Failing to do so is incompatible with the portrait Google paints of itself publicly." He added that he wants Google to "publish all of its correspondence and policy communications to legislators".

Other companies and interest groups do not make such disclosures.

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