News from April 21-25, 2002
PFF Report Condemns Government Online Tax Preparation Services
4/25. The Progress and Freedom Foundation (PFF) released a report [PDF] titled "Online Tax Preparation: Beyond the Bounds of E-Government". It states that "While the application of new technologies to the provision of government services is clearly a good thing, it should not be a mechanism for expanding the role of government into new areas better left to the private sector. One area where governments may well be moving beyond their proper role is the provision of online tax preparation services for their residents."
The report, which was written by Thomas Lenard and James Harper, argues that "The entry of government into the online tax preparation business raises significant privacy, security, and conflict of interest issues. The privacy and security of taxpayers' deliberations about tax filing are likely to be eroded by online government tax preparation programs. And, there is an inherent conflict of interest between government in its roles as both a ``preparer´´ of tax returns and an ``enforcer´´ of the tax laws. It is inappropriate for the government, which is the enforcer, to be looking over the shoulders of taxpayers as they prepare their tax returns."
The report elaborates that while governments collect much information in tax filings, "tax preparation information is an additional set of information beyond the information filed with a completed tax return. Tax preparation information concerns citizens' deliberations about what will be included on forms, how expenses will be characterized, what individuals and entities will report what information, and so on."
It states that tax preparation information "will become more and more attractive information for auditors and other government investigators" and "the existence of a growing network of government databases creates an unseemly set of incentives for criminal investigators."
Senate Commerce Committee Holds Hearing on Privacy Legislation
4/25. The Senate Commerce Committee held a hearing on S 2201, the Online Personal Privacy Act, sponsored by Sen. Ernest Hollings (D-SC). See, opening statement of Sen. Hollings. See, also prepared testimony of witnesses: Barbara Lawler (Hewlett Packard), Marc Rotenberg (Electronic Privacy Information Center), Paul Misener (Amazon.com), Frank Torres (Consumers Union), and John Dugan (Financial Services Coordinating Council).
Senate Judiciary Committee Holds Hearing on Judicial Nominees
4/25. The Senate Judiciary Committee held a hearing on six judicial nominees: Julia Gibbons (to be a judge of the U.S. Court of Appeals for the Sixth Circuit), Leonard Davis (U.S.D.C., Eastern District of Texas), David Godbey (U.S.D.C., Northern District of Texas), Andrew Hanen (U.S.D.C., Southern District of Texas), Samuel Mays (U.S.D.C., Western District of Tennessee), and Thomas Rose (U.S.D.C., Southern District of Ohio). Sen. John Edwards (D-NC) presided over this noncontroversial hearing.
Gibbons has been a Judge of the U.S. District Court (WDTenn) since 1983. She would fill one of the vacancies on the U.S. Court of Appeals (6thCir), where half of the seats are currently vacant. Among her recent notable cases is In Re SCB Computer Technology Securities Litigation, which arose out of SCB's restatement of its consolidated financial statements for fiscal 1998 and 1999 and the first three quarters of fiscal 2000. Judge Gibbons dismissed several consolidated securities fraud cases, with prejudice, based upon her application of the heightened pleading requirements of the Private Securities Litigation Reform Act (PSLRA). The parties settled while an appeal was pending. See, D.C. No. 00-2343, 2001 WL 648929 (February 15, 2001).
Godbey, who is currently a Texas state trial judge in Dallas, previously was a partner in the law firm of Hughes & Luce. Hanen is the lead partner in the law firm of Hanen Alexander; he was previously a partner in Andrews and Kurth. Davis is currently a state appeals court judge in Texas; he previously had a litigation practice in Tyler, Texas. Mays is currently a partner in the law firm of Baker Donelson in Memphis, Tennessee.
Rose is currently a state trial court judge in Ohio. Before that, he was a partner in the law firm of DeWine and Rose. Sen. Mike DeWine (R-OH), who is a member of the Senate Judiciary Committee, supports his nomination.
DOJ Recommends Approval of Verizon's Maine Long Distance Request
4/25. The Department of Justice's (DOJ) Antitrust Division released its evaluation recommending that the Federal Communications Commission (FCC) approve Verizon's Section 271 application to provide in region interLATA service in the state of Maine.
Charles James, Assistant Attorney General in charge of the Antitrust Division, stated in a release that "Conditions in Maine local telecommunications markets now appear favorable to fostering competition, ... Competitors have made progress in penetrating the business market in Maine, and the Department believes there are no material obstacles to residential competition in Maine created by Verizon." Verizon's Associate General Counsel Sarah Deutsch stated in a release that "We are confident that the FCC will also grant approval of our long-distance application for Maine."
Senate Judiciary Committee Postpones Consideration of Bills
4/25. The Senate Judiciary Committee held an executive business meeting. The agenda had included mark up of several technology, intellectual property and privacy related bills, including S 2031, the Intellectual Property Protection Restoration Act of 2002, S 848, the Social Security Number Misuse Prevention Act of 2001, and S 1742, the Restore Your Identity Act of 2001. However, all three bills were held over.
People and Appointments
4/25. President Bush announced his intent to nominate Roel Campos and Harvey Goldschmid to be Commissioners of the Securities and Exchange Commission (SEC). Campos is currently the SVP and General Counsel of El Dorado Communications in Houston, Texas. From 1989 to 1995, he practiced law with the law firms of Richman Lawrence and Rudin Appel & Rosenfeld. Goldschmid has been a law professor at Columbia University since 1970. He is a joint author of the law school text titled Trade Regulation: Case and Materials. In 1998 and 1999 he was General Counsel of the SEC. Both would fill Democratic positions on the SEC. See, White House release.
4/25. President Bush nominated Richard Russell to be an Associate Director of the Office of Science and Technology Policy. See, White House release.
4/25. The Senate confirmed several judicial nominees: Percy Anderson and John Walter to be Judges of the U.S. District Court (CDCal), Joan Lancaster to be a Judge of the U.S. District Court (DMinn), and William Griesbach to be a Judge of the U.S. District Court (EDWisc). See, Cong. Rec., April 25, 2002, at S3457.
4/25. Sun Microsystems announced that CFO Michael Lehman "has decided to retire from full time duties" and that Steve McGowan will be the new CFO. See, Sun release.
More News
4/25. The Securities and Exchange Commission (SEC) announced that it "has commenced a formal inquiry into market practices concerning research analysts and the potential conflicts that can arise from the relationship between research and investment banking." See, SEC release.
4/25. The U.S. Patent and Trademark Office (USPTO) held the first day of a two day Copyright Conference. See, opening remarks of USPTO Director James Rogan.
4/25. A group of competitive telecom and broadband service providers wrote a letter [PDF] to President Bush regarding broadband policy and the Federal Communications Commission (FCC). They wrote that the FCC "is now considering adopting one sided policies that could squelch competition among local broadband providers and recreate a monopoly for broadband services. The proposals could deny competitors the opportunity to interconnect with the Bell Company networks." They urged the President "to refrain from picking broadband winners and losers and changing the framework for broadband competition in the middle of the game. Instead, we encourage you to focus on the demand side of the equation while letting us compete fairly in the broadband marketplace under the existing policies."
House Judiciary Committee Approves Wiretap Bill
4/24. The House Judiciary Committee held a meeting to mark up several bills. It amended and approved HR 1877, the Child Se_ Crimes Wiretapping Act of 2001. This bill would expand the list of predicate offenses that may serve as the basis for the issuance of a wiretap order. Rep. Lamar Smith (R-TX) stated that the bill "will assist law enforcement officers in investigating se_ crimes that involve children." Rep. Bobby Scott (D-VA) called it "an unnecessary expansion of federal wiretap authority". The bill passed by a vote of 20 to 4.
House Judiciary Committee Postpones Mark Up of Tech Bills
4/24. The House Judiciary Committee once again postponed its mark up of HR 3482, the Cyber Security Enhancement Act of 2001 (a crime bill), and HR 3215, the Combatting Illegal Gambling Reform and Modernization Act (a bill that would affect Internet gambling). Mark up of both bills is likely to be rescheduled for next week. The reasons for the postponements has been lack of time to complete all agenda items.
Rep. Tauzin Introduces Bill to Postpone 700 Mhz Auctions
4/24. Rep. Billy Tauzin (R-LA) introduced HR 4560, the Auction Reform Act of 2002, a bill that would require that "The Federal Communications Commission shall not commence or conduct auctions 31 and 44 on June 19, 2002". These auctions pertain to spectrum in the 700 megahertz band.
The bill recites that "Circumstances in the telecommunications market have changed dramatically since the auctioning of spectrum in the 700 megahertz band was originally mandated by Congress in 1997, raising serious questions as to whether the original deadlines, or the subsequent revision of the deadlines, are consistent with sound telecommunications policy and spectrum management principles."
The bill also states that "No comprehensive plan yet exists for allocating additional spectrum for third- generation wireless and other advanced communications services. The Federal Communications Commission should have the flexibility to auction frequencies in the 700 megahertz band for such purposes."
Rep. Tauzin stated in a release that "It is true that the auction of the upper portion of the 700 MHz band has been delayed five times; conducting the auctions for both the upper and lower parts of the 700 MHz band in June would be wrong. These auctions are simply not ready for prime time."
Rep. Tauzin is the Chairman of the House Commerce Committee. The bill is cosponsored by Rep. John Dingell (D-MI), the ranking Democrat on the Committee, Rep. Fred Upton (R-MI), Chairman of the Telecom and Internet Subcommittee, Rep. Ed Markey (D-MA), the ranking Democrat on the Subcommittee, and 48 other members of the House Commerce Committee.
Also on April 24, the Cellular Telecommunications & Internet Association (CTIA) filed an Application for Review with the FCC requesting that it review the Wireless Telecommunications Bureau's recent denial of the CTIA's request for delay of the auctions.
On April 18, Commerce Secretary Donald Evans wrote a letter to FCC Chairman Michael Powell requesting that the auctions be delayed.
Senate Subcommittee Holds Hearing on Cyber Security Bills
4/24. The Senate Commerce Committee's Subcommittee on Science, Technology, and Space held a hearing on S 2037, a bill providing for the establishment of a national emergency technology guard, and S 2182, the Cyber Security Research and Development Act, a bill to authorize funding for computer and network security research and development and research fellowship programs.
Both bills are sponsored by Sen. Ron Wyden (D-OR) and supported by Sen. George Allen (R-VA), another member of the Subcommittee. S 2182 is the Senate version of HR 3394, sponsored by Rep. Sherwood Boehlert (R-NY), which passed the House by a vote of 400 to 12 on February 7.
Rep. Boehlert testified at the hearing that the Bush Administration has already announced its support for HR 3394 and S 2182. Sen. Wyden stated at the hearing that he spoke with Office of Management and Budget (OMB) Director Mitch Daniels on the morning of the hearing, and looked forward to working with the Administration on S 2037. Sen. Wyden also said that he hopes that both bills will be marked up by the Senate Commerce Committee on May 16.
Sen. John Edwards (D-NC), another member of the Subcommittee, also participated in the hearing. He is the sponsor of his own cyber security bills: S 1900, the Cyberterrorism Preparedness Act of 2002, and S 1901, the Cybersecurity Research and Education Act of 2002. S 1900 would authorize the appropriation of $70 Million in FY 2003 for grants to be administered by the National Institute of Standards and Technology (NIST) "to support the development of appropriate cyber security best practices, support long term cyber security research and development, and perform functions relating to such activities." S 1901 would authorize appropriations for a cyber security graduate fellowship program, and other educational programs.
Sen. Wyden suggested that there is much common ground and that he will work with Sen. Edwards prior to the planned May 16 mark up.
Hearing Addresses Cyber Security Research and Education
4/24. The Senate Commerce Committee's Subcommittee on Science, Technology, and Space discussed and heard testimony on S 2182 and HR 3394, the Cyber Security Research and Development Act, at its April 24 hearing.
Sen. Ron Wyden (D-OR) stated that the bill "seeks to build a foundation of basic cyber security research and grow the ranks of scholars who can devise innovative security defenses in years to come. Since basic research is the soil out of which future cyber security advances will grow, I believe the government should support it. This legislation does so with a series of grants through the [NIST and NSF]. The awards are designed to encourage cutting edge research today, and to call more of this nation's brightest scientific minds to study this problem for the future."
Sen. John Edwards (D-NC) stated that there are three principles that should guide the Congress. First, it should promote cyber security best practices, and require government agencies and government contractors to adopt these. Second, grant making authority should be moved outside of the government to a non profit consortium. Third, the government should support academic expertise in cyber security.
Rep. Sherwood Boehlert (R-NY) testified that "the nation invests a pitifully small amount in cyber security research, and that's true of both government and industry funding. Government underinvests, in part, because no single agency has responsibility for the problem, and industry underinvests because the market has generally not put a high value on security, compared with speed, price and other attributes of software."
He also said the "as a result of the minimal investment, few top researchers are engaged in cyber security research and few students are attracted to the field. Third, as a result of that minimal focus, our basic approach to cyber security hasn't changed in decades, even though it is known to be riddled with holes." See, prepared testimony.
Industry, academic, and government witnesses who testified offered their support for the proposal. See, prepared statements of George Strawn (National Science Foundation), Ronil Hira (Institute of Electrical and Electronics Engineers), Lance Hoffman (George Washington University), Jeffrey Logan (M/A-COM), and Wyatt Starnes (Tripwire).
George Strawn of the NSF stated that there is a "need for cyber security R&D". He added that "Early research and development work on the Internet, as with many IT developments of the past, focused on ``making it work´´, not necessarily on making it secure. And because cyber security is a systems property, trying to add it on as an afterthought is very problematic. It would be much better to recreate IT systems with cyber security as a major design criteria than to attempt to patch it in after the fact."
Strawn continued that "A major problem in developing a robust cyber security research and development program is that the number of faculty members doing research in cyber security has been quite small. This is perhaps the most important problem to be solved as we seek to increase the amount of long term fundamental research in cyber security."
Summary of HR 3394 and S 2182. These companion bills would authorize appropriations for a variety of research and education projects. The bills contain new or additional funding for five National Science Foundation (NSF) programs. They would authorize appropriations of $233 Million over 5 years to the NSF to make "network security research grants". They would authorize $144 Million over 5 years to the NSF to award to universities "to establish multi disciplinary Centers for Computer and Network Security Research." These programs would fund research regarding "authentication and cryptography; ... computer forensics and intrusion detection; ... reliability of computer and network applications, middleware, operating systems, and communications infrastructure; and ...privacy and confidentiality."
The bills would also authorize funding to be administered by the NSF for training undergraduate university students ($95 Million), community college students ($6 Million), and doctoral students ($90 Million) in cyber security fields.
The bills also authorize funding for programs at the National Institute of Standards and Technology (NIST). One item authorizes $275 Million for NIST to assist universities that partner with for profit entities in long term, high risk, cyber security research. Another item authorizes $32 Million for in house research at NIST.
DMCA. Lance Hoffman, a professor in the Computer Science Department at The George Washington University, added that "I encourage you to re-examine laws that prohibit or restrict computing technology instead of undesirable behavior. DMCA like restrictions have the potential to cripple the very security advancements that S 2037 and S 2182 are intended to advance." Sen. Wyden responded, "I believe the DMCA proposals may be a little bit too much."
Senate Hearing Addresses Net Guard Bill
4/24. The Senate Commerce Committee's Subcommittee on Science, Technology, and Space discussed and heard testimony on S 2037, the Science and Technology Emergency Mobilization Act.
Sen. Wyden stated that the bill "seeks to provide an organizational structure to quickly locate and mobilize private sector science and technology expertise in times of crisis." Sen. George Allen (R-VA) stated that the NET Guard "can play a major role in preventing many of the problems that occurred during the September 11 attacks." He added that the NET Guard would tap into "a great depth and reservoir of good will."
Rep. Sherwood Boehlert (R-NY) stated that he supports this bill and "We're working on introducing it in the House."
Industry and academic witnesses testified in support of the bill, but also offered suggestions for changes.
Wyden stated that "Technology companies and individual experts can become NET Guard volunteers simply by agreeing to become part of a national database." Lance Hoffman of George Washington University testified that there should also be "background checks". Wyatt Starnes of Tripwire stated that without checks, persons with malicious intent could become a part of program, thus introducing new vulnerabilities.
Ronil Hira of the Institute of Electrical and Electronics Engineers offered some skepticism about the use of volunteers. He testified that "communication and other technological systems can be extremely complicated, requiring not only general knowledge of the technical factors but also specific knowledge of the system under stress. This may only be available in the company and its vendors that installed the system originally. Furthermore, if a local government has a sound disaster recovery program, it may not be feasible, and may be counter productive, to attempt to bring in teams that have not been integrated into the established order."
George Strawn of the NSF said that the administration has no position on this bill.
Trade Promotion Authority News
4/24. President George Bush gave a speech at the Dakota Ethanol Plant in Sioux Falls, South Dakota, in which he advocated passage of legislation giving the President trade promotion authority. TPA, which is also known as fast track, gives the President authority to negotiate trade agreements which can only be voted up or down, but not amended, by the Congress. TPA strengthens the bargaining position of the President.
The House passed its version of the TPA bill, HR 3005, the Bipartisan Trade Promotion Authority Act of 2001, by a roll call vote of 215 to 214 on December 6, 2001. See, TLJ Daily E-Mail Alert No. 323. The Senate Finance Committee passed its version of this bill later in December. Sen. Tom Daschle (D-SD), the Senate Majority Leader, has yet to bring the bill to the Senate floor for a vote.
President Bush traveled to Sen. Daschle's home state to make this speech. President Bush stated that "I understand that the Senate is getting to take up a trade bill, for which I'm grateful. I look forward to getting that bill to my desk. It's important to get it passed and to get it moving. And it's important to get a farm bill to my desk, as well. We need good farm legislation. It's -- the farm bill needs to get done quickly so that the farmers who are out there fixing to plant know what the rules of the game is. And we can do it. We need to put aside all the posturing, all the noise, and for the good of American agriculture, get a trade bill to my desk and get a farm bill to my desk."
Sen. Daschle attended the event.
Meanwhile, back in Washington DC, the Senate Republican High Tech Task Force held a press conference. Sen. George Allen (R-VA), Sen. Don Nickles (R-OK), Sen. Bob Bennett (R-UT), Treasury Secretary Paul O'Neill, and technology company representatives urged quick passage of a TPA bill.
Sen. Allen stated that TPA is "a high priority for the technology sector" which is dependent upon exports. He observed that of the 150 regional trade agreements worldwide, the U.S. is a party to only three. He pointed out, for example, that Brazil imposes a 35% tariff on many telecommunications products, and a 19% tariff on many computer products.
Sen. Bennett related that he occupies the Senate seat once held by Sen. Reed Smoot. He discussed the role of the 1930 Smoot Hawley tariff in creating and spreading the depression of the 1930s. He concluded that he wants to pass TPA so that Smoot can rest in peace.
Secretary O'Neill said that "we need the high paying jobs that come with technology trade."
Also on April 24, Secretary O'Neill testified before the House Appropriations Committee's Subcommittee on Foreign Operations, Export Financing and Related Programs. He said in his prepared testimony that "I applaud the House of Representatives for approving Trade Promotion Authority (TPA), and the Senate Finance Committee for its strong bipartisan vote in favor of TPA legislation. You have done a great service to our economy. It is now imperative that the full Senate acts quickly so the Congress can approve a final version of TPA and send it to the President for his signature. This would provide a great service to our economy. Passage of TPA will substantially enhance our ability to help complete the Free Trade Area of the Americas, other free trade agreements, and our broader multilateral trade agenda. And without question, TPA will be a great confidence builder for the U.S. and global economy."
On April 23, Rep. John Baldacci (D-ME) introduced HR 4550, another bill to amend the eligibility requirements of the trade adjustment assistance (TAA) program under the Trade Act of 1974. The bill was referred to the House Ways and Means Committee.
Federal Circuit Rules in Fantasy Sports Patent Case
4/24. The U.S. Court of Appeals (FedCir) issued its opinion in Fantasy Sports Properties v. Sportsline.com, a patent infringement case regarding U.S. Patent 4,918,603, titled "Computerized Statistical Football Game".
Fantasy Sports Properties (Fantasy) is the assignee of the 603 patent which discloses a method of and apparatus for playing a fantasy football game on a computer. Fantasy filed a complaint in U.S. District Court (EDVa) against Sportsline.com, Yahoo, and ESPN/Starwave Partners alleging that their computerized fantasy football games infringe Fantasy's patent. The District Court granted summary judgment of non-infringement.
Claim 1 of the 603 patent reads as follows: "A computer for playing football based upon actual football games, comprising: means for setting up individual football franchises; means for drafting actual football players into said franchises; means for selecting starting player rosters from said actual football players; means for trading said actual football players; means for scoring performances of said actual football players based upon actual game scores such that franchises automatically calculate a composite win or loss score from a total of said individual actual football players' scores; said players' scores are for quarterbacks, running backs and pass receivers in a first group and kickers in a second group; and wherein said players in said first and second groups receive bonus points."
The Court of Appeals affirmed the District Court's judgment as to Yahoo and ESPN. However, the Appeals Court found that there exists a genuine issue of material fact as to whether SportsLine's Commissioner.com product infringes the 603 patent. It vacated and remanded on that issue.
9th Circuit Rules on Unclean Hands Defense In Trademark Litigation
4/24. The U.S. Court of Appeals (9thCir) issued its opinion [PDF] in Japan Telecom v. Japan Telecom America, a trademark case involving the defense of unclean hands.
Background. Japan Telecom (JT), a California corporation that is the subsidiary of a small Japanese corporation, has long sold and installed telephone and computer networking equipment in the Los Angeles area. Recently, Japan Telecom America (JTA), the U.S. subsidiary of a large telecommunications company in Japan, began selling telecommunications transmission services, including both long distance telephone and data.
District Court. JT filed a complaint in U.S. District Court (CDCal) against JTA alleging trademark infringement, unfair competition, and other claims. The District Court granted summary judgment to JTA on all claims, holding that JT had unclean hands. It reasoned that JT had unclean hands because the name by which plaintiff calls itself is deceptive; that is, the trade name "Japan Telecom" suggests a company of Japanese origin, and hence the name is geographically deceptively misdescriptive.
Court of Appeals. The Appeals Court reversed the District Court's ruling regarding unclean hands. It wrote that "Using the name of a country in a trade name does not automatically make the trade name geographically descriptive." Rather, it could be understood by consumers to be a reference to an ethnic community to which a business caters.
FTC Sues Deceptive Spammer
4/24. The Federal Trade Commission (FTC) announced that on March 27 it filed a complaint [17 pages in PDF] under seal in the U.S. District Court (DNev) against several entities and individuals alleging violation of the Federal Trade Commission Act and the Pay Per Call Rule, which was promulgated pursuant to the Telephone Disclosure and Dispute Resolution Act.
The complaint states that the defendants sent spam e-mail messages claiming that consumers had won a free Sony PlayStation 2 or other prize through a promotion purportedly sponsored by Yahoo, and then routed consumers to an adult Internet site via a 900 number modem connection that charged them up to $3.99 a minute.
This District Court issued an injunction, and an order for seizure of assets. See, Temporary Restraining Order [PDF 861KB].
Rep. Barr Introduces Government Agency Privacy Bill
4/24. Rep. Bob Barr (R-GA) and others introduced HR 4561, the Federal Agency Protection of Privacy Act, a bill that would require federal agencies to include a privacy impact analysis with proposed regulations that are circulated for public notice and comment.
The bill was referred to the House Judiciary Committee. The Committee's Subcommittee on Commercial and Administrative Law, which Rep. Barr chairs, may hold a hearing on the bill as early as next week.
The bill would require federal agencies, after notice and public comment, to include a privacy impact analysis that describes the steps that were taken to minimize the significant privacy impact of proposed regulations and that justifies the alternative with respect to privacy that was chosen by the agency. The bill would also provide for judicial review.
Rep. Barr stated in a release that "All Americans deserve to know how new rules or regulations passed by the government will affect their right to privacy. From medical records to surveillance cameras, and from government snooping on the Internet to recent calls for a national ID, we are seeing firsthand, each day, the importance of guarding our right to privacy. This is good government legislation to reform the regulatory process, and make government more accountable to the people."
Jim Harper, Editor of Privacilla.org, stated in a release that "Agencies like the IRS, Social Security Administration, Centers for Medicare & Medicaid Services, Department of Education, and Veterans Administration use massive amounts of personal information without permission. When these practices are revealed, Americans will be more able to decide whether they want to pay the cost in lost privacy of government programs." He added, "Expect the federal bureaucracy to howl at this proposal."
The bill's original cosponsors span the political spectrum: Rep. Steve Chabot (R-OH), Rep. Mel Watt (D-NC), Rep. George Gekas (R-PA), Rep. Jerrold Nadler (D-NY), Rep. Mark Green (R-WI), and Rep. Ronnie Shows (D-MS).
FRB Vice Chairman Addresses Role of High Tech in the Economy
4/24. Federal Reserve Board Vice Chairman Roger Ferguson testified before the House Small Business Committee. He stated in his prepared testimony that "prospects for a renewed expansion have now brightened significantly. The economy appears to have been expanding at a significant pace in recent months." He also addressed the role of technology in the overall economy.
He stated that "overall economic activity had slowed noticeably after several years of rapid expansion. The economic boom that preceded the slowdown had been marked by an exceptionally high rate of investment in high technology equipment and software ..."
He then elaborated on the role of technology. "What looked at the outset to be a gradual cooling of an overheated economy became much more serious -- particularly in the manufacturing sector -- for several reasons. First, the shakeout in the high tech sector proved to be not simply an adjustment to slower domestic demand but a more fundamental reassessment by businesses, globally, of the profitability of additional fixed capital added to the already high stock of such capital. Besides the plunge in demand for high tech products, our exports were hit hard by the slowdown in economic growth abroad. Lastly, the shock to confidence and spending in the wake of the tragic events of September 11 extended the weakness in the economy that had emerged over the first half of the year."
"Although the weakness in the manufacturing sector from mid-2000 through the end of last year was widespread, the global plunge in high tech investment stands out as a significant drag. After having climbed at a rate of more than 35 percent per year in 1999 and 2000, our output of high tech products -- computers, communications equipment, and semiconductors -- contracted at an annual rate of 21-1/2 percent between December 2000 and September 2001; capacity utilization in this group of industries fell from 81 percent to just under 61 percent in the fourth quarter of last year," said Ferguson.
Correction
The TLJ Daily E-Mail Alert for April 24 stated that "The House Appropriations Committee's Subcommittee on Commerce, Justice, State, and the Judiciary held a hearing on the proposed budget for FY 2003 for the U.S. Patent and Trademark Office (USPTO)." In fact, the hearing was titled "Intellectual Property Protection", and did not focus on the USPTO's appropriation.
People and Appointments
4/24. Robert Gebhard joined the Palo Alto office of the law firm of Gray Cary Ware & Freidenrich as of counsel to the firm's bankruptcy and insolvency practice. Gebhard was previously the Assistant U.S. Trustee in San Jose, California. See, GCWF release.
4/24. McLeod USA announced a new management team. Chris Davis is the new Chairman and CEO. Steve Gray continues as President. Ken Burckhardt is the new CFO. Clark McLeod will retire. See, McLeod release.
More News
4/24. The Office of the U.S. Trade Representative (USTR) published a notice in the Federal Register regarding the U.S. complaint to the World Trade Organization (WTO) regarding Mexican government's protectionist measures affecting telecommunications services. The USTR requests public comments from the public regarding the WTO proceeding by May 25, 2002. On April 17 the Dispute Settlement Body (DSB) of the WTO established a dispute settlement panel to examine U.S. claims regarding certain Mexican Government measures affecting basic telecommunications services and the consistency of such measures with Mexico's commitments under the General Agreement on Trade in Services (GATS). See, Federal Register, April 24, 2002, Vol. 67, No. 79, at Pages 20195 - 20196.
4/24. The Internal Revenue Service (IRS) published a pair of notices in the Federal Register containing changes to its regulations that are designed to eliminate regulatory impediments to the electronic filing of Form 1040. See, notice at Federal Register, April 24, 2002, Vol. 67, No. 79, at Pages 20028 - 20032, and notice at Federal Register, April 24, 2002, Vol. 67, No. 79, at Pages 20072 - 20074.
House Subcommittee Holds USPTO Appropriations Hearing
4/23. The House Appropriations Committee's Subcommittee on Commerce, Justice, State, and the Judiciary held a hearing on the proposed budget for FY 2003 for the U.S. Patent and Trademark Office (USPTO).
USPTO Director James Rogan focused on international issues in his prepared testimony. He stated that "in addition to the examination and issuance of patents and trademarks, USPTO works to promote protection of the intellectual property of American innovators on both the domestic and international levels."
Rogan stated that "a significant part of our international efforts at the USPTO are devoted to strengthening IP enforcement abroad and combating IP piracy. With the growing importance of intellectual property assets, the need for enforcement of these rights abroad has increased substantially."
He singled out China. He said that "one of the areas of greatest concern with respect to IP piracy is Asia, particularly China. The risks of increased piracy mount on a daily basis with rapidly increasing Internet penetration, Napster like file exchange systems, and involvement of organized crime. Yet, despite WTO commitments, there is little evidence of any prosecutions of Chinese citizens for criminal copyright theft."
Rogan also stated that "Our goal in the international arena is to move toward greater consistency in intellectual property protection around the world." For example, "In the patents area, we are striving for uniform treatment of patent applications and patent grants worldwide, which will reduce costs for American patent owners in obtaining and preserving their IP rights abroad."
Assistant Secretary of State Anthony Wayne stated in his prepared testimony that "we observe a significant, if not readily quantifiable, increased appreciation of the benefits inherent in effective protection of intellectual property rights. More and more, our trading partners are beginning to understand that their future growth and development depends in large part on their becoming active players in the global knowledge based economy. They also are coming to appreciate that strong intellectual property protection is necessary to create an attractive investment climate. In short, economic self interest is becoming a very important factor in enhancing intellectual property protection overseas." However, he added that the Special 301 review remains an important tool for fighting piracy abroad.
6th Circuit Applies Antitrust Exemption to Municipal Phone Contracts
4/23. The U.S. Court of Appeals (6thCir) issued its opinion in Michigan Paytel v. City of Detroit, an antitrust action against Detroit and Ameritech regarding the bidding process for the provision of pay telephone service in the city jail.
The City of Detroit Police Department issued a Request for Proposal (RFP) and began to solicit bids for an "in-cell telephone contract" at its "lock-up facilities". Michigan Paytel submitted a bid. The City awarded the contract to Ameritech (now SBC) without following its RFP.
Michigan Paytel filed a complaint in U.S. District Court (EDMich) against Detroit, Ameritech, and others alleging violation of federal and state antitrust law, as well as a variety of civil rights, tort, contract, conspiracy claims. The District Court dismissed the antitrust and other claims, and granted summary judgment to Detroit.
The Appeals Court affirmed. The Court held that "the City is immune from antitrust liability because anticompetitive effects are the logical and foreseeable result of the City's broad authority under state law and the Michigan Constitution to bid out public contracts for the maintenance of City prisons." Moreover, the state action exemption also entitles the private defendants to protection from antitrust liability in this case.
Prisoners get their own phones?
FCC Releases Phone Penetration Report
4/23. The Federal Communications Commission (FCC) released its annual report [71 pages PDF] titled "Telephone Penetration by Income by State". See also, FCC release [2 pages in PDF]. The report found that in March 2001, 12.4% of low income households nationwide did not have a phone. And, in the state of Michigan, 16% of low income households lacked their own phones.
DOJ and Computer Associates Settle Gun Jumping Suit
4/23. The Department of Justice (DOJ) and Computer Associates (CA) and Platinum Technology International (PTI) announced that they have reached a proposed settlement of a civil suit filed by the DOJ against CA.
On September 28, 2001, the DOJ filed a complaint in U.S. District Court (DC) against CA and PTI alleging that after CA and PTI announced their proposed merger they violated the pre-merger waiting period requirements and agreed to restrict PTI's ability to offer discounts to customers during the merger waiting period, in violation of the Hart Scott Rodino (HSR) Act and Section 1 of the Sherman Act. That is, the complaint alleged that CA "jumped the gun" and exercised operation control of an acquisition candidate during the HSR waiting period.
Under the terms of the proposed settlement, CA will pay a civil penalty of $638,000. The settlement agreement, filed with the U.S. District Court, can not become final until after a 60 day public comment period.
Charles James, Assistant Attorney General for the Antitrust Division, stated in a release that "Merging parties must comply with their antitrust obligations and continue to operate independently pending consummation of their transaction ... The Department views gun jumping as a serious matter and will proceed against parties who fail to respect the law with regard to preconsummation conduct." See also, CA release.
Commerce Department Official Addresses Cyber Security
4/23. Under Secretary of Commerce Kenneth Juster gave a speech at a conference at Princeton University that was held to share information and identify best practices for critical infrastructure assurance and homeland security at the community level. Juster addressed cyber security.
"Critical infrastructure assurance is an essential element of our overall approach to homeland security." Juster said that "critical infrastructures refer to those industries, institutions, and distribution networks that provide a continual flow of goods and services essential to the nation’s defense and economic security, the functioning of its government, and the welfare of its citizens."
He stated that "as a result of advances in information and communications technology, there is a threat to critical infrastructures that goes beyond that of physical attacks. Each of the infrastructure sectors increasingly relies on shared information systems and networks for its operations. The very information systems and networks that facilitate commerce also leave us increasingly vulnerable to a new type of threat -- that of cyber attacks. And the interconnected nature of our infrastructure sectors significantly magnifies the consequences of service disruptions. Disturbances originating locally or in one sector are more likely than ever before to cascade regionally or nationally and affect multiple sectors of the economy."
Juster addressed what the government role should be. He said that "Our preferred approach is to promote market rather than regulatory solutions in managing the risks posed to critical infrastructures."
He elaborated that "Securing critical infrastructure must therefore become as integral a part of a company's strategic planning and operations as is marketing or product development. Companies must institutionalize the process of identifying critical assets, assessing their vulnerabilities, and managing the risks associated with these vulnerabilities. Security -- including cyber security -- is now essential to business assurance and continuity. Corporate America cannot outsource this function to federal, state, or local government. And regulation cannot ensure proper implementation of cyber security within complex organizations. In the final analysis, only with the major contribution coming from the private sector can we secure the national economy from the threat of massive cyber based attacks."
Finally, he stated that "One of the biggest challenges facing government and industry is not only securing our critical assets, but working together to manage public and market expectations so that terrorist attacks that may temporarily damage our infrastructures do not result in widespread disengagement from economic activity. In my view, it is this disengagement, as much as – or perhaps more than – the actual destruction of economic assets, that poses the greatest risk to our national economic security. Economic security, ultimately, is not about eliminating the risk of terrorism, but about maintaining an orderly functioning national economy notwithstanding terrorist attacks."
Juster is Under Secretary of Commerce for the Bureau of Industry and Security (BIAS), which until recently was named the Bureau of Export Administration (BXA). His speech was titled "Economic Security and Community Leadership". The conference was titled "Critical Infrastructures: Working Together in a New World". It was hosted by Princeton University and the National Institute of Justice.
FCC Acts on Northpoint Application
4/23. The Federal Communications Commission (FCC) announced that it adopted a Memorandum Opinion and Order and Second Report and Order regarding the spectrum sharing technology developed by Northpoint Technologies. This technology is intended to provide a wireless alternative to cable, as well as high speed wireless Internet access.
The FCC did not release the order. Rather, it released only a press release, and statements by the four FCC Commissioners. See, joint statement by Michael Powell and Kathleen Abernathy, statement by Michael Copps, and statement by Kevin Martin. This is ET Docket No. 98-206, RM 9147, and RM 9245.
The FCC states that it adopted Multichannel Video Distribution and Data Service (MVDDS) service and technical rules that permit MVDDS operators to share the 12 GHz band with Direct Broadcast Satellite (DBS) and non- geostationary satellite orbit (NGSO) fixed-satellite service (FSS) operators. That is, the order provides for the sharing of spectrum by satellite and terrestrial users.
The FCC will not allocate this shared spectrum to Northpoint. Rather, Northpoint would have to acquire licenses, by geographic areas, in competitive auctions. However, the FCC states that dominant cable operators will be prevented from acquiring an attributable interest in an MVDDS license for a service area where significant overlap is present.
Northpoint had sought free spectrum, based on its many years of effort in developing the technology, and pursuing FCC action enabling its use. Powell and Abernathy wrote that "Northpoint arrived at the Commission many years ago with a proposal for a new and innovative way to share the DBS spectrum. Today, thanks in large part to its fine work and diligence, that service will go forward. ... There is little question that had it not been for Northpoint, the MVDDS service would not be ready to move forward today. Northpoint has put significant time and resources into developing its service model as well as its Commission and congressional advocacy over a long period of time. We applaud these efforts." But now, Northpoint stands in the same position as its competitors.
TLJ spoke with Sophia Collier, President of Northpoint. She stated that Northpoint has spent over $10 Million on obtaining patents, working with the FCC, and lobbying the Congress. She also stated that Northpoint may file a petition for review of the FCC's order with the U.S. Court of Appeals (DCCir) based on disparate treatment of satellite service providers (who have obtained spectrum outside of auction) and Northpoint (which will have to bid at auction). Northpoint is presented by the law firm of Kellogg Huber. See also, Northpoint release [PDF].
Northpoint has described its technology as follows: "Northpoint is a patented, digital, wireless, cell based, terrestrial transmission technology that reuses radio frequency spectrum previously reserved for satellite systems. Northpoint can reuse this spectrum by keeping the terrestrial signal below the level to cause interference to the satellite signal, but above the level required to provide reliable terrestrial service. This is accomplished through several means, one of which is directional transmission. The Northpoint system consists of directional broadcast antennas located on towers, poles, buildings or mountains. The transmissions are oriented in a limited azimuth range, based upon the look angles to the satellite systems with which the Northpoint system will share frequencies, allowing harmonious simultaneous co-channel transmissions between satellite and terrestrial services." See, Northpoint paper.
Commissioner Copps observed that "MVDDS has the potential to speed the deployment of broadband telecommunications services throughout the country, and especially to rural America. The MVDDS service includes the ability to offer broadband services, such as Internet access, via terrestrial wireless facilities."
Northpoint seeks to provide multichannel video programming services as a competitive alternative to cable. It also plans to offer high speed wireless Internet access via its small dish antennas. Collier stated that it plans to offer asymmetric transfer rates of 512 kbps upstream and 2 mbps downstream.
People and Appointments
4/23. The Senate voted 99-0 to confirm Jeffrey Howard to be a judge of the U.S. Court of Appeals (1stCir).
4/23. Terry Calvani was named a Commissioner of the Irish Competition Authority. He was a Commissioner on the U.S. Federal Trade Commission (FTC) from 1983 through 1990; he was its Acting Chairman from 1985 through 1986. He is currently a partner in the antitrust practice group of the law firm of Pillsbury Madison & Sutro. See, FTC release.
4/23. John Creighton joined the Seattle office of the law firm of Preston Gates & Ellis as of counsel in the firm's Emerging Business Practice Group. He previously worked for the law firm of White & Case. He focuses on representing public and private companies in capital markets transactions, private placements, mergers and acquisitions, venture capital financings, loan transactions, corporate formation, reporting and disclosure, and general corporate matters. See, PGE release.
More News
4/23. The U.S. Court of Appeals (FedCir) issued its opinion in Abbott Laboratories v. Dey, a patent infringement case involving the doctrine of equivalents. The Tokyo Tanabe Company, which is now known as Mitsubishi Tokyo Pharmaceuticals, and its exclusive U.S. licensee, Abbott Laboratories, filed a complaint in U.S. District Court (NDIll) against Dey alleging infringement of  for infringement of the U.S. Patent No. 4,397,839 and U.S. Patent No. 4,338,301. These patents relate to a lung surfactant composition for treating respiratory distress syndrome in premature babies. The District Court granted Dey summary judgment of non infringement of the 839 patent. The Appeals Court reversed on the grounds that the District Court improperly precluded plaintiffs from relying on the doctrine of equivalents to prove infringement. Vacated and remanded.
4/23. April 24 marks the reopening of ".us" domain. Nancy Victory, Director of the National Telecommunications and Information Administration (NTIA), which administers the domain, stated in a release that "By expanding access to serve more people, the reopening of the '.us' Internet domain set for April 24th will create new opportunities for growth in the U.S. economy and throughout our society."
4/23. The Federal Communications Commission (FCC) announced the extension of the deadline to submit comments in its proceeding titled "In the Matter of Rules and Policies Concerning Multiple Ownership of Radio Broadcast Stations in Local Markets Definition of Radio Markets". This is MM Docket Nos. 01-317 and 00-244. The old deadline was April 24. The new deadline is May 8. See, FCC release [PDF].
4/23. President Bush announced that the U.S. "will work to enact a free trade agreement with Morocco". See, transcript of press conference with King Mohammed VI of Morocco. Bush also used the occasion to advocate passage of the trade promotion authority bill, HR 3005, by the Senate. He stated: "To this end, it's very important that the United States Senate act on free trade, to give me the trade promotion authority, as well as to work on -- and the extension of the Andean Trade Preference Act. Trade is an important part of good foreign policy, it's an important part of making sure Americans can find jobs. And the Senate needs to act, and it needs to act now."
Gates Testifies Before U.S. District Court
4/22. Bill Gates, Chairman of the Board and Chief Software Architect of Microsoft, testified in person before the U.S. District Court (DC) in the remedies phase of the long running government antitrust litigation against Microsoft. He also submitted lengthy written testimony.
Gates wrote that "The non-settling States' proposed remedies (``NSPR´´) would imperil Microsoft's business and technology model, depriving the marketplace of the primary benefits that Windows provides and thereby greatly devaluing the product."
He continued that "I believe that Microsoft would be unable to develop a version of Windows that would comply with Section 1 of the NSPR", which pertains to the redesign of the Windows operating system. He further asserted that "Section 1 would ban Microsoft from continuing to offer Windows in the marketplace, unless the Court later agreed to modify the remedy."
He elaborated that "Even if it were feasible to build new operating systems that conform to Section 1 design specifications, and Microsoft embarked upon a massive development effort to do so, the resulting products would be far less valuable to users and developers because they would, by definition, not provide a stable, consistent platform for software development. In addition, Section 1's pricing provisions would create strong disincentives for Microsoft to continue to invest in improving its operating system. Faced with the prospect of building less valuable operating systems and reduced reward for doing do, I doubt that Microsoft could motivate talented software engineers to work on operating system development or that it would make sense for Microsoft to continue to invest in doing so."
Gates also stated that "the NSPR would undermine the Windows platform, to the detriment of all who benefit from it, in many different ways. In fact, the NSPR would hobble Microsoft as a competitor and innovator across many product categories because many of its provisions are broadly worded to apply to any Microsoft product, service, feature or technology."
He also asserted that "it would be extremely difficult, if not impossible in some cases, for Microsoft to comply with the NSPR. Many key aspects of the NSPR, particularly its definitions relating to ``middleware,´´ are vague and ambiguous, providing Microsoft with no clear statement of its obligations. Other aspects of the NSPR simply could not be feasibly implemented. Many provisions of the NSPR lead to extreme results, but Microsoft would not have the freedom to construe the NSPR in ways that we find less extreme."
Greenspan Discusses Economic Consequences of Info Tech and Conceptual Assets
4/22. Federal Reserve Board Chairman Alan Greenspan gave a speech via video conference to the Institute of International Finance, in New York City. He offered a tentative assessment of some of the economic consequences of the use of information technologies, and the shift from an economy based upon physical assets to one based upon information assets. Information technology may make the economy more resilient, and make cyclical episodes less severe. However, an economy based upon "conceptual assets" encounters new vulnerabilities, said Greenspan.
He first stated that "because of increased access to real time information and, more arguably, extensive deregulation and innovation in financial and product markets, economic imbalances are more likely to be readily contained. As a consequence, cyclical episodes overall should be less severe than they otherwise would be."
He continued that "If this is indeed the situation -- and it must be considered speculative until more evidence is gathered -- the implied reduction in economic volatility, other things being equal, would lower risk and equity premiums."
However, he also cautioned that "The very technologies that appear to be the main cause of our apparent increased flexibility and resilience may also be imparting different forms of vulnerability that could intensify or be intensified by a business cycle."
Greenspan reasoned that "the ever increasing proportion of our GDP that represents conceptual, as distinct from physical, value added may actually have lessened cyclical volatility. In particular, the fact that concepts cannot be held as inventories means a greater share of GDP is not subject to a type of dynamic that amplifies cyclical swings."
"But an economy in which concepts form an important share of valuation has its own vulnerabilities. As the recent events surrounding Enron have highlighted, a firm is inherently fragile if its value added emanates more from conceptual than from physical assets. A physical asset, whether an office building or an automotive assembly plant, has the capability of producing goods even if the reputation of its managers falls under a cloud."
FCC Releases UWB Report and Order
4/22. The Federal Communications Commission (FCC) released its First Report and Order regarding Ultra Wideband Transmission Systems [118 pages, 677 KB in MS Word]. This order amends FCC rules to permit the marketing and operation of certain types of new products incorporating ultra wideband (UWB ) technology, including high speed home and business networking devices.
UWB devices, which use very narrow pulses with very wide bandwidths, have potential applications in both radar and communications technologies. It has been suggested that UWB devices can use large portions of already allocated spectrum with minimal or no interference to incumbent users. However, the extent of interference has been the subject of some controversy.
The order concludes that "UWB technology offers significant benefits for Government, public safety, businesses and consumers. However, we recognize that these substantial benefits could be outweighed if UWB devices were to cause interference to licensed services and other important radio operations. Our analysis of the record and the various technical studies submitted indicate that UWB devices can be permitted to operate on an unlicensed basis without causing harmful interference provided appropriate technical standards and operational restrictions are applied to their use."
The order establishes technical standards and operating restrictions for three types of UWB devices: imaging systems including Ground Penetrating Radars (GPRs) and wall, through wall, surveillance, and medical imaging devices; vehicular radar systems; and communications and measurement systems.
FCC Commissioner Kevin Martin commented in a separate statement that "Sharing decisions are made particularly difficult in the context of the ``fiefdom´´ mentality that seems to characterize players who fervently guard their spectrum ``turf,´´ regardless of whether additional use can be accommodated." He added that UWB "challenges the notion that use of particular frequencies or bands is necessarily mutually exclusive. In defiance of our traditional allocation paradigm that often forces us to pick ``winners and losers´´ in the face of competing demands, this technology seems to allow more winners all around."
Martin added, however, that he is disappointed that the FCC did not "adopt more flexible limits that may have allowed for even more widespread use of this technology. I look forward to re-examining the technical parameters established in this order once we have more data that will address the interference concerns expressed by NTIA."
FTC Files Complaint Under COPPA
4/22. The Federal Trade Commission (FTC) announced that it filed a complaint in U.S. District Court (NDOhio) against Ohio Art Company (OAC), alleging violation of the Children's Online Privacy Protection Act (COPPA), 15 U.S.C. §§ 6501-6506. OAC produces the Etch A Sketch drawing toy. The complaint alleges that OAC collected personally identifying information from children through its web site without first obtaining parental consent, as required by COPPA. The FTC also announced that it entered into a Consent Decree with OAC. The decree enjoins further violation of the COPPA, requires payment of a $35,000 civil penalty, and requires the OAC to use its web site to advertise the FTC's children's privacy web site. See also, FTC release.
People and Appointments
4/22. Marc Brown, Mark Wine, Charles Rosenberg and Cynthia Lock joined the Los Angeles office of the law firm of McDermott Will & Emery as partners in the intellectual property practice. Brown was previously a partner in the Los Angeles office of the law firm of Oppenheimer Wolff & Donnelly. He counsels and represents clients in the procurement, evaluation and enforcement of high tech patents, software copyrights, software development and internet agreements, and trade secret disputes. Wine focuses on patent litigation and matters involving trademarks, trade dress, proprietary rights and trade secrets. Lock focuses on patent, trademark, trade dress and copyright infringement, right of publicity, false advertising, dilution, antitrust and unfair competition. Rosenberg litigates complex commercial and intellectual property cases, especially high tech patent cases. See, release.
More News
4/22. Williams Communications Group, Inc. filed a Chapter 11 petition for bankruptcy in U.S. Bankruptcy Court (SDNY). See, Williams release.
4/22. Qwest announced the release of a draft report conducted by KPMG regarding its operations support systems (OSS) in all of the states within its territory, except Arizona. Qwest anticipates filing Section 271 applications to provide in region interLATA services. Qwest stated that "The release of the final report in late May will allow Qwest to begin filing applications with the Federal Communications Commission (FCC) for approval to sell long distance services in 13 states. Qwest expects to receive approval within 90 days of filing each application with the FCC." See, Qwest release. Meanwhile, AT&T responded that "the draft report on the testing of Qwest's operational support systems is incomplete". See, AT&T release.
4/22. The Federal Election Commission (FEC) assessed a $1,800 civil penalty on the Friends of John Conyers committee for not filing an FEC form in 2000. Rep. John Conyers (D-MI) is the ranking Democrat on the House Judiciary Committee. The FEC also announced 50 other fines. See, FEC release.
4/22. The International Intellectual Property Alliance (IIPA) announced that it has released a report titled "Copyright Industries in the U.S. Economy: The 2002 Report". The IIPA published a press release, but not the report, in the IIPA web site. The report was written by Stephen Siwek of Economists Incorporated.
4/22. The Securities and Exchange Commission (SEC) instituted and simultaneously settled an administrative proceeding against Teltran International Group, a company that provided Internet telephony, 1-900 services and traditional carrier services. See, SEC order.

Go to News Briefs from April 16-20, 2002.