News from May 1-5, 2002
District Court Dismisses Antitrust Complaint in Covad v. Verizon
5/3. The U.S. District Court (DC) issued its opinion and order [PDF] in Covad v. Bell Atlantic dismissing Covad's antitrust complaint against Bell Atlantic, which is now known as Verizon. The Court followed the precedent of Goldwasser v. Ameritech.
Covad filed a complaint against Bell Atlantic and subsidiary companies on April 28, 1999, alleging that they unlawfully maintained monopoly power in various telecommunications markets, including the DSL market, and engaged in anticompetitive and exclusionary conduct in violation of Sections 1 and 2 of the Sherman Antitrust Act, 15 U.S.C. § 1 and § 2, Sections 4 and 16 of the Clayton Antitrust Act, 15 U.S.C. § 15 and § 26, the antitrust laws of the District of Columbia, and the common law.
Covad alleged that Bell Atlantic refused to collocate or provide physical space and facilities for the placement of Covad's equipment within Bell Atlantic's central offices, denied access to local loops, refused to maintain adequate operations support systems (OSS), and denied access to the transport facilities that connect Covad's central office equipment with other points in Covad's network.
The Court concluded that "the Complaint reveals that virtually all allegations of exclusionary conduct, with the exception of the retaliatory patent law suit, relate to Bell Atlantic's failure to comply with the myriad duties contained in sections 251 and 252 of the 1996 Act."
The Court held that "Covad's allegations, which essentially relate to Bell Atlantic's failure to comply with 1996 Act duties, fall squarely outside the parameters of antitrust law. As recognized by the Seventh Circuit in Goldwasser v. Ameritech, 222 F.3d 390 (7th Cir. 2000), the 1996 Act contains duties and obligations of affirmative assistance that ``go well beyond anything the antitrust laws would mandate on their own.´´"
The Court continued that "the duties of affirmative assistance set forth in the 1996 Act exist outside the parameters of pre-existing antitrust law. Bell Atlantic's alleged failure to comply with those duties, which is the lion's share of Plaintiffs' Complaint, does not constitute ``exclusionary´´ conduct as a matter of law, which is the sine qua non of any antitrust violation."
DC Circuit Remands FCC Reciprocal Compensation Order
5/3. The U.S. Court of Appeals (DC) issued its opinion in WorldCom v. FCC, remanding (but not vacating) the Federal Communications Commission's (FCC) order on remand regarding it bill and keep system for ISP bound calls.
47 U.S.C. § 251 provides that local phone companies compensate each other for handling each other's local calls. One telephone company pays another telephone company for each local call the second company completes to one of its customers. If one customer whose local phone company is the ILEC makes a local phone call to another person whose local phone company is a competitive local exchange carrier (CLEC), the CLEC is entitled to compensation from the ILEC for completing the call. The same is the case if the call originates with the CLEC and completes with the ILEC. Hence, it is "reciprocal compensation."
Section 251(b)(5) provides as follows: "Obligations of all local exchange carriers[.] Each local exchange carrier has the following duties: ... (5) Reciprocal compensation[.] The duty to establish reciprocal compensation arrangements for the transport and termination of telecommunications."
The problem, the ILECs have argued, is that there is no reciprocity with calls made for the purpose of connecting to the Internet. Customers who use dial up modems to access the Internet via ISPs whose phone company is not the ILEC, place calls to the Internet, but there are not calls back from the Internet. Hence, the compensation flows one way; it is not reciprocal. ILECs have argued that some CLECs are abusing the system by concentrating on serving ISPs, but not residential customers, and making the money off of reciprocal compensation payments.
In 1999, the FCC issued an order stating that ISP bound calls are not local calls and therefore are not subject to reciprocal compensation under its rules implementing § 251(b)(5). The FCC applied an "end to end" analysis, stressing that ISP bound traffic ultimately reaches web sites that are typically located out of state. However, the Court of Appeals vacated that order, holding that the FCC failed to explain why the end to end analysis, which is traditionally employed in determining whether a call was jurisdictionally interstate or not, was relevant to deciding whether ISP calls fitted the local call or the long distance call model.
The FCC then issued an order on remand (which is at issue in this case) in which it again concluded that the compensation in delivering Internet bound traffic to an ISP should not be governed by the reciprocal compensation provision of § 251(b)(5). In this order on remand the FCC adopted a bill and keep system, under which each carrier recovers its costs from its own end users. The order on remand provides for a phase out of the old system as existing interconnection agreements expire. The FCC relied upon § 251(g).
Section 251(g) provides as follows: "Continued enforcement of exchange access and interconnection requirements[.] On and after February 8, 1996, each local exchange carrier, to the extent that it provides wireline services, shall provide exchange access, information access, and exchange services for such access to interexchange carriers and information service providers in accordance with the same equal access and nondiscriminatory interconnection restrictions and obligations (including receipt of compensation) that apply to such carrier on the date immediately preceding February 8, 1996, under any court order, consent decree, or regulation, order, or policy of the Commission, until such restrictions and obligations are explicitly superseded by regulations prescribed by the Commission after February 8, 1996. During the period beginning on February 8, 1996, and until such restrictions and obligations are so superseded, such restrictions and obligations shall be enforceable in the same manner as regulations of the Commission." (Parentheses in original.)
In the present case, the Appeals Court noted that "Because ISPs typically generate large volumes of one-way traffic in their direction, the old system attracted LECs that entered the business simply to serve ISPs, making enough money from reciprocal compensation to pay their ISP customers for the privilege of completing the calls."
However, the Court concluded that § 251(g) "does not provide a basis for the Commission's action". The Court held that "Because that section is worded simply as a transitional device, preserving various LEC duties that antedated the 1996 Act until such time as the Commission should adopt new rules pursuant to the Act, we find the Commission's reliance on § 251(g) precluded. Thus we remand the case. Because there may well be other legal bases for adopting the rules chosen by the Commission for compensation between the originating and the terminating LECs in calls to ISPs, we neither vacate the order nor address petitioners' attacks on various interim provisions devised by the Commission."
In addition, the Court further limited the scope of its ruling. It also wrote that "we do not decide whether handling calls to ISPs constitutes ``telephone exchange service´´ or ``exchange access´´ ... or neither, or whether those terms cover the universe to which such calls might belong. Nor do we decide the scope of the ``telecommunications´´ covered by § 251(b)(5). Nor do we decide whether the Commission may adopt bill-and-keep for ISP-bound calls pursuant to § 251(b)(5) ... Indeed these are only samples of the issues we do not decide, which are in fact all issues other than whether § 251(g) provided the authority claimed by the Commission for not applying § 251(b)(5). Moreover, we do not decide petitioners' claims that the interim pricing limits imposed by the Commission are inadequately reasoned. Because we can't yet know the legal basis for the Commission's ultimate rules, or even what those rules may prove to be, we have no meaningful context in which to assess these explicitly transitional measures."
Greenspan Addresses Tech Sector Stock Options
5/3. Federal Reserve Board (FRB) Chairman Alan Greenspan gave a speech electronically at the 2002 Financial Markets Conference of the Federal Reserve Bank of Atlanta, at Sea Island, Georgia, titled "Stock Options and Related Matters".
He stated that "the very complexity and dynamism of our system requires that we constantly evaluate the tools employed for measuring corporate performance to ensure that they adapt appropriately to the evolving financial and economic environment. In that regard, the increasing use of stock option grants to employees has raised new challenges for our accounting system."
He noted that "Such options are important to the venture capital industry, and many in high tech industries have counselled against making any changes to current practices. They argue that the use of options is an exceptionally valuable compensation mechanism; that recognizing an expense associated with these grants would reduce the use of options, harming high tech companies; that the effect of options on fully diluted earnings per share is already recognized; and that we cannot measure the costs of options with sufficient accuracy to justify their recognition on financial statements." He added that "These are important concerns."
Greenspan elaborated that "some view the current treatment of option grants as having been a major aid in raising capital to finance the rapid exploitation of advanced technologies. While the vital contribution of new technology to the growth of our economy is evident to all, not all new ideas create value on net. Not all new ideas should be financed. In recent years, substantial capital arguably was wasted on a number of enterprises whose prospects appeared more promising than they turned out to be. This waste is an inevitable byproduct of the risk taking that generates the growth in our economy. However, the amount of waste becomes unnecessarily large when the earnings reports that help investors allocate investment are inaccurate."
"Stock option grants, properly constructed, can be highly effective in aligning the interests of corporate officers with those of shareholders. Such an alignment is an essential condition for maximizing the long-term market value of the firm", said Greenspan.
"Regrettably, some current issuance practices have not created the alignment of incentives that encourages desired corporate behavior. One problem is that stock options, as currently structured, often provide only a loose link between compensation and successful management. A company's share price, and hence the value of related options, is heavily influenced by economy wide forces -- that is, by changes in interest rates, inflation, and myriad other forces wholly unrelated to the success or failure of a particular corporate strategy."
Hence, Greenspan recommended that "Stock or options policy should require that rewards reflect the success or failure of managements' decisions. Grants of stock or options in lieu of cash could be used more effectively by tying such grants through time to some measure of the firm's performance relative to a carefully chosen benchmark."
He also discussed stock option accounting.
Nobel Economists Comment on Broadband Regulation
5/3. Numerous comments have been submitted to the Federal Communications Commission (FCC) recently that pertain to its regulatory treatment of broadband services. Perhaps it is noteworthy that among the many comments is one from veteran Nobel prize winning economists Kenneth Arrow and Gary Becker.
Arrow, Becker, and others submitted a comment [PDF] in which they argue that the FCC "should not regulate broadband Internet access at this time. In the current market, there is no justification for substituting government regulatory criteria for the competitive process of the marketplace in arriving at optimal technologies, access arrangements, and business models. The results of such regulation can only suppress investment into new technologies and services that would otherwise increase consumer choice and enhance the development of advanced communications networks."
They reason that "Whatever the virtue of common carrier and unbundling regulations as applied to legacy networks -- be they telephone or cable -- applying such regulations to the new facilities necessary for the provision of broadband Internet access service would likely have a significant and distorting impact on the willingness of existing providers to make the risky new investments needed to provide broadband services efficiently. While, in certain circumstances, common carrier and unbundling requirements may help open a monopoly market to competition, imposing such rules at the beginning of a product cycle is likely to prove harmful to entrepreneurs and consumers alike. This is particularly the case when all indications are that robust competition among a number of facilities based alternatives will otherwise prevail."
They also argue that "There are significant costs in imposing common carrier and/or unbundling obligations on any providers of broadband Internet access services. It is typically not possible to have cost based rates and, at the same time, encourage efficient investment when there is substantial technological change and uncertainty associated with the success of such investments. Particularly, at this point in the evolution of broadband Internet access technologies, proper public policy should aim to encourage, rather than discourage, investment."
In addition, they stated that "In the light of the emerging competition among different technologies, broadband Internet access providers already have adequate incentives to negotiate access arrangements with unaffiliated ISPs that bring additional value to consumers through new content, features, and functions."
Kenneth Arrow is an emeritus professor of economics at Stanford University. His Nobel prize winning career is built upon his "Arrow's Theorem". See, Social Choice and Individual Values, first published in 1951. Gary Becker is a Nobel prize winning economist at the University of Chicago and the Hoover Institution.
They filed their comment in three pending FCC proceedings: In the Matter of Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers (CC Docket No. 01-339), In the Matter of Review of Regulatory Requirements for Incumbent LEC Broadband Telecommunications Services (CC Docket No. 01-337), and In the Matter of Appropriate Framework for Broadband Access to the Internet Over Wireline Facilities (CC Docket No. 02-33).
USPTO Director Wants to Give Customers More Choices
5/3. U.S. Patent and Trademark Office (USPTO) Director James Rogan gave a speech at the Licensing Executives Society Spring Meeting. He stated that the two challenges facing the USPTO are reducing pendency and improving patent quality. He said that to meet these challenges, the USPTO will have to change its paradigm, and give patent applicants more choices.
"We cannot sacrifice quality for the sake of pendency," said Rogan, adding that "we can give you two week pendancy -- you may not want to defend that patent in court." He said that reducing pendency and improving quality "is a dream unless we change the paradigm under which we operate".
"Today, we expect this year to get about 375,000 new applications ... Those applications will get in line behind 350,000 pending applications, in the backlog. Our average pendency today is about two years. ... Pendency in some areas of the technical arts, like in engineering can be three and four years." He added that "In a 21st Century information based technology driven economy we cannot operate under that paradigm and expect to be competitive and perform the service for our customers that they expect."
Rogan then reviewed the different types of customers that the USPTO has, and what their different interests are. For example, he said that there are people "you work with that never have any intention of really moving something ... maybe they want a registration for now just to see what happens". Although, he offered a caution about submarine patents. Next, he said that there are also applicants who have already gone through a European Patent Office search. There are some who have already done an extensive in house search. And, there are some who like the old fashioned process.
"What I am suggesting is that right now it is a one size fits all model. That is not good for business. And, I don't think it is for governance. I want to see if there is a way that we can ... give our customers the opportunity to decide what it is that they need from us when they need it." He added that there is a working group at the USPTO that is studying this, and taking comments from USPTO customers.
He wrapped up with the following statement. "This train is coming down the track. We are dead serious. I have no idea whether we are going to be able to sell it the administration, or we are going to be able to sell it to Congress, or we are going to be able to sell it to the user community. But, we are sure going to try."
People and Appointments
5/3. President Bush introduced Alberto Gonzalez, his White House counsel, during a speech on appointments to the federal judiciary. The White House transcript contains the following: "He's served on the U.S. -- or the Texas Supreme Court." Gonzalez was a Justice of the Supreme Court of Texas from 1999 to 2000. Some speculate that he is on the President's short list of potential nominees to the Supreme Court of the U.S.
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5/3. Bruce Mehlman, Assistant Secretary of Commerce for Technology Policy, gave a speech titled "The Changing Wealth of Nations: Intellectual Property in the Age of Innovation" at the Licensing Executives Society Spring Meeting in Washington DC. He stated that "our intellectual property regime and education system will determine our success in the 21st Century".
5/3. The Department of Justice published in the Federal Register public comments received on the Revised Proposed Final Judgment in United States v. Microsoft. See, entry page, with hyperlinks.
5/3. The U.S. Patent and Trademark Office (USPTO) announced that on May 6 it begins hosting intellectual property officials from nine countries for two weeks of seminars. The officials are from Korea, Vietnam, Egypt, Mexico, Bulgaria, Croatia, Macedonia, Romania, and Serbia Montenegro. See, USPTO release.
5/3. The Securities and Exchange Commission (SEC) filed a civil complaint in U.S. District Court (DNJ) against U.S. Funding Corporation and others alleging violation of U.S. securities laws. The SEC alleges that defendants fraudulently solicited investors using bulk e-mail that promised investors a rate of return of 45% over two years, fully secured. See also, SEC release.
5/3. President Bush gave a speech in Washington regarding judicial appointments. He stated that "there is a vacancy crisis on our federal courts. Both the President and the United States Senate have constitutional responsibilities to address vacancies on the federal bench. I have nominated 100 outstanding jurists for these posts. But the Senate thus far has not done its part to ensure that our federal courts operate at full strength. Justice is at risk in America, and the Senate must act for the good of the country." The Bush administration also released a memorandum titled "Fact Sheet: President Bush Calls on the Senate to Address the Vacancy Crisis in the Federal Courts".
House Commerce Committee Approves Bill to Delay Spectrum Auction
5/2. The House Commerce Committee approved HR 4560, the Auction Reform Act of 2002, without amendment, by a voice vote. This bill would eliminate the deadlines for spectrum auctions of spectrum in the 700 megahertz band previously allocated to television broadcasting. These are auctions 31 and 44 scheduled for June 19, 2002.
Secretary of Commerce Donald Evans wrote a letter to Rep. Billy Tauzin (R-LA), the Chairman of the House Commerce Committee, on May 2 to again express his support for the bill. He wrote that "I am writing to support legislation being considered by the House Energy and Commerce Committee that would postpone the Federal Communications Commission's auctions of spectrum in the 700 MHz band. The Administration believes that, until more certainty exists about the means for and timing of clearing this spectrum, an auction of the Upper and Lower 700 MHz bands would be premature and contrary to the public interest."
He added that "in late February, the Administration transmitted to Congress proposed legislation that would, among other things, postpone the statutory deadlines for the auctions of spectrum currently assigned to television channels 60-69 (747-762 MHz and 777-792 MHz) and 52-59 (698-746 MHz). As recognized in that proposal, a shift of the auction deadlines is needed to provide the time necessary to resolve existing uncertainties about when and how this spectrum will be cleared and ready for the deployment of new services."
Rep. John Dingell (D-MI), the ranking Democrat on the Committee, said in his prepared statement that "Back in 1997, and again in 2000, over this Committee's objections, the Budget Committees commandeered the management of the Nation's airwaves. They set auction deadlines that were asinine, constituting a gross mismanagement of spectrum. Today we take back the reins and restore rationality to the process. Without question, moving forward with these auctions in June would impose a heavy price on the American public. Until the FCC develops a cohesive spectrum management plan -- taking into account the uncertainties of the digital television transition and the creation of a workable band plan for third generation ("3G") wireless services -- we have very little idea what these frequencies are worth or for what they would be used. More importantly, neither do the potential bidders. The likely result would be another auction debacle."
The Cellular Telecommunications & Internet Association (CTIA) praised the vote. See, release.
Online Games and Gambling Legislation
5/2. Rep. Carolyn Kilpatrick (D-MI) introduced HR 4652, titled the "Consumer Protection for On-Line Games Act". It would provide a minimal federal regulatory scheme for games of chance and games of skill provided over communications networks.
The bill would provide that the Federal Trade Commission (FTC) "shall prescribe rules in accordance with this section to prohibit unfair and deceptive acts and practices in the labeling and advertising of games of chance and games of skill offered by means of the communications networks by network game operators".
The bill further provides that FTC rules shall "prohibit network game operators from making false, nonsubstantiated, nonverifiable, or misleading claims regarding (A) the fairness of any specific such game of chance or game of skill, or combination thereof played by the consumer; (B) whether the game offered is a game of skill or a game of chance, or a combination thereof; and (C) if the game offered is a game of chance, or a combination of skill and chance, whether all participants (including the game operator) are accorded equal or unequal chance".
The FTC has only civil enforcement authority.
The bill also provides for "a self- regulatory organization" of online game operators that would "enforce compliance by its members". Such organization would be able discipline its members by "expulsion" or by "revocation of the authority to display or advertise any seal or insignia".
The defines "network game operator" as "a public or private business enterprise that engages in the business of providing game playing services (as opposed to the sale or download of a game as a publisher or distributor), either for a fee or for free, using a communication path between the player and the game operator that is part of a communications network."
The bill defines "communications network" as "a public or private communication system that is used for the exchange of information or participation in transactions (or both) and includes systems such as the telephone system, cable systems, satellite systems, wireless systems, or the Internet."
The bill has no original cosponsors. It was referred to the House Commerce Committee, of which Rep. Kilpatrick is not a member.
On Wednesday, May 8, the House Judiciary Committee is scheduled to mark up HR 3215, the "Combatting Illegal Gambling Reform and Modernization Act". This bill, which is sponsored by Rep. Bob Goodlatte (R-VA), and 155 other members of the House, would limit Internet gambling.
The Goodlatte bill would amend 18 U.S.C. § 1081 and § 1084, which contain the definitions and prohibition, respectively, of the Wire Act. The Wire Act currently criminalizes the use of "wire communications facilities" in interstate commerce for gambling. The Wire Act does not ban gambling. This is a matter of state law. HR 3215 expands the prohibition to cover all communications between states or with other foreign countries. It maintains the principle that gambling is otherwise a matter of state law. Hence, under HR 3215, use of the Internet for gambling purposes would become illegal (if interstate or foreign).
HR 3215 also criminalizes "the transmission of a communication in interstate or foreign commerce ... which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers". Also, like HR 556, the Unlawful Internet Gambling Funding Prohibition Act, sponsored by Rep. James Leach (R-IA), HR 3215 would prohibit the use of credit, electronic funds transfers, and checks in connection with illegal gambling.
Senators Introduce Spectrum Auction Delay Bill
5/2. Sen. John Ensign (R-NV) and Sen. John Kerry (D-MA) introduced the Spectrum Auction Reform Act of 2002. This is the Senate companion bill to HR 4560, which passed the House Commerce Committee on May 2. Both Ensign and Kerry are members of the Senate Commerce Committee.
Sen. Ensign stated in a release that "This bill will delay the ill timed, premature auction of spectrum that is already occupied and not ready for commercial use". Sen. Kerry stated that "To proceed with the auction at this time would be a terrible example of budget politics taking precedence over sound spectrum management".
House Subcommittee Approves Bill Affecting Reports on Wiretap Orders and Requests 5/2. The House Judiciary Committee's Subcommittee on Courts, the Internet and Internet and Intellectual Property approved HR 4125, the Federal Courts Improvement Act of 2002. Section 104 of the bill would affect the timing of judges' reports regarding the expiration or wiretap orders, or denial of requests for wiretap orders. The Subcommittee approved one amendment that did not pertain to wiretaps.
18 U.S.C. § 2519 pertains to reports concerning intercepted wire, oral, or electronic communications. Currently, this section begins, "(1) Within thirty days after the expiration of an order (or each extension thereof) entered under section 2518, or the denial of an order approving  an interception, the issuing or denying judge shall report to the Administrative Office of the United States Courts--". The statute then lists the information that must be reported.
HR 4125 would change this language to read as follows: "(1) In January of each year, any judge who has issued an order (or extension thereof) under section 2518 which expired during the preceding year or who has denied approval of an interception during that year, shall report to the Administrative Office of the United States Courts--". HR 4125 would not affect the information that must be reported.
Senate Judiciary Committee Postpones Vote on Bills
5/2. The Senate Judiciary Committee held an executive business meeting. The agenda 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. All three were held over -- again.
Senate Judiciary Committee Approves Nominees
5/2. The Senate Judiciary Committee held an executive business meeting to consider several judicial nominees. The Committee approved the nominations of Julia Gibbons (to be a judge of the U.S. Court of Appeals for the Sixth Circuit), Leonard Davis (U.S. District Court, Eastern District of Texas),  Andrew Hanen (USDC, SDTexas), Samuel Mays (USDC, WDTenn), and Thomas Rose (USDC, SDOhio). These nominees still require confirmation by the full Senate. In addition, the nomination of David Godbey (USDC, NDTexas), which was on the agenda, was held over.
Jury Returns Verdict for Adobe in Patent Suit Against Macromedia
5/2. A jury of the U.S. District Court (DDel) returned a verdict in Adobe v. Macromedia in favor of Adobe Systems. In August 2000, Adobe filed a complaint against Macromedia in federal court in Delaware alleging infringement of its U.S. Patent No. 5,546,528, titled "Method of displaying multiple sets of information in the same area of a computer screen". The jury found willful infringement, and awarded damages of $2,822,280.
Bryan Lamkin, SVP of Adobe's graphics business unit, stated in a release that "We are very pleased with the verdict, ... We've maintained all along that Macromedia infringes this patent. While we would have preferred to settle this issue out of court, we are satisfied that the validity of this key innovation has been upheld."
Macromedia stated in a release that it "filed counterclaims of patent infringement in response to Adobe's lawsuit in the U.S. District Court of Delaware in September 2000. Macromedia will be presenting its case as it relates to its patents beginning on Monday, May 6, 2002. In October 2001, Macromedia brought a patent infringement suit against Adobe in the Northern District of California relating to additional patents that Macromedia believes that Adobe infringes."
On October 19, 2001, Macromedia filed a complaint in U.S. District Court (NDCal) against Adobe alleging infringement of its U.S. Patent No. 5,845,299, titled "Draw based editor for web pages" and its U.S. Patent No. 5,911,145, titled "Hierarchical structure editor for web sites".
Sen. Hollings Introduces Broadband Loans and Grants Bill
5/2. Sen. Ernest Hollings (D-SC) and others introduced S 2448, the Broadband Telecommunications Deployment Act of 2002, a bill pertaining to the taxation of communications services, and the funding of loan and grant programs intended to promote the deployment of broadband services in rural and under served areas.
The bill would provide that one half of the taxes collected pursuant to the excise tax on phones, codified at 26 U.S.C. § 4251, would go into a trust fund to support various loan and grant programs created by the bill. The bill would create an entity named the Broadband Deployment and Demand Trust Fund, to be located at the Treasury Department. However, the Commerce Department would write implementing regulations, and administer the programs created by the bill.
Sen. Hollings stated that this bill "represents a step towards fostering the deployment and adoption of broadband services. It uses monies from the telephone excise tax to fund a number of loan and grant programs. It stimulates broadband deployment in rural and underserved areas by providing low interest loans to upgrade facilities including remote terminals and fiber between a remote terminal and central office. It authorizes NIST to study how we can facilitate broadband deployment in rural and under served areas. It promotes competition by establishing pilot projects for wireless and other non-wireline broadband technologies in rural and underserved areas."
Sen. Hollings continued that "The bill begins to help us understand what is necessary to accomplish broadband with speeds of 50 to 100 megabits per second by providing grants to NTIA's Lab, NIST Labs, National Science Board and to universities for research. In order to address the demand issue, we provide grants to digitize library and museum collections as well as grants to Universities to conduct technical research to develop Internet applications useful to consumers. The bill also provides grants to connect under represented colleges and communities to the Internet." See, Cong. Rec., May 2, 2002, at page S3872.
The bill's original cosponsors are Sen. Hilary Clinton (D-NY), Sen. Ted Stevens (R-AK), Sen. Daniel Inouye (D-HI), Sen. Jay Rockefeller (D-WV), and Sen. Byron Dorgan (D-ND). It has been referred to the Senate Commerce Committee, of which Sen. Hollings is the Chairman.
FRB Governor Addresses the Role of Technology in Financial Literacy
5/2. Federal Reserve Board (FRB) Governor Edward Gramlich gave a speech titled "Financial Literacy" at the Financial Literacy Teacher Training Workshop, at the University of Illinois at Chicago. He addressed the use of computer and Internet technology to promote financial literacy.
He stated that "The rapid development of electronic delivery systems has resulted in sophisticated interactive programs, which allow users to construct budgets and enter their personal data. The Federal Reserve Banks of Dallas and Chicago have used such technology to develop interactive web-based programs on financial literacy and money management."
He added that "With the proliferation of home computers, the use of technology will continue to offer options for consumers to increase their knowledge of financial services and products. The flip side of this opportunity is the challenge of reaching those who lack the technological access or capability to participate in these efforts. We need alternative methods of disseminating information to those living on the other side of the digital divide."
Representatives Introduce Bill to Ban False Information in Domain Name Registration
5/2. Rep. Howard Coble (R-NC) and Rep. Howard Berman (D-CA) introduced HR 4640, an untitled bill to criminalize providing false information in registering a domain name. The bill was referred to the House Judiciary Committee. Reps. Coble and Berman are the Chairman and ranking Democrat on the Subcommittee on Courts, the Internet and Intellectual Property.
The bill would add a new section to the criminal code that provides that "Whoever knowingly and with intent to defraud provides material and misleading false contact information to a domain name registrar, domain name registry, or other domain name registration authority in registering a domain name shall be fined under this title or imprisoned not more than 5 years, or both."
Reps. Conyers and Cannon Introduce Copyright and Antitrust Bill
5/2. Rep. John Conyers (D-MI) and Rep. Chris Cannon (R-UT) introduced HR 4643, an untitled bill that would affect the application of antitrust law to freelance writers and artists, expand the application of criminal copyright infringement to unpublished works, and revise the provisions of the Copyright Act regarding the affect of registration on remedies for infringement.
First, the bill would provide for the special application of the antitrust laws to certain negotiations of freelance writers and freelance artists for the sale of their written and graphic material to publishers. Specifically, the bill states that "The antitrust laws shall apply to freelance writers or freelance artists for purposes of negotiating the terms and conditions of contracts for the sale of written material or graphic material created by them to publishers, in the same manner as such laws apply to collective bargaining by employees who are members of a bargaining unit recognized under the National Labor Relations Act (29 U.S.C. 151 et seq.) to engage in collective bargaining with an employer."
Second, the bill would also rewrite 17 U.S.C. § 412, regarding registration as a prerequisite to certain remedies for copyright infringement.
Third, the bill would expand the criminal copyright infringement provisions contained in 17 U.S.C. § 506(a)(2) and 18 U.S.C. § 2319(c)(3) to include "unpublished works".
The bill was referred to the House Judiciary Committee, of which both Reps. Conyers and Cannon are members. Rep. Conyers is the ranking Democrat.
More New Bills
5/2. Rep. Ed Markey (D-MA) introduced HR 4641. The Congressional Record describes this as a bill "to allocate spectrum for the enhancement of wireless telecommunications, and to invest wireless spectrum auction proceeds for the military preparedness and educational preparedness of the United States for the digital era, and for other purposes". It was referred to the House Commerce Committee.
5/2. Rep. Mike Pence (R-IN), Rep. Sheila Lee (D-TX), and Rep. Rob Simmons (R-CT) introduced HR 4658, a bill to amend the criminal code to ban the use of false or misleading domain names to attract children to web sites that are not appropriate for children. The bill was referred to the House Judiciary Committee.
People and Appointments
5/2. Rep. James Barcia (D-MI) announced that he will not run for re-election to the House of Representatives. He is the ranking Democrat on the House Science Committee's Subcommittee on the Environment, Technology, and Standards, which has jurisdiction over technology programs at the Department of Commerce, including the National Institute of Standards and Technology (NIST). Redistricting has placed him in the same district as another Democratic incumbent. The next in line for ranking Democrat on this subcommittee would be Rep. Lynn Rivers (D-MI), who is in a tough re-election battle against Rep. John Dingell (D-MI). The Republican Michigan state legislature placed them in one district also. The next in line to be the top Democrat on the Technology Subcommittee would be Rep. Zoe Lofgren (D-CA) from Silicon Valley, who has a safe seat.
5/2. California Governor Gray Davis announced his appointment of Fresno County Superior Court Judge Gene Gomes as an Associate Justice of the Court of Appeal, Fifth Appellate District (Fresno).
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5/2. The Federal Communications Commission (FCC) published a notice in the Federal Register which summarizes the FCC's Order on Remand regarding implementation of the Communications Assistance for Law Enforcement Act (CALEA), 47 U.S.C. § 1001, et seq. The FCC adopted its Third Report and Order on September 24, 1999 requiring that wireline, cellular, and broadband PCS carriers implement all electronic surveillance capabilities of the J-STD-025, or J-Standard, and six additional capabilities requested by the FBI known as the punch list. This Third Report and Order was challenged. On August 15, 2001, the U.S. Court of Appeals (DCCir) issued its opinion in USTA v. FCC, 227 F. 3d 450, remanding four items to the FCC. This Federal Register notice summarizes the Order on Remand. The FCC adopted this order on April 5, 2002, and released it on April 11, 2002. This is CC Docket No. 97-213. See, Federal Register, May 2, 2002, Vol. 67, No. 85, Page 21999 - 22008.
5/2. The House Government Reform Committee's Subcommittee on Government Efficiency, Financial Management, and Intergovernmental Relations held a hearing on HR 3844, the Federal Information Security Reform Act of 2002. General Accounting Office (GAO) provided testimony [PDF] titled "Information Security: Additional Actions Needed to Fully Implement Reform Legislation". See, also, prepared testimony of Benjamin Wu, Deputy Under Secretary for Technology at the Department of Commerce.
5/2. The National Research Council announced that it has published for sale a book titled "Youth, Pormography and the Internet".
5/2. President Bush addressed the Foreign Sales Corporation (FSC) tax regime dispute with EU at a joint press conference with Spanish President Jose Maria Aznar and EC President Romano Prodi. Bush stated that "Today, I informed President Aznar and President Prodi that I will work with our Congress to fully comply with the WTO decision on our tax rules for international corporations. This will require both time, and it will require legislation. I hope and expect that we can all act in the same spirit of understanding as we work through other problems." See, transcript.
5/2. The U.S. District Court (NDCal) sentenced Roger Ver to 10 months in prison for selling explosives without a license over the eBay auction web site, in violation of 18 U.S.C. § 842(a)(1). He was also sentenced for illegally storing explosives in a residential apartment in violation of 18 U.S.C. § 842(j), and for mailing injurious articles through the U.S. Postal Service in violation 18 U.S.C. § 1716. See, USAO release.
House Subcommittee Holds Hearing on Federal Agency Privacy
5/1. The House Judiciary Committee's Subcommittee on Commercial and Administrative Law held a hearing on HR 4561, the "Federal Agency Protection of Privacy Act". This bill would require federal agencies to include a privacy impact analysis with proposed regulations that are circulated for public notice and comment.
Rep. Bob Barr (R-GA), the sponsor of the bill, said in his opening statement that this bill "takes the first -- necessary -- step toward protecting the privacy of information collected by the federal government. While some have decried the loss of personal privacy by private companies, it must be emphasized that government alone has the authority to compel the disclosure of personal information; and unlike a private commercial gatherer of personal data, the government can put you in jail based on what it uncovers. For this reason, the government has an obligation to exercise greater responsibility when enacting policies that undermine privacy rights."
Rep. Barr also summarized the requirements contained in the bill. It "requires that rules noticed for public comment by federal agencies be accompanied by an assessment of the rule’s impact on personal privacy interests, including the extent to which the proposed rule provides notice of the collection of personally identifiable information, what information will be obtained, and how it is to be collected, maintained, used and disclosed. The measure further provides that final rules be accompanied by a final privacy impact analysis, which indicates how the issuing agency considered and responded to privacy concerns raised by the public, and explains whether the agency could have taken an approach less burdensome to personal privacy."
In addition, the bill "permits individuals who are adversely affected by an agency's failure to follow its provisions to seek judicial review pursuant to the provisions of the Administrative Procedure Act."
James Harper, Editor of Privacilla.com, said in his prepared statement that "This legislation can help protect Americans' privacy by giving the American people, the press, and Congress information they need about how federal regulation affects privacy."
Lori Waters, of The Eagle Forum, said in her prepared statement that the bill "is vital to protect Americans from unjustified or unintended invasions of privacy by the government. H.R. 4561 forces regulators to consider how regulations impact on individual privacy and then they must tell citizens through a privacy analysis what the impact will actually be. Long term privacy consequences must be part of the legislative debate in Congress as well as the regulatory debate in the Executive Branch."
Gregory Nojeim, of the American Civil Liberties Union, said in his prepared statement that the bill "would provide an important check and balance on federal agencies’ use and disclosure of personal information inside and outside the government.  The passage of this legislation would be an important step in the effort to protect privacy, particularly as the federal government relies more and more on powerful information technology."
Edward Mierzwinski, of the U.S. Public Interest Group, praised the bill, and offered some suggestions for changes in his prepared statement. For example, he recommended that the bill "make reference to all of the original Fair Information Practices (FIPs), as ... embodied into the 1974 Privacy Act" and that the bill require publication of privacy impact analyses in the agencies' web sites, not just in the Federal Register.
House Commerce Committee Holds Hearing on Government Purchase Cards
5/1. The House Commerce Committee's Subcommittee on Oversight and Investigations held a hearing titled "Oversight and Management of the Government Purchase Card Program".
The General Accounting Office (GAO) provided testimony [PDF] in which it stated that "The use of purchase cards has dramatically increased in past years as agencies have sought to eliminate the bureaucracy and paperwork long associated with making small purchases. The benefits of using purchase cards are lower costs and less red tape for both the government and the vendor community."
The GAO also found that Department of Education employees "purchased computers using their purchase cards, which was a violation of Education's policy prohibiting the use of purchase cards for this purpose." The GAO added that "several of the computers that were purchased with purchase cards were not entered in property records, and we could not locate them."
House Subcommittee Holds Hearing on Computer Generated Porm
5/1. The House Judiciary Committee's Subcommittee on Crime, Terrorism and Homeland Security held a hearing on the April 16 Supreme Court opinion [PDF] in Ashcroft v. Free Speech Coalition, which held unconstitutional a prohibition on computer generated child pormography.
Michael Heimbach, Unit Chief for the Federal Bureau of Investigation's (FBI) Crimes Against Children Unit, testified. He stated in his prepared testimony that "The Internet has caused explosive growth in the market for child pormography. The volume of child pormography circulated on the Internet is staggering and the number of persons obtaining, trading and distributing these images is downright appalling." He also stated that there is a connection between those who trade or possess child pormography and those who molest children.
Heimbach stated that "Technological advances in the area of computer imaging have sparked a debate about the possibility of creating images of child pornography without the use of real children -- which I will refer to as completely computer generated images. The question is whether such images can be created that are indistinguishable to a jury, and even to an expert, from the images of real children."
He continued that "This technological debate has led the defense bar to challenge the reality of the images of child pornography, insisting that the government disprove that the images are completely computer generated to gain a conviction. Despite the fact that there is no evidence to suggest that these images on the Internet do not involve actual child victims, this ready made defense has had a dramatic impact on the government's ability to prosecute child pornography offenders."
He concluded that "the foreseeable and tragic result will be that offenders who possess images of real, but unidentified, children will escape prosecution and will continue to use such material to harm still more innocent children."
See also, prepared testimony of Ernest Allen (P/CEO of the National Center for Missing & Exploited Children) and prepared testimony of William Walsh (Lieutenant, Dallas Internet Crimes Against Children Taskforce).
On April 30, Rep. Lamar Smith (R-TX) and others introduced HR 4623, a bill to prevent trafficking in child pormography and obscenity, to proscribe pandering and solicitation relating to visual depictions of minors engaging in sezually explicit conduct, to prevent the use of child pormography and obscenity to facilitate crimes against children, and for other purposes. It was referred to the House Judiciary Committee.
Representatives Introduce Drivers License Modernization Act
5/1. Rep. Jim Moran (D-VA) and Rep. Tom Davis (R-VA) introduced HR 4633, the Driver's License Modernization Act of 2002. This bill would establish standards for state programs for the issuance of drivers' licenses and identification cards. It was referred to the House Transportation Committee, the House Judiciary Committee, and the House Science Committee.
Rep. Moran stated in a release that the bill would "Ensure drivers' licenses would be more foolproof by including a biometric feature -- such as a retinal scan or finger print -- on an encrypted smart chip embedded on the drivers' licenses."
He stated also that it would "Require states motor vehicle departments' databases to be linked, thereby allowing one state's motor vehicle department to verify the identity of an individual from another state applying for a driver's license."
The Electronic Privacy Information Center (EPIC) stated in its web site that this bill "would establish a National ID system in America".
People and Appointments
5/1. President Bush nominated Reena Raggi to be Judge of the U.S. Court of Appeals for the Second Circuit. She is currently a Judge of the U.S. District Court for the Eastern District of New York. Before that, she was a federal prosecutor in Brooklyn, New York. See, WH release.
5/1. President Bush nominated Susan Braden to be a Judge of the U.S. Court of Federal Claims.
5/1. The Association of Communications Enterprises (ASCENT) named Walter Blackwell to be its new President. See, ASCENT release.
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5/1. The U.S. Patent and Trademark Office (USPTO) announced that it "has launched a study to identify organizations able to process international patent applications. This year, USPTO expects to receive 46,000 requests to search and/or examine international applications. USPTO's patent examiners now do this work, which is in addition to the 350,000 U.S. applications the agency receives each year." See, USPTO release.
5/1. Phillip Bond, Under Secretary of Commerce for Technology, gave a speech titled "Convergence: Digital, Global, and Policy" to the Utah Information Technology Association in Salt Lake City, Utah. He stated that information technology has "a history of minimal regulation, robust competition, rapid innovation, market driven economics and falling prices. Telecom has traditionally been heavily regulated, monopolistic, slow to change, heavily subsidized and often marked by high prices. While convergence of information technology and telecom creates wonderful innovations & new services for consumers, it's hardly frictionless -- ask any legislator in Washington about the last mile -- or about privacy or about digital rights management or about spectrum. And they have to know how to handle these issues along with environmental law, education reform, agriculture policy, national security, corporate governance, ad infinitum ad nauseum."
5/1. The U.S. Court of Appeals (FedCir) issued its opinion in 3M v. Barr Laboratories, a patent infringement action involving interpretation of the Hatch Waxman Amendments. The three judge panel was unanimous in its affirmance of the District Court's dismissal of 3M's infringement action with prejudice. However, the Court was divided in its analysis.
5/1. April 30 was the extended deadline to submit reply comments to the FCC in response to its notice of proposed rulemaking regarding its unbundling analysis under § 251 of the Communications Act and the identification of specific unbundling requirements for incumbent local exchange carriers. See, notice in the Federal Register. However, the FCC again extended the deadline for filing reply comments. The new deadline is June 5, 2002. See, FCC Order [PDF] adopted on April 30. This is CC Docket No. 01-338.
5/1. The Federal Trade Commission (FTC) announced that it settled a civil lawsuit that it brought against Auctionsaver LLC and several individuals, who auctioned computer related products on Internet sites, but failed to deliver the merchandise for which consumers paid. See, FTC release, Stipulated Final Judgment [PDF], and Final Judgment [PDF].
5/1. Hewlett Packard issued a release in which it stated that "the independent Inspectors of Election, representatives of IVS Associates, Inc., have issued their final Inspectors of Election report with respect to the special meeting of shareowners held on March 19, 2002. According to the report, there were 838,401,376 shares of HP common stock voted for the proposal to approve the issuance of shares of HP common stock in connection with the merger transaction with Compaq Computer Corporation (NYSE:CPQ), 793,094,105 shares voted against the proposal and 13,950,651 shares abstained. Based on this report, HP confirms that the proposal has passed in accordance with New York Stock Exchange requirements. HP expects to close the deal on May 3, 2002. The launch of the new HP will take place on May 7, 2002."
5/1. The U.S. District Court (DNJ) sentenced David Smith to serve 20 months in federal prison. He previously plead guilty to violation of 18 U.S.C §§ 1030(a)(5)(A) and 2 in connection with his having unleashed the Melissa computer virus in 1999, which caused damage to computers and computer networks. He was also ordered to pay a fine of $5,000 and perform 200 hours of community work service. See, CCIPS release.

Go to News Briefs from April 26-30, 2002.