1/4. The U.S. Court of Appeals (5thCir) issued its opinion [25 pages in PDF] in AT&T v. USA, a federal tax case regarding treatment of payments to carriers under the Federal Communications Commission's (FCC) and states' universal service tax and subsidy programs.

The Court of Appeals affirmed the judgment of the District Court. Both held that the universal service payments to AT&T are income, pursuant to 26 U.S.C. § 61, and subject to taxation. AT&T had argued that the payments are non-shareholder contributions to capital, pursuant to 26 U.S.C. § 118(a), and therefore not subject to taxation.

Previously, the 11th Circuit reached the same conclusion.

The Court of Appeals summarized the factual background. "From the state and federal USFs, AT&T received USF payments of $723.5 million in 1998 and $831.3 million in 1999. ... On its 1998 and 1999 federal income tax returns, however, AT&T did not include its USF receipts in its gross income. As a result, AT&T did not pay $505,245,517 in income taxes on the payments it received from the USFs in 1998 and 1999. AT&T did, however, treat the mandatory contributions it was required to make to the USFs as deductible business expenses in 1998 and 1999."

"The IRS determined that AT&T had incorrectly failed to report the USF payments as income. AT&T paid the income tax deficiencies assessed by the IRS and filed administrative claims for a refund, which were denied." AT&T then filed a complaint in the U.S. District Court (WDTex), which also rejected its claim. This appeal followed.

The Internal Revenue Service (IRS) argued that universal service subsidies are intended to supplement carriers' operating income by compensating them for some of their costs of servicing high cost customers and by reimbursing carriers for discounts that they were required to give low income customers.

AT&T argued that universal service subsidies are intended to pay for the expansion and upgrading of network infrastructure and therefore must be treated as capital contributions.

The Court reasoned that whether payments to a corporation are income or capital contribution is governed by intent of the transferor, and when that when the transferor is the government, that intent is manifested by the statutes, regulations, and orders of the government.

Nothing in 47 U.S.C. § 254, any other section of the Communications Act, or the Internal Revenue Code states that universal service subsidies are income, rather than capital contributions, to carriers.

The Court of Appeals turned to the FCC's 1997 universal service Report and Order (R&O), which states that universal services subsidies are "are designed to increase subscribership by keeping rates affordable", and that a high cost program subsidy "best reflects the cost of providing service in a competitive market for local exchange telephone service". See, Report and Order, released on May 8, 1997. It is FCC 97-157 in CC Docket No. 96-45

The Court concluded that this R&O manifests the FCC's intent that universal service fund (USF) "payments should be equivalent to customers' fees for services". And, while the R&O "did not specifically state whether the payments were intended as income or capital contributions", it "narrowed the possibility that the payments could be viewed as anything but income".

The Court concluded that "USF payments were compensation to AT&T for the specific and quantifiable services it performed for high-cost and lower-income users as well as for developing and maintaining universal service, which renders a service for all consumers by making the telecommunications system more useful and valuable to every customer. The state and federal USFs draw their monies from assessments levied by the FCC and state utility commissions against the telecommunications companies, which are then passed along to customers." (Footnote omitted.)

Thus, the Court wrote, "the USFs are in effect a vehicle or conduit by which the telecommunications carriers are compensated for the specific, quantifiable services that they provide directly to high-cost and lower-income customers and for the universal, system-wide service they provide in making those customers accessible to other consumers in the system."

The U.S. Court of Appeals (11thCir) previously held for the government on this issue. See, 2007 opinion of the U.S. District Court (SDGa) in U.S. v. Coastal Utilities, Inc., 483 F. Supp. 2d 1232, and January 23, 2008, opinion [PDF] of the Court of Appeals in U.S. v. Coastal Utilities, Inc., 514 F.3d 1184.

The IRS has long asserted that USF subsidies are taxable income. See, IRS memorandum of February 9, 2009, and IRS documents cited therein.

This case is AT&T v. USA, U.S. Court of Appeals for the 5th Circuit, App. Ct. No. 09-50651, an appeal from the U.S. District Court for the Western District of Texas. Judge Dennis wrote the opinion of the Court of Appeals, in which Judges Barksdale and Owen joined.

1/6. The Federal Communications Commission (FCC) released a paper [PDF] titled "2010 E-Rate Program and Broadband Usage Survey". It pertains to a survey of recipients of FCC universal service e-rate subsidies for schools and libraries.

This document, which is based upon the responses to a survey conducted by Harris Interactive, Inc., finds that a total of 80% of e-rate recipients responded that their "current Internet connection" either "Completely meets your needs" or "Mostly meets your needs". (The transcript of the question is at page 23. A summary of the responses is at page 7.)

The FCC e-rate program gives free money to schools and libraries. Recipients have incentives to assert that they need more money. Nevertheless, 80% of this sample still expressed satisfaction with their internet connection.

However, the FCC also mischaracterizes these survey results. The FCC asserts in this paper (at page 2), and in a release, that "nearly 80% of all survey respondents say their broadband connections do not fully meet their current needs" and that "Slow connection speed is the primary reason". In making this statement, the FCC combines the 58% of respondents who stated that their internet connection "Mostly meets your needs", with those who stated that their internet connection "Sometimes meets your needs" (16%), "Rarely meets your needs", or "Does not meet your needs at all". In fact, only 4% responded that their internet connection rarely or not at all meets their needs.

This is policy driven interpretation of data, rather than data driven policy analysis.

The FCC paper also finds that "Ninety-five percent of E-rate entities report having some form of terrestrial broadband connection to at least one facility. Only 3% of respondents have dial-up access and 2% have satellite connections. Overall, 42% of respondents have fiber optic connections and 14% have T3/DS-3 connections. Though 60% of school districts and 50% of consortia have some fiber optic connections, the survey does not reveal how many individual entities within a district or consortium have fiber to the premise. Only 21% of individual school respondents and 13% of library respondents have fiber optic connections. Forty-six percent of urban respondents had fiber optic connections compared to 38% of rural respondents."

The FCC paper also finds that "Overall, 80% of E-rate survey respondents provide wireless Internet access in at least one building, and an additional 12% plan to make it available within the next three years. Two-thirds (66%) of respondents offer access for staff, students and/or patrons and another 14% provide access only to staff. Entities with a 90% E-rate discount rate are most likely to have wireless Internet access available."

This document is based upon a voluntary survey for which the response rate was very low. Harris sent out 5,000 surveys. Only 1,060 recipients responded.

1/5. President Obama nominated Virginia Seitz to be Assistant Attorney General (AAG) in charge of the Office of Legal Counsel (OLC). See, White House news office release and release.

Seitz (at right) is a partner is the Washington DC office of the law firm of Sidley Austin, where she focuses on appellate litigation.

She has worked on a few technology related matters. For example, one of Sidley's clients is AT&T. Seitz was one of the Sidley attorneys who worked on the Brand X litigation, which pertained to the FCC's classification of cable modem service as an information service.

Carter Phillips, the Managing Partner of Sidley's Washington DC office, has argued numerous cases before the Supreme Court. He represented eBay in eBay v. MercExchange. Seitz was part of that Sidley team. The opinion is reported at 547 U.S. 388 (2006). See also, story titled "Supreme Court Rules on Availability of Injunctive Relief in Patent Cases" in TLJ Daily E-Mail Alert No. 1,371, May 16, 2006.

Seitz is an appellate litigator and advocate. However, the OLC is not a litigation unit. OLC lawyers more often come from, and then return to, academic or scholarly employment.

There has been no AAG for the OLC in the Obama administration. In fact, there has been no AAG for the OLC since 2004. Nominees for this position are inherently controversial, and are often blocked by the Senate.

President Obama tried unsuccessfully to get the Senate to confirm his original nominee, Dawn Johnsen. Senate Republicans blocked a vote in the full Senate. Obama withdrew her nomination on April 13, 2010. See, White House news office release.

The last confirmed OLC/AAG was Jack Goldsmith, who served in the first Bush administration, and is now a Harvard law school professor. He left the OLC in June of 2004. He is the co-author, with Tim Wu, of the book [Amazon] titled "Who Controls the Internet: Illusions of a Borderless World".)

Subsequently, Steven Bradbury was long an acting AAG in the second Bush administration. However, Senate Democrats blocked a vote in the Senate on his confirmation.

The OLC's controversies have changed over time. During the Bush administration the most divisive issues with which it dealt pertained to terrorism, interrogation of terrorists, and wiretaps and electronic surveillance.

Bradbury's inability to obtain Senate confirmation derived in part from his providing legal advice to former Attorney General Alberto Gonzales and President Bush regarding the National Security Agency's (NSA) extrajudicial electronic surveillance of communications where one party is inside the U.S. and one party is outside. Senate Democrats sought to discredit the Bush administration on the subject of electronic surveillance.

However, since President Obama's surveillance policies have proven to be substantially indistinguishable from former President Bush's, Congressional Democrats who were once vocal opponents of certain surveillance practices have muted their criticism. Senate Democrats can now be expected to support an AT&T lawyer for the same position.

Like many DOJ units, the OLC drafts legal opinions. However, it is assigned many of the most important issues, including those in which two or more federal agencies are in conflict, and those which implicate major policy goals of the President. The OLC has also often played a leading role in getting the President's Supreme Court nominees confirmed.

The attorneys in the OLC are among the brightest and most ideological in federal government. The OLC's attorneys, and the ideological orientation of the OLC, turn over with each new President. Although, its members are not selected for partisan loyalty. Rather, they are selected on the basis of their expertise, legal reasoning abilities, and the match between their legal ideology and the legal opinions that the administration seeks.

The OLC issues opinions on some matters of great public interest. In addition, its opinions sometimes take on attributes of  precedential decisions. Yet, the OLC conducts its activities and operations in a closed and secretive manner. Also, it typically withholds from the public and Congress its opinions. It thus functions as the source of secret law and policy -- practices inimical to open and democratic government.

While the OLC is a small office, and its AAG is just one of many AAGs at the Department of Justice (DOJ), this position has often been a stepping stone for appointment to the Court of Appeals and Supreme Court. Confirmation of Seitz would increase her chances of high judicial appointment.

Former Chief Justice William Rehnquist was the OLC/AAG when former President Nixon nominated him to be an Associate Justice of the Supreme Court. Justice Antonin Scalia was OLC/AAG before being nominated for the U.S. Court of Appeals (DCCir). He was later nominated for the Supreme Court.

Other former OLC/AAGs include Judge Jay Bybee of the U.S. Court of Appeals (9thCir) and former Judge Mike Luttig of the U.S. Court of Appeals (4thCir) (who is now Boeing's General Counsel). Also, William Barr was the OLC/AAG prior to serving as the Attorney General in the administration of the elder President Bush. (He went on to work for GTE, Bell Atlantic and Verizon for 14 years, and is now a Director of Time Warner.)

President Bush nominated one of Seitz's Sidley colleagues, Peter Keisler, to be a Judge of the U.S. Court of Appeals (DCCir) in 2007 and 2008. The Senate did not act on his nomination. He has done much work for AT&T. He also served as AAG for the Civil Division, and briefly as the acting Attorney General, during the Bush administration.

Some Senate Republicans are likely to view with disfavor Seitz's having co-written an amicus curiae brief filed with the Supreme Court in Grutter v. Bollinger, urging the Court to uphold the Constitutionality of affirmative action -- in this case applying race as a criteria for admission to a state law school. The opinion is reported at 539 U.S. 306 (2003).

On the other hand, some Senate Democrats may view with disfavor Seitz's participation in writing for the U.S. Chamber of Commerce an amicus curiae brief in Exxon Shipping v. Baker, urging the Supreme Court to limit the award of punitive damages. See, brief. The opinion is reported at 554 U.S. 471 (2008).

The House will meet at 9:00 AM for legislative business.

The Senate will not meet. It will next meet on January 25, 2011.

Supreme Court conference day (discussion of argued cases, and decision on cert petitions). Closed.

10:00 AM - 5:00 PM. The Office of Science and Technology Policy's (OSTP) President's Council of Advisors on Science and Technology (PCAST) will hold a partially closed meeting. See, notice in the Federal Register, December 13, 2010, Vol. 75, No. 238, at Pages 77679-77680. Location: Marriott Metro Center, 775 12th St., NW.

12:15 - 1:45 PM. The Federal Communications Bar Association's (FCBA) Diversity Committee will host a brown bag lunch titled "Current Issues in the FCC’s Equal Employment Opportunities Rules and Enforcement". The speakers will be Lewis Pulley (Assistant Chief of the FCC's Media Bureau's Policy Division), David Honig (Minority Media and Telecommunications Council), and Christina Burrow (Dow Lohnes). Location: National Association of Broadcasters (NAB), 1771 N St., NW.

Deadline to submit applications to the Department of Commerce's (DOC) National Telecommunications and Information Administration (NTIA) for membership on its Spectrum Management Advisory Committee. See, notice in the Federal Register, December 7, 2010, Vol. 75, No. 234, at Pages 75967-75968.

The House will meet. Votes will be postponed until 6:30 PM.

8:00 -10:00 AM. Broadband Census News LLC will host a panel discussion titled "What Intellectual Property Issues Are Top of Mind for the 112th Congress?". Breakfast will be served. This event is free and open to the public. See, notice and registration page. This event is also sponsored by the National Cable & Telecommunications Association (NCTA) and the Public Knowledge (PK). Location: Clyde's of Gallery Place, 707 7th St., NW.

9:00 AM - 1:00 PM. The Department of Commerce's (DOC) National Telecommunications and Information Administration's (NTIA) Spectrum Management Advisory Committee will meet. See, notice in the Federal Register, December 7, 2010, Vol. 75, No. 234, at Page 75968. Location: Room 4830, DOC, 1401 Constitution Ave., NW.

12:15 - 1:30 PM. The Federal Communications Bar Association's (FCBA) Mass Media Committee will host a brown bag lunch titled "Foreign Ownership and Investment Issues in Broadcasting". The speakers may include Bob Ratcliffe (FCC), David Honig (Minority Media and Telecommunications Council), Frank Montero (Fletcher Heald & Hildreth), and John Logan (Dow Lohnes). Location: Wiley Rein, 1776 K St., NW.

5:00 - 7:00 PM. The Center for Democracy and Technology's (CDT) Congressional Internet Caucus Advisory Committee will host an event titled "14th Annual Tech Exhibition and Reception". See, notice. Location: Room 902, Hart Building.

The House will meet.

12:00 NOON - 1:30 PM. The DC Bar Association will host an event titled "The Patent Reform: What is the Status of Patent Reform?". The speakers will be Paul Michel (former Judge of the U.S. Court of Appeals (FedCir)), John Jarosz (Analysis Group), and Marina Zalevsky (Sughrue Mion). The price to attend ranges from $15 to $25. For more information, contact 202-626-3463. See, notice. Location: DC Bar Conference Center, B-1 Level, 1250 H St., NW.

12:15 - 1:30 PM. The Federal Communications Commission (FCC) will hold an event titled "Meet the Wireless Telecommunications Bureau Front Office". The Federal Communications Bar Association (FCBA) states that this is an FCBA event. See, registration form. The deadline for registrations and cancellations is 12:00 NOON on January 10. The price to attend is $17. Lunch will be served. Location: Wiley Rein, 1776 K St., NW.

5:30 - PM. The New America Foundation (NAF) will host a lecture by Dan Gillmor titled "Mediactive: A User’s Guide to Democratized Media". See, notice. Location: NAF, Suite 400, 1899 L St., NW.

6:00 - 8:15 PM. The Federal Communications Bar Association (FCBA) will host an event titled "Major International Privacy Developments and the Impact on Multi National and Globally Networked Environments". CLE credits. Prices vary. The deadline for registrations and cancellations is 5:00 PM on January 10. See, registration form. Location?

The House will not meet. Day one of a three day House Republican Retreat.

9:00 AM - 12:00 NOON. The Department of State's (DOS) Advisory Committee on International Communications and Information Policy (ACICIP) will meet. See, notice in the Federal Register, December 21, 2010, Vol. 75, No. 244, at Pages 80105-80106. Location: Henderson Auditorium, Truman Building, 2201 C St., NW.

9:45 AM - 5:00 PM. The Public Knowledge (PK) and Google will host a conference titled "World Fair Use Day". This is a series of speeches and panel discussions. The speakers will include Maria Pallante, acting Register of Copyright. Breakfast and lunch will be served. See, agenda and registration page. Location: Washington Post Conference Center, 1150 15th St., NW.

12:15 - 1:30 PM. The Federal Communications Commission (FCC) will hold an event titled "Bankruptcy Basics: A discussion of the FCC issues that arise in the context of bankruptcies and workouts of entities that hold FCC licenses". The speakers will be David Brown (Associate Chief of the FCC's Media Bureau's Video Division), David Roberts (FCC/MB/VD), Taft Snowdon (FCC/MB/Audio Divison), and John Feore (Dow Lohnes). The Federal Communications Bar Association (FCBA) states that this is an FCBA event. Location: Hogan Lovells, 555 13th St., NW.

1:00 PM. The US Telecom will host a webcast seminar titled "IPv6 Migration Strategies". See, notice.

5:30 - 7:30 PM. The New America Foundation (NAF) will host a lecture by Evgeny Morozov (NAF) titled "Was Orwell Right? The Dark Side of the Internet". Morozov is the author of the book [Amazon] titled "The Net Delusion: The Dark Side of Internet Freedom". See, notice. Location: NAF, Suite 400, 1899 L St., NW.

The House will not meet. Day two of a three day House Republican Retreat.

Supreme Court conference day (discussion of argued cases, and decision on cert petitions). Closed.

9:30 AM - 4:30 PM. The Federal Communications Commission's (FCC) Emergency Access Advisory Committee will meet. See, notice in the Federal Register, December 15, 2010, Vol. 75, No. 240, at Pages 78244-78245. Location: FCC, Commission Meeting Room, 445 12th St., SW.

12:00 NOON. Deadline to submit reply comments to the Office of the U.S. Trade Representative (OUSTR) regarding its review of the operation, effectiveness, and implementation of and compliance with various telecommunications agreements, including the World Trade Organization (WTO) General Agreement on Trade in Services. See, notice in the Federal Register, November 18, 2010, Vol. 75, No. 222, at Pages 70770-70771.

5:00 PM. Deadline to submit comments to the U.S. Patent and Trademark Office (USPTO) in response to its latest notice of proposed rulemaking (NPRM) in its long running consideration of its rules of practice before the Board of Patent Appeals and Interferences (BPAI) in ex parte patent appeals. See, notice in the Federal Register, November 15, 2010, Vol. 75, No. 219, at Pages 69827-69849. See also, story titled "USPTO Issues Another NPRM on BPAI Ex Parte Appeals" in TLJ Daily E-Mail Alert No. 2,163, November 23, 2010.

Deadline to submit comments to the Federal Communications Commission (FCC) in response to its November 12, 2010, Public Notice (PN) regarding its Programmatic Environmental Assessment (PEA) of its Antenna Structure Registration (ASR) program. This PN is DA 10-2178 in WT Docket No. 08-61 and WT Docket No. 03-187. See, notice in the Federal Register, November 17, 2010, Vol. 75, No. 221, at Pages 70166-70168.

1/5. President Obama again nominated James Dempsey and Elisebeth Cook to be members of the Privacy and Civil Liberties Oversight Board (PCLOB). See, White House news office release. He nominated them last month. Those nominations lapsed at the end of the 111th Congress. See also, story titled "Obama to Nominate Dempsey and Cook to Privacy and Civil Liberties Oversight Board" in TLJ Daily E-Mail Alert No. 2,181, December 17, 2010.

1/5. President Obama again nominated Peter Diamond to be a member of the Board of Governors of the Federal Reserve System for the unexpired term of fourteen years from February 1, 2000. See, White House news office release. President Obama first nominated Diamond in April of 2010. The Senate Banking Committee (SBC) approved his nomination in November. See, Congressional Record, November 17, 2010, at Page S7968.

1/5. President Obama again nominated Kelvin Droegemeier to be a member of the National Science Board (NSB) of the National Science Foundation (NSF), for a term expiring May 10, 2016. See, White House news office release. President Obama first nominated Droegemeier last month.

1/5. President Obama again nominated Cora Marrett to be a Deputy Director of the National Science Foundation (NSF). See, White House news office release.

1/5. President Obama again nominated Michael Vickers to be Under Secretary of Defense for Intelligence. See, White House news office release. President Obama first nominated him in September of 2010.

1/5. President Obama again nominated Stephanie O'Sullivan to be Principal Deputy Director of National Intelligence. See, White House news office release. President Obama first nominated her last month.

1/5. President Obama again nominated Kathryn Sullivan to be Assistant Secretary of Commerce for the Economic Development Administration. See, White House news office release.

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