|News from May 21-25,
People and Appointments
5/25. President Bush announced that he intends to nominate Diana Furchtgott Roth
to be a Director of the Federal Housing Finance Board for the remainder of a
seven year term expiring February 27, 2004. She has served as Chief of Staff at
the Council of Economic Advisors since March 2001. Before that, she was a
Resident Fellow and Assistant to the President at the American Enterprise
Institute. See, White
DC Circuit Overturns FCC Unbundling and Line Sharing Orders
5/24. The U.S.
Court of Appeals (DCCir) issued its opinion
v. FCC, granting petitions for review of an FCC unbundling order
and line sharing order.
Incumbent local exchange carriers (ILECs) and the U.S.
Telecom Association (USTA), a group that represents them, challenged the Federal Communications Commission's (FCC) order
requiring ILECs to lease a variety of unbundled network elements to competitive
local exchange carriers (CLECs). They also challenged an FCC line sharing order
that requires ILECs to lease to CLECs only a portion of local copper loops,
rather than the whole line, for the purpose of offering DSL service.
The Appeals Court granted both petitions. It remanded both rules to the FCC for
further proceedings. While the ILECs prevailed, the FCC already has underway a
proceeding in which it is examining its unbundling rules.
FCC Chairman Michael Powell
had this reaction: "The Court's decision today directs the Commission to
undertake a more focused examination of the Act's unbundling obligations. The
Commission is currently examining its unbundling framework, including line
sharing rules, in its Triennial Review notice, which is presently open for
public comment. We will be exploring many of the issues that the Court raised in
its opinion in the coming months as we evaluate the record in this proceeding.
While we continue to evaluate the Court's opinion and consider all the
Commission's options, in the meantime, the current state of affairs for access
to network elements remains intact." See, FCC
The ILECs are pleased with the decision. Verizon
SVP Michael Glover stated in a release that "Verizon is pleased that the
court of appeals recognized that the current overly broad unbundling
requirements undermine investment and innovation by all competitors, and impose
significant costs on the economy as a whole. The decision makes clear that
unbundling requirements can be imposed only in specific market segments where
there is proof that competitors truly need access to a particular element to
enter and compete. Unbundling requirements cannot be justified where competitors
already are using their own facilities to compete, as they do today using their
own switches and high capacity transport."
Similarly, SBC stated in a release
that "Today's ruling is a very positive step forward in developing healthy,
sustainable and economically rational competition that will benefit consumers.
The Court correctly rejected the FCC's ``more is better´´ approach when
determining what network elements incumbents must make available, regardless of
the economic impact and regardless of the actual competitive situation in a
given market." See also, USTA release.
In contrast, AT&T stated in a release that
"Today's decision seems out of step with recent positive developments
promoting competition and will bring added uncertainty to an industry that is
just beginning to show signs of a rebound. The customer benefits of a
competitor's ability to lease portions of the Bells' networks are real and
proven for millions of customers in states that have taken seriously the Act's
pro-competition mandate." It added that "We will work diligently with
the FCC to demonstrate that UNEs are an essential component without which the
promised competition and customer benefits envisioned by Congress will not be
SEC Chairman Addresses Electronic Offerings
5/24. Securities and Exchange Commission (SEC)
Chairman Harvey Pitt
gave a speech in
Washington DC to the Investment Company Institute, 2002 General Membership
Meeting. He addressed all electronic offerings.
He stated that "In approving an ``all electronic´´ variable annuity
offering last fall, we faced the issue of access to disclosure documents
exclusively over the Internet. Our decision there is only a beginning. We are
anxious to undertake a fresh look at our prior guidance concerning electronic
delivery of information under the federal securities laws. Our regulations must
keep pace with product innovation as well as investor demands and needs."
Pitt also spoke about erosion of investor confidence in securities markets, and
securities industry reform.
Rights of Way Barriers to Broadband Deployment
5/24. The Telecommunications Industry Rights of Way Working Group (I-ROW) wrote
[PDF] to the Federal Communications Commission
(FCC) regarding the adverse effect of local governments' rights of way
permitting on the deployment of broadband networks. The letter also advocates
initiation of an FCC proceeding based upon Section 253 of the Communications
I-ROW wrote that "broadband deployment is impeded when the permitting
process is undefined and open ended, or worse, is misused to delay construction
while the locality seeks to extract from the provider unreasonable, unlawful
fees or in-kind compensation, or seeks to impose unlawful third tier local
regulation on the provider's business and services. A locality charging fair and
reasonable fees on a nondiscriminatory basis has no need to negotiate fees with
each provider individually and, therefore, no reason to hold up the construction
permitting process while fees or other terms unrelated to actual rights of way
management are debated."
It added that "localities should be charging an amount calculated to: (1)
administer the permitting process and any other actual and direct costs incurred
by the locality directly resulting from the provider's use of the right of way;
and (2) encourage, not deter broadband deployment."
I-ROW also wrote that "broadband and the underlying telecommunications
networks necessary for these services are key economic drivers; thus, Congress
recognized in enacting Section 253 as part of the 1996 Act that local, parochial
interests should not be allowed to delay or unduly burden telecom deployment.
For this reason, Section 253 was written to preserve traditional local authority
to manage the physical occupation of the public rights of way, and to collect
fair and reasonable, non-discriminatory fees to offset the cost of that
management, while empowering the Commission to preempt local requirements that
exceed those bounds."
It concluded that the FCC should "commence a proceeding to address
governmental practices and fees that constitute barriers to entry under Section
253(a), including (1) delays in granting permits that prevent providers from
providing service, particularly those related to refusals to issue permits in an
effort to extract above-cost fees and other concessions unrelated to
rights-of-way management; and (2) the level of compensation that local
governments may require consistent with the "fair and reasonable
compensation" standard in Section 253(c), which the Commission would later
apply in resolving Section 253(d) petitions and to guide the courts."
47 U.S.C. § 253
provides in part that "No State or local statute or regulation, or other
State or local legal requirement, may prohibit or have the effect of prohibiting
the ability of any entity to provide any interstate or intrastate
It also provides that "If, after notice and an opportunity for public
comment, the Commission determines that a State or local government has
permitted or imposed any statute, regulation, or legal requirement that violates
subsection (a) or (b) of this section, the Commission shall preempt the
enforcement of such statute, regulation, or legal requirement to the extent
necessary to correct such violation or inconsistency."
Martin Stern, an attorney with the law firm of Preston
Gates, and a member of I-ROW, is one of the two signers of the letter. He is
also scheduled to speak at a Congressional
Internet Caucus Advisory Committee panel discussion titled "Speeding
Broadband Deployment By Balancing of Rights of Way Interests" today at
noon. See, calendar.
I-ROW has submitted similar comments in FCC and NTIA proceedings. FCC and NTIA
officials have also addressed rights of way issues in public speeches. For
example, on February 12, 2002, NTIA
Director Nancy Victory
gave a speech
titled "Together on the Right Track: Managing Access to Public Roads and
Rights of Way" to the National Association
of Regulatory Utility Commissioner's (NARUC) Committee on
Telecommunications. She stated that "we are concerned that constraints on
accessing public rights of way might be inhibiting broadband network
Similarly, on October 25, 2001, FCC Chairman
Michael Powell gave a speech on
broadband policy at a NARUC convention. He
listed several areas where regulatory barriers might be removed. He stated:
"Another example is the regulations that govern rights of way, zoning, and
building codes. I often hear venture capitalists and broadband providers
complain that these local restrictions are some of the most vexing problems in
bringing new services to consumers. No town likes a cell tower nestled among the
fall foliage. Few cities welcome trenches through their streets during rush
hour. Nonetheless, governments -- principally state and local -- control the
terms and conditions of local upgrades and can be more pro-active in
facilitating deployment in their community, if they initiate broadband
initiatives that encompass judgments about these rules."
See also, October 26, 2001, speech by
Bruce Mehlman, Assistant Secretary of Commerce for Technology Policy.
Recording Industry Sues Audiogalaxy for Copyright Infringement
5/24. Zomba Records, and other members of the Recording
Industry Association of America (RIAA) and National
Music Publishers Association (NMPA), filed a complaint
[78 pages in PDF] in U.S. District Court
(SDNY) against Audiogalaxy and
Michael Merhej alleging contributory copyright infringement, vicarious copyright
infringement, and other causes of action. See also, RIAA release.
The complaint states that "Like the now enjoined music file copying system
and service run by Napster, Defendants have built, maintain, and control an
integrated computer system and service, known as Audiogalaxy and accessible
through a website, www.audiogalaxy.com, that they knowingly, willfully and
intentionally designed specifically to facilitate and encourage millions of
individual anonymous users to copy and distribute infringing copies of
copyrighted works by the millions, if not billions."
Bush and Putin Talk Trade and Information Technology
5/24. U.S. President Bush and Russian President Putin addressed trade issues,
including trade in technology, during President Bush's trip to Russia.
The two nations issued a Joint
Statement which included the following: "We welcome the positive trends
in our cooperation in the area of information technologies, which is emerging as
one of the priority areas of our bilateral relationship. The introduction of
U.S. companies' advanced technologies in the Russian market, including through
licensed modern software applications, contributes to economic growth in Russia.
We support growing cooperation through services provided by Russian companies in
designing software and high-tech products on the basis of Russia's existing
scientific capabilities. We welcome the Information Technology Roundtable, which
is providing for a comprehensive exchange of opinion between government agencies
and businesses on removing barriers to business and protecting intellectual
property rights in this area."
The U.S. and Russia also issued a Joint
Declaration that covered free markets, Russian membership in the World Trade Organization (WTO), and the Jackson
The economic cooperation section of the declaration provides that the U.S. and
Russia "believe that successful national development in the 21st century
demands respect for the discipline and practices of the free market. As we
stated on November 13, 2001, an open market economy, the freedom of economic
choice, and an open democratic society are the most effective means to provide
for the welfare of the citizens of our countries."
The declaration continues that the two countries "will endeavor to make use
of the potential of world trade to expand the economic ties between the two
countries, and to further integrate Russia into the world economy as a leading
participant, with full rights and responsibilities, consistent with the rule of
law, in the world economic system. In this connection, the sides give high
priority to Russia's accession to the World Trade Organization on standard
The declaration also states that "Success in our bilateral economic and
trade relations demands that we move beyond the limitations of the past. We
stress the importance and desirability of graduating Russia from the emigration
provisions of the U.S. Trade Act of 1974, also known as the Jackson Vanik
Amendment. We note that the Department of Commerce, based on its ongoing
thorough and deliberative inquiry, expects to make its final decision no later
than June 14, 2002 on whether Russia should be treated as a market economy under
the provisions of U.S. trade law. The sides will take further practical steps to
eliminate obstacles and barriers, including as appropriate in the legislative
area, to strengthen economic cooperation."
Bush and Putin also held a joint press conference. (See, transcript.)
They were asked "when will the time come when the bulk of the exports from
Russia would be high technology and high technology products, and not the
primary products like oil and wood ...?" Putin responded that "what we
need above all for Russia is an absolutely nondiscriminatory access to world
markets and to U.S. markets. And we don't need preferences, we don't need
subsidies, we don't need special favors. We just want normal, simple, ordinary,
fair trade relations."
Bush stated that "The role of government is not to create wealth. The role
of government is to create an environment in which the entrepreneur or small
business or dreamer can flourish. And that starts with rule of law, respect of
private property, less regulatory burdens on the entrepreneur, open banking laws
so that all people have access to capital, and good tax policy."
He also stated that "there is an export tax on Russian goods. And the
trouble with that, of course, is that no matter how good your goods are, if you
price yourself out of the market, no one is going to buy. So that's a barrier.
There's also barriers coming from Western countries that we've got to eliminate.
Export controls on high tech goods are problematic, that we're now reviewing in
the United States."
Finally, he stated that "it is very important for the infrastructure to be
modernized as quickly as possible, so that information from around the world
moves quickly, freely throughout Russia, so that an entrepreneur such as
yourself are able to learn from other entrepreneurs being connected through the
Internet, which is going to be a great source of ideas and potential wealth for
The two were also asked "What specific and concrete steps can we expect
from the United States in order to support our accession to the World Trade
Bush responded: "Starting with having a President who thinks you ought to
be in the WTO and I think you ought to be. And I think the accession to the WTO
ought to be based upon the rules that every other nation has had to live up to.
Nothing harsher, nothing less harsh.
He added that "I'm for Russia going into the WTO. Just like I asked just
like I asked Congress yesterday once in a press conference in Russia to get rid
of Jackson Vanik. So, to answer your questions, I vote aye, assuming that the
President the Russian government continues to reform her economy, open it up,
make market based economy work."
5/24. The Federal Communications Commission
(FCC) released its Notice
of Proposed Rulemaking (NPRM) in its proceeding titled "In the Matter
of Section 272(f)(1) Sunset of the BOC Separate Affiliate and Related
Requirements". It initiates an inquiry regarding the sunset of the
statutory requirements under Section 272 imposed on
Bell Operating Companies (BOCs) when they provide in-region interLATA services.
This is WC Docket No. 02-112. The FCC adopted this NPRM at its May 16 meeting.
Senate Passes Trade Promotion Authority Bill
5/23. The Senate passed a bill that would give the President trade promotion
authority (TPA) on a roll call vote of 66-30. This bill also includes the Andean
Trade Preferences Act and language expanding existing trade adjustment
assistance (TAA) programs. The House passed a different TPA bill on December 7,
2001. The next step in the process will be the appointment of a conference
committee to reconcile differences between the two bills.
TPA, which is also known as fast track, gives the President authority to
negotiate trade agreements that the Congress can approve or reject, but not
amend. It would strengthen the negotiating position of the President.
TPA would benefit technology companies that sell products abroad. The Semiconductor Industry Association (SIA)
stated in a release that "Among the key trade negotiations that the U.S.
will be able to pursue utilizing TPA are with the new round of World Trade Organization (WTO) talks, as well as
work on reaching free trade agreements. The SIA has a number of key priorities
within the context of the WTO talks, including such issues as eliminating
tariffs on semiconductors and information technology goods around the world,
strengthening intellectual property protection, and maintaining strong U.S.
trade laws. TPA will also enable U.S. negotiators to pursue free trade
agreements in areas like Latin America, where prohibitively high tariffs are
maintained on many high technology goods."
The Senate bill includes an amendment (No. 3408), sponsored by Sen. Mark Dayton (D-MN) and Sen. Larry Craig (R-ID) that would create a
procedure that would allow a point of order to exclude changes to trade remedy
laws from TPA implementing legislation. The point of order could only be waived
by a majority of Senators.
9th Circuit Reverses in USA v. Adamson
5/23. The U.S. Court of Appeals (9thCir)
issued its opinion
[PDF] in USA
v. Adamson, in which the Appeals Court reversed a conviction for
wire fraud and money laundering. The case arose out of the defendant's purchase
and resale of used Hewlett Packard servers.
Adamson was an owner of a company that sold used computer equipment, including
servers. This company purchased used HP servers from HP. The company also
upgraded these servers through the use of an HP software utility called "SS_Config",
which was password protected to prevent unauthorized use.
A grand jury of the U.S.
District Court (EDCal) returned an indictment against Adamson alleging wire
fraud and money laundering. The prosecution alleged that Adamson bribed the HP
employee who handled the sale of the servers, and obtained from another HP
customer a copy of SS_Config and its password. Adamson's company then obtained
licenses from HP for the upgraded servers. The prosecution alleged that Adamson
engaged in misrepresentation, an element of wire fraud, to induce HP to issue
these licenses. However, the specific act of misrepresentation alleged in the
indictment was different from the act of misrepresentation proved at trial, and
contained in the jury instructions. The trial jury returned a guilty verdict.
The Appeals Court reversed. It wrote that "One of the primary purposes of
an indictment is to inform a defendant of ``what he is accused of doing in
violation of the criminal law, so that he can prepare his defense.´´ ... This
purpose was not served here. If the indictment had not specified a different
particular misrepresentation, one might say the variance was benign. Having
specified a different particular misrepresentation, however, the indictment not
only failed to inform the defendant of the actual misrepresentation that would
be shown at trial, but it also affirmatively misled the defendant and obstructed
his defense at trial." (Citation omitted.) The Appeals Court also found
reversible error in the District Court's limitation of the cross examination of
a witness. Reversed and remanded.
U.S. Courts Releases Annual Wiretap & Electronic
5/23. The Administrative Office of U.S. Courts (AOUSC) released its annual
wiretap and electronic surveillance report [11 pages in
PDF]. It is titled "Report of the Director of the Administrative Office of
the United States Courts on Applications for Orders Authorizing or Approving the
Interception of Wire, Oral, or Electronic Communications". See also, AOUSC release [3
pages in PDF].
The report states that the total number of intercepts in 2001 was 1,491, that
this represents a 25% increase over 2000, and that drug related matters
constitute 78%. The report also states that 83% of intercepts were telephone
wiretaps, and 6% were electronic intercepts (which includes e-mail
surveillance). The report also states that "no federal wiretap reports
indicated that encryption was encountered".
FISA/Terrorism Not Covered. This report covers intercepts concluded
between January 1, 2001, and December 31, 2001. The report includes intercepts
regulated by Title 18 of the U.S. Code (Crimes and Criminal Procedure). It does
not include intercepts regulated by the Foreign Intelligence Surveillance Act of
1978 (FISA), which is codified in Title 50 of the U.S. Code (War and National
Defense). See, 50
U.S.C. § 1801 et seq. FISA intercepts are restricted to foreign
intelligence information. The FISA extends to "a group engaged in
international terrorism". Groups such as Al Qaeda are subject to FISA
surveillance. Hence, this report does not reference terrorism, except in the
context of stating that the events of September 11, and mail delivery problems,
delayed its release by 30 days.
The report states that "The three major categories of surveillance are wire
communications, oral communications, and electronic communications. In the early
years of wiretap reporting, nearly all intercepts involved telephone (wire)
surveillance, primarily communications made via conventional telephone lines;
the remainder involved microphone (oral) surveillance or a combination of wire
and oral interception. With the passage of the Electronic Communications Privacy
Act of 1986, a third category was added for the reporting of electronic
communications, which most commonly involve digital display paging devices or
fax machines, but also may include some computer transmissions. The 1988 Wiretap
Report was the first annual report to include electronic communications as a
category of surveillance."
Phone Wiretaps. "Telephone wiretaps accounted for 83 percent (1,171
cases) of intercepts installed in 2001. Of those, 944 wiretaps involved
cellular/mobile telephones, either as the only type of device under surveillance
(865 cases) or in combination with one or more other types of telephone wiretaps
(79 cases)." (Parentheses in original.)
Electronic Surveillance. "The next most common method of
surveillance reported was the electronic wiretap, which includes devices such as
digital display pagers, voice pagers, fax machines, and transmissions via
computer such as electronic mail. Electronic wiretaps accounted for 6 percent
(84 cases) of intercepts installed in 2001. Microphones were used in 6 percent
of intercepts (88 cases). A combination of surveillance methods was used in 4
percent of intercepts (62 cases)."
Encryption. The report also addresses the use of encryption. It states
that "Public Law 106-197 amended 18 U.S.C. 2519(2)(b)
in 2000 to require that reporting should reflect the number of wiretap
applications granted in which encryption was encountered and whether such
encryption prevented law enforcement officials from obtaining the plain text of
communications intercepted pursuant to the court orders. In 2001, no federal
wiretap reports indicated that encryption was encountered. For state and local
jurisdictions, encryption was reported to have been encountered in 16 wiretaps
in 2001; however, in none of these cases was encryption reported to have
prevented law enforcement officials from obtaining the plain text of
Commerce Department Official Addresses Nanotechnology
5/23. The Commerce Department's Phillip Bond
gave a speech
titled "Building Partnerships to Achieve the Promise of Newer
Technology" at Rice University in
He stated that "I believe fervently in the economic potential and social
advances that nanotechnology can bring", and that "nanotechnology has
enjoyed significant R&D funding increases" because in Washington
"there is deep bipartisan agreement".
He elaborated that "Nanoscience and nanotechnology -- especially in
combination with bio-, info- and cognitive technologies -- have the power to
unleash human potential. It is not inconceivable that these technology could
truly achieve the miraculous: making the blind see, the lame walk, the deaf
hear; curing AIDS, cancer, diabetes and other afflictions; ending hunger; and
even supplementing the power of our minds, enabling us to think great thoughts,
create new knowledge, and gain new insights."
However, he also cautioned that "these powerful technologies can be put to
inappropriate uses and may create moral and ethical dilemmas beyond those we
struggle with today. In the hands of terrorists, these technologies could be
used to injure or kill millions. They could be used to pierce our privacy
monitoring our communications, movements and associations. They could render all
current encryption technologies powerless to protect national secrets or our
Senate Judiciary Committee Approves Cyber Security Bill
5/23. The Senate Judiciary Committee
amended and approved S 1989,
The National Cyber Security Defense Team Authorization Act. The bill, which is
sponsored by Sen. Charles Schumer
(D-NY), would "establish a team of representatives of various Federal
departments and agencies" that would "identify segments of the
infrastructure of the Internet (including software, hardware, and other physical
infrastructure) that are vulnerable to terrorist attack", and then make
recommendations on how to eliminate such vulnerabilities. The Committee approved
one amendment that would add a subsection authorizing the appropriation of $10
Such a team already exists. It is headed by Richard Clarke, the
President's Special Advisor for CyberSpace Security.
People and Appointments
5/23. The Senate Judiciary Committee
approved the nomination of Brooks Smith to be a Judge of the U.S. Court
of Appeals for the Third Circuit by a vote of 12-7. Republican members of the
Committee, and Sen. Joe Biden (D-DE), Sen. John Edwards (D-NC), and Sen. Herb Kohl (D-WI) vote in favor. His
nomination still requires confirmation by the full Senate.
5/23. Lisa Griffin was named Deputy Chief of the Federal Communications
Commission (FCC) Enforcement Bureau Market
Disputes Resolution Division (MDRD). Before joining the FCC, she was a partner
in the law firm of Ross Dixon & Bell.
See, FCC release.
5/23. Lori Holy was named an Attorney Advisor in the Federal
Communications Commission's (FCC) Office of Legislative Affairs (OLA). She will
focus on media and convergence issues. She previously worked at the National Association of Broadcasters (NAB). See, FCC
5/23. North Carolina Utilities
Commission (NCUC) endorsed BellSouth's
application to provide in region interLATA services in the state of North
Carolina. On May 22, the Alabama Public
Service Commission endorsed BellSouth's long distance application.
BellSouth's next step is to file a Section 271
applications with the Federal Communications
Commission (FCC). On May 15, the FCC approved BellSouth's application to
provide long distance services in Georgia and Louisiana.
5/23. The Federal Communications Commission
(FCC) published a notice
in the Federal Register summarizing its grant of BellSouth's Section 271
application to provide in region interLATA services in the states of Georgia and
Louisiana. See, Federal Register, May 23, 2002, Vol. 67, No. 100, at Pages 36186
5/23. The Federal Communications Commission
(FCC) published a notice
in the Federal Register regarding its recently released order pertaining to
"issues associated with the inability of a public safety answering point to
call back an emergency caller for further critical information when that caller
is dialing 911 using a non-service-initialized wireless telephone." The
order is effective October 1, 2002. Public comment on the information collection
is due by July 22, 2002. See, Federal Register, May 23, 2002, Vol. 67, No. 100,
at Pages 36112 - 36117.
5/23. The Federal Trade Commission (FTC)
published a notice
in the Federal Register regarding its issuance of a final rule governing the
safeguarding of customer records and information for the financial institutions
subject to its jurisdiction, as required by Section 501(b) of the Gramm Leach
Bliley Act. See, Federal Register: May 23, 2002, Vol. 67, No. 100, at Page 36483
- 36494. See also, FTC
release of May 17.
5/23. The U.S. Patent and Trademark Office (USPTO)
published a notice
in the Federal Register that it is amending its rules "to provide that
certain trademark documents sent by United States Postal Service (USPS)
``Express Mail Post Office to Addressee´´ service (Express Mail) will no
longer be considered to have been filed with the USPTO on the date of deposit
with the United States Postal Service, but will be deemed to have been filed on
the date of receipt in the USPTO." This rule change takes effect on June
24, 2002. See, Federal Register, May 23, 2002, Vol. 67, No. 100, at Pages 36099
House Science Committee Approves NSF Authorization Bill
5/22. The House Science Committee
amended and approved HR 4664,
the Investing in America's Future Act of 2002, sponsored by Rep. Nick Smith (R-MI).
HR 4664 would authorize the appropriation of $5.5 Billion for FY 2003 for the National Science Foundation (NSF). Included in
the funding authorization is $704 Million for networking and information
technology research, $238 Million for the Nanoscale Science and Engineering
Priority Area, and $60 Million for the Mathematical Sciences Priority Area.
The bill authorizes an increase in funding for the NSF of 15% in FY 2003, and
similar increases in future years. If the funding authorized by this bill were
actually appropriated, it would double the NSF's budget within five years.
Rep. Constance Morella (R-MD) stated
that "If we expect the technological advances we have achieved in recent
years to continue, we must fund the underpinning science and engineering more
robustly. In addition, we must provide adequate resources to produce the next
generation of scientists and engineers. As the premier supporter of the overall
scientific enterprise, the NSF has the ability to balance the research and
education dollars needed to achieve both of these goals".
See, HR 4664
[PDF], as reported by the Subcommittee on Research on May 9. The full Committee
approved one amendment
[PDF] on May 22 offered by Rep.
Sherwood Boehlert (R-NY). It authorizes the appropriation of $50 Million for
the Advanced Technological Education Program established under the Scientific
and Advanced Technology Act of 1992, and $30 Million for the Minority Serving
Institutions Undergraduate Program.
House Science Committee Approves Tech Talent Bill
5/22. The House Science Committee
amended and approved HR 3130,
the Undergraduate Science, Mathematics, Engineering and Technology Improvement
Act, which is also known as the Technology Talent Act.
HR 3130 would authorize the appropriation of $25 Million for FY 2002 for the National Science Foundation (NSF) for a grant
program. It provides that the NSF "is authorized to award grants, on a
competitive basis to institutions of higher education with science, mathematics,
engineering, or technology programs to enable the institutions to increase the
number of students studying and receiving associates or bachelor's degrees in
established or emerging fields within science, mathematics, engineering, and
It is sponsored by Rep. Sherwood
Boehlert (R-NY), the Chairman of the Committee, and Rep. John Larson (D-CT). Rep. Larson
stated that "The pipeline which connects our country's economic and
security needs with talented young minds is broken. This bill will help repair
that pipeline by spurring the interest of our youth in pursuing fields that will
propel both technological innovation and the future growth of our economy."
3130 [PDF] as approved by the Subcommittee on Research on May 9. On May 22,
the full Committee approved an amendment
[PDF] offered by Rep. Joe Baca (D-CA)
that requires the NSF to establish a grant program for minority serving
institutions. The Committee also approved an amendment
[PDF] offered by Rep. Lynn Woolsey
(D-CA) that directs the NSF to "strive to increase the number of students
receiving baccalaureate degrees, concentrations, or certifications in the
physical or information sciences, mathematics, engineering, or technology who
come from groups underrepresented in these fields", including women.
Finally, the Committee approved an amendment
[PDF] offered by Rep. Brian Baird
(D-WA) that amends the Scientific and Advanced Technology Act of 1992.
Powell Addresses Broadband Deployment
5/22. The Federal Communications Commission
(FCC) hosted a discussion of regulatory issues affecting broadband deployment.
The speakers included FCC Chairman Michael Powell,
Commissioners Kathleen Abernathy, Michael Copps and Kevin Martin, Michael Binder
(Industry Canada), Jeong Seon Seol (Korean
Embassy), and Simon Towler (British Embassy).
Powell reviewed the FCC's approach to regulation affecting broadband in his
opening remarks. He stated that the FCC "is taking a concerted
comprehensive approach to bring regulatory clarity to what is at best a murky
and confusing policy area. Of course, our actions in this area will first and
foremost be grounded in the Communications Act, taking into account the
statutory objectives of competition, universal service, and consumer protection.
We have clearly set out the principles that guide our action in the broadband
"First, we will promote the ubiquitous availability of broadband
infrastructure to all Americans. This is Congress' vision, and it is universally
recognized that the promise and the potential of broadband are ones that every
American and world citizen should enjoy. But, as we must, a word of caution, as
we strive to achieve this worthy goal. If history is any guide, revolutions and
infrastructure build outs, take time."
"Second, the Commission will conceptualize any platform that is capable of
fusing communications power with computing power to provide high bandwidth
intensive content to meet the demands of consumers. That is, we recognize that
broadband is not merely cable modem service service, or DSL. We work to empower
any technology that will help close the gap of time and distance in acquiring
"Third, at this stage in the development, any broadband regulatory
environment must serve to promote investment and innovation. Substantial risk
investment and capital is needed either to upgrade legacy networks, or to
develop new ones to support broadband capability and applications. Broadband
capable networks must, whether through market forces, or government mandate,
preserve a proper climate for innovation."
"Fourth, and finally, sound regulatory policy should, where appropriate,
harmonize regulatory rights and obligations that are attached to the provision
of similarly situated services across platforms. The convergence of industry is
where advanced networks allow entities in traditionally distinct market segments
to enter each others' market, and into new similar markets, demands that we
rationalize our regulatory regime to address these changes."
"Having set out our guiding principles, my colleagues and I have over the
past six months initiated several major broadband proceedings to clarify the
regulatory environment for new services, and the lower costs and risks
associated with the deployment of new infrastructure. Clearer, more enlightened
rules are vital to promote the infrastructure and devices that will bring the
power of the information age home to every American. The Commission has also
recognized that it must look in at itself and revolutionize the way that we
operate in order to respond effectively to rapid changes and convergences. It is
important to emphasize that while we have committed significant resources to
initiating or completing these rulemakings, the legal and regulatory issues
implicated here have yet to be resolved. But they must be resolved, if we
collectively intend to facilitate the ubiquitous availability of broadband to
all Americans," said Powell.
Industry Canada's Michael Binder then gave a presentation on broadband
deployment in Canada. Powell and Binder then engaged in a two person dialogue.
Content v. Information. Powell discussed the content and information
available over broadband networks. He stated that "I think one of the
things that has convinced me of its long term importance, is -- forget all the
applications, forget all the content provided by Disney -- and think just about
what it means in terms of the value of simple information. Anything that closes
the time and distance in which an individual can access information truly opens
up a whole new world of possibilities that were traditionally constricting.
Everything from commercial transactions, when, basically, most of the time, in a
car sale situation, most of the price, is information that you don't know, what
the car really costs, that the dealer knows, that you don't know, and the
negotiation is a laborious effort to find out."
Powell continued: "I think that the more individuals, as consumers, and
individual citizens can get information when they want it, when they need it,
and quickly, I think that information component, which I think is the grease of
society, opens up all kinds of possibilities that we can't imagine. But, it is a
challenge. And, the content issue is one of the things that we struggle with in
the United States, is, consumers say the same thing, ``We value it; bring it to
us´´. At the same time, when you provide valuable content and charge a penny
for it, they won't."
Mass Market v. Community Institutions. Powell stated that "In
Canada, you put an enormous effort ... a significant amount of funds towards
schools and libraries. The United States has done the same thing, and commits
nearly 2.8 Billion dollars a year to wire schools and classrooms in the United
States. And, it makes me wonder if not one of the smart broadband approaches is
the focus on key community institutions -- schools, libraries, city hall,
universities, community institutions -- as a way of driving the infrastructure,
as opposed to immediately seeing it as an individualized consumer mass market
Ubiquity v. Competition. Powell also discussed the goals of ubiquity and
competition in an off the cuff discussion with Michael Binder. Powell stated
that "the tension and the tradeoff -- tradeoffs that one has to struggle
with -- between ubiquitous deployment of infrastructure and competition. If we
remember our experiences with the phone system, in many ways, governments around
the world made the judgment that to get infrastructure to everyone, we should
have a natural monopoly. We should have a government owned company. In the
United States, it was a government sanctioned monopoly. In most of the world it
was an actual government institution. And, we desire that ubiquity so quickly,
or sufficiently important, that, that that was the choice that was made.
Because, of course, monopolies can be very efficient, if that is your overall
"On the other hand, I think, rightly, governments around the world have
become much more enlightened about the benefits of competition, even in the
telecommunications space, and have liberalized, or have attempted to introduce
greater amounts of competition. And, a lot of times, what I feel the debates
are, in tension with, is, how important is broadband really quickly, in terms of
pressure people, towards larger carriers, bigger infrastructure, less cognizant
of some competitive tradeoffs, and then others who think less so, in the
competitive ... And that tension I think is going to be a big part of how
countries resolve this. Which is why I think expectations are critical. Because,
if one is too hasty I think that it would lead to being less concerned about the
competitive aspects and more concerned about getting there. And, I struggle with
that all the time."
Powell did not take questions from the audience. Powell declined to respond to
questions from reporters afterwards.
Groups Write European Parliament Re Electronic Privacy
5/22. A collection of groups wrote a letter
to members of the European Parliament regarding the proposed European Union
Directive on the protection of privacy in the electronic communications sector.
They wrote that "We urge you to vote against general and exploratory data
retention of individuals' electronic communications by law enforcement
authorities. We recommend that you vote in favour of the position on Article
15(1) of the European Parliament Committee on Citizens' Freedoms and Rights,
Justice and Home Affairs (the "LIBE Committee"). .We strongly
recommend that you do not vote for any amendment on Article 15 that would leave
EU Member States governments free to decide on the fundamental issue of data
The signatories include the Electronic Privacy
Information Center (EPIC), the Center for
Democracy and Technology (CDT), and others.
House Subcommittee Holds Hearing on Whois Database
5/22. The House Judiciary Committee's
Subcommittee on Courts, the Internet, and Intellectual Property held a hearing
titled "The Accuracy and Integrity of the Whois Database".
Rep. Howard Coble (R-NC), the Chairman
of the Subcommittee, said in his opening statement that
"The Whois Database refers to a series of information directories providing
the identity of a website’s origin or operator. Regrettably, the Internet all
too often is a crime scene and is riddled with bogus domain registration
information leaving law enforcement at a loss to protect the public."
Rep. Howard Berman (D-CA), the
ranking Democrat on the Subcommittee, said in his opening statement
that the Internet "has proven invaluable as a tool for fraud, pormography,
and piracy. These crimes are exacerbated by fraudulent contact information in a
domain name registration -- without accurate information, it is difficult for
law enforcement officials to trace the perpetrator of a crime, and it is
difficult for a consumer to make an informed decision about the integrity of a
particular web site."
On May 2, 2002, Reps. Coble and Berman introduced HR 4640,
a bill to amend the criminal code to provide 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".
Howard Beales, Director of the Federal Trade
Commission's (FTC) Consumer Protection Bureau, wrote in his prepared testimony that
"Internet fraud enforcement efforts require quick identification of
problems, quick identification of perpetrators, and the ability to gather
information about international entities and organizations. Accurate Whois data
is essential to these efforts, and inaccurate data can significantly frustrate
See also, prepared testimony of other witnesses: Michael Palage, Cameron Powell, and Steven Metalitz.
Juster Addresses Cyber Security
5/22. Under Secretary of Commerce Kenneth Juster gave a speech
titled "Economic Security and Critical Infrastructure Protection" in
New York City. Juster is head of the Bureau of
Industry and Security, which was previously named the Bureau of Export
He stated that "One of the important lessons learned from September 11 is
that for many terrorists -- including Osama in Laden and al-Qaeda -- the targets
of attack are our economy and our way of life. ... By attacking our economy and
our infrastructures, terrorists hope to drive us inward -- to undermine our
national will, compel us to abandon our global engagement, and cause us to
retreat into isolationism."
"Protection of our critical infrastructures is an essential element of our
overall approach to homeland security. 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.
These infrastructures relate to information and communications", said
He continued that "The very information systems and networks that
facilitate commerce and industrial operations also leave us potentially more
vulnerable to a new type of threat -- that of cyber attacks.
"Securing the nation's critical infrastructures against cyber attacks goes
well beyond the government's traditional role of physical protection through
defense of national airspace and national orders. Because there are no
boundaries in cyberspace, and because approximately 90 percent of the nation's
critical infrastructures are privately owned and operated, government action
alone cannot secure them. Securing our critical infrastructures must, therefore,
be a shared responsibility."
He also stated that "Companies must institutionalize the process of
identifying critical assets, assessing their vulnerabilities, and managing the
risks associated with those vulnerabilities. I can envision the insurance
industry and the legal community establishing over time a market environment
that provides incentives for companies to do this."
He also discussed bills that are pending in the Congress to create "an
exemption under the Freedom of Information Act for information on critical
infrastructures that is shared with the government as well as creating an
antitrust exemption for cooperation among companies on matters of critical
(See, HR 2435,
the Cyber Security Information Act, sponsored by Rep. Tom Davis (R-VA) and Rep. Jim
Moran (D-VA), and S 1456,
the Critical Infrastructure Information Security Act, sponsored by Sen. Bob Bennett (R-UT).)
However, he added that "There is not going to be an avalanche of
information flowing to the federal government from private industry merely
because legislation creates a new exemption to the Freedom of Information
He spoke at a conference hosted by the Information
Technology Association of America (ITAA) and Prudential Securities on
e-security and homeland defense.
People and Appointments
5/22. California Governor Gray Davis announced the appointments of Amy
Hogue, Gregory Keosian, and Charles Palmer as Judges of
the Los Angeles County Superior Court. Hogue is a partner in the Los Angeles
office of the law firm of Pillsbury
Winthrop. She practices in the areas of intellectual property and media. She
has represented NBC, CBS and ABC and book and magazine publishers in defamation
and invasion of privacy actions. She has also handled cases involving trade
secrets, copyrights, privacy rights, employment disputes, breach of contract,
fraud and business torts.
5/22. Kris Anne Monteith has been named Associate Bureau Chief for
Intergovernmental Affairs in the Federal Communications Commission's (FCC) Consumer and Governmental Affairs Bureau (CGB).
She has worked for the FCC since 1997. Before that she worked for the law firms
of McDermott Will & Emery and Keller and Heckman. See, FCC
5/22. The Arizona Corporation
Commission approved the last of the 14 federal checklist items necessary for
Qwest's entry into the long distance market
in Arizona. Qwest announced that it "plans to file its application to offer
long distance service in Arizona with the FCC within the next few weeks".
5/22. The Senate may vote on final passage of trade promotion authority (TPA)
legislation on Thursday, May 22. On Wednesday morning, President Bush gave a
just before he left on his trip to Europe. He stated that "I hope the
United States Senate finishes debate on the trade promotion authority and passes
the bill. It's going to be important for our friends around the world to see
this commitment to trade. Trade is in the interests of our workers. Trade is in
the interests of job creation. And trade is in the interests of developing
nations as well as developed nations. And so I want to thank those in the United
States Senate, both Republicans and Democrats, who have worked hard on this
bill. I hope they finish the debate and pass this important legislation. It'll
be a strong positive message." The House passed its TPA bill, HR 3005,
on December 7, 2001.
5/22. Sen. Diane Feinstein (D-CA), Sen. Jon Kyl (R-AZ), Sen. Jeff Sessions (R-AL), and Sen. Charles Grassley (R-IA) introduced S
2541, a bill to amend the criminal code to establish penalties for aggravated
identity theft. It was referred to the Senate Judiciary Committee.
5/22. The Federal Trade Commission (FTC) filed
a complaint [PDF]
in U.S. District Court (SDCal)
against Micro Star Software, Inc., a software
marketing company, alleging that it misled consumers regarding a 30 day
trial offer and its continuity program, in violation of the FTC Act, the
Telemarketing Sales Rule (TSR), and the Unordered Merchandise Statute. The FTC
and Micro Star simultaneously filed a Consent Decree [PDF]
which requires payment of $90,000 civil penalty, disclose of all material terms
and conditions of trial offers and continuity program memberships, and
monitoring of the behavior of telemarketing representatives.
6th Circuit Rules in Domain Name Dispute
5/21. The U.S.
Court of Appeals (6thCir) issued its opinion
v. Parsons, a case involving the application of trademark, cyber
squatting, and copyright law to the registration of domain names. It affirmed
the District Court's dismissal for failure to state a claim.
Background. Darrell Bird brought this pro se case. He has a computer
software business named Financia, Inc. He registered the tradename "Financia"
with the U.S. Patent and Trademark Office in
1984. He also holds the Internet domain financia.com.
Marshall Parsons registered the Internet domain "efinancia.com"
through the registrar, Dotster, which is also a defendant.
District Court. Bird filed a complaint in U.S.
District Court (SDOhio) against Parsons, Dotster, and others, alleging
trademark infringement, unfair competition, and trademark dilution, in violation
of 15 U.S.C. §§ 1114(1)(a),
1125(a), and 1125(c),
respectively. He also alleged violation of the Anticybersquatting Consumer
Protection Act of 1999 (ACPA), 15 U.S.C. § 1125(d),
and copyright infringement in violation of 17 U.S.C. § 106. The
District Court dismissed for failure to state a claim, and lack of personal
jurisdiction over certain defendants.
Appeals Court. The Appeals Court ruled that the District Court erred on
the jurisdictional issue. However, since the Appeals Court found that Bird had
failed to state a claim upon which relief can be granted on each of his
substantive claims, it affirmed the District Court.
The Court noted that the ACPA requires "a bad faith intent to profit from
that mark", and that Bird failed to plead allegations amounting to bad
faith by defendants. On the copyright infringement claim, the Court stated that
the text that was copied -- financia -- is not only a single word, but also
lacks originality, and hence, is not entitled to copyright protection.
House Passes Dot Kids Domain Bill
5/21. The House passed HR 3833,
the Dot Kids Implementation and Efficiency Act of 2002, by a vote of 406-2. See,
Call No. 174.
The bill would require the Department of Commerce's National Telecommunications and Information
Administration (NTIA) to operate a .kids second level domain within the .us
country code domain. Currently, the NTIA has contracted with NeuStar to act as the registry of the .us
The bill would amend the NTIA Organization Act, 47 U.S.C. § 902, to
provide that "The NTIA shall require the registry selected to operate and
maintain the United States country code Internet domain to establish, operate,
and maintain a second level domain within the United States country code domain
that provides access only to material that is suitable for minors and not
harmful to minors".
The bill would also require that the registrar enter into written agreements
with registrants "to prohibit two-way and multiuser interactive services in
the new domain, unless the registrant certifies to the registrar that such
service will be offered in compliance with the content standards ... and does
not compromise the safety or security of minors."
Also, registrars would be required to enter into written agreements with all
users of the new domain "to prohibit hyperlinks in the new domain that take
new domain users outside of the new domain." Thus, a web site in the new
domain could not hyperlink to children's web sites in the .com domain.
The bill is sponsored by Rep. John
Shimkus (R-IL), Rep. Ed Markey
(D-MA), and 38 others. It was reported by the House Commerce Committee earlier this
year. Rep. Billy Tauzin (R-LA), the
Chairman of the Committee, stated in a release that "This legislation will
ensure that our country's children will have safer experiences on the Internet.
We believe the '.kids.us' domain will be hugely successful, and we hope that all
parents will take advantage of its benefits."
See also, TLJ story, "House Commerce Committee Approves Dot Kids
Daily E-Mail Alert No. 408, April 11, 2002.
House Passes Bill to Expand Wiretap Authority
5/21. The House passed HR 1877,
the Child Sez Crimes Wiretapping Act of 2001, by a vote of 396-11. See, Roll
Call No. 175.
This bill would amend 18
U.S.C. § 2516 to expand the list of predicate offenses that may serve as
the basis for the issuance of a wiretap order.
Spectrum Management and 3G Services
5/21. Steve Berry, SVP for Government Affairs at the CTIA, spoke at a luncheon hosted by the Federal Communications Bar Association's (FCBA)
Young Lawyers Committee in Washington DC. He stated that "one of the more
difficult problems that the wireless industry is facing now ... is spectrum
He addressed the needs of the wireless industry for spectrum for Third
Generation (3G) services, which are intended to bring broadband Internet access
to portable devices. He said that "we don't have a spectrum management
process that is designed for major movements of spectrum". He added that
"the NTIA and
are really good at managing that spectrum that they have", but not at
reassigning spectrum. He concluded that "our spectrum management process is
broken; it is not working, for major realignments". He suggested that only
the Congress will be able to address spectrum for 3G services.
Nevertheless, Berry stated that the U.S. has the opportunity to take the lead in
3G technology. He said that the Europeans made mistakes by going to auction and
"sucking capital out of the market", and by setting technology
Berry also offered some recommendations for procedural and structural reform,
such as creating an interagency senior advisory group to facilitate decision
making on controversial spectrum matters, developing a rolling long term
spectrum planning process, and creating an independent review mechanism similar
to the Base Realignment and Closure Commission.
Librarian of Congress Rejects CARP's Proposed Rates for
5/21. The Librarian of Congress, at the recommendation of the Register of
Copyrights Marybeth Peters,
issued an order
rejecting the Copyright Arbitration
Royalty Panel's (CARP) February 20 determination proposing rates and terms
for licenses in the proceeding titled "In the Matter of Digital Performance
Right in Sound Recordings and Ephemeral Recordings".
On February 20, 2002, the CARP released its report [143 pages
in PDF] recommending rates and terms for the statutory license for eligible
nonsubscription services to perform sound recordings publicly by means of
digital audio transmissions, also known as webcasting, pursuant to 17 U.S.C. § 114, and
to make ephemeral recordings of sound recordings for use of sound recordings
under the statutory license set forth in 17 U.S.C. § 112. May
21 was the deadline for the Librarian of Congress to accept or reject the CARP's
The CARP recommended that both webcasters and commercial broadcasters pay a
performance fee of 0.07˘ per performance, and 9% of performance fees due, for
simultaneous Internet retransmissions of over the air AM or FM radio broadcasts.
It recommended that the performance fee be 0.14˘ per performance and 9% of
performance fees due for all other Internet transmissions.
It further recommended that non commercial broadcasters pay a performance fee of
0.02˘ per performance for simultaneous Internet retransmissions of over the air
AM or FM radio broadcasts, and 0.05˘ for other Internet transmissions,
including up to two side channels of programming consistent with the public
broadcasting mission of the station.
At that time, record industry representatives complained that the rates were too
low, while webcasters said they were too high. The May 21 order does not state
the basis for rejecting the CARP's recommendation.
The body of the order states, in full: "On February 20, 2002, the Copyright
Arbitration Royalty Panel (CARP) reported its determination to the Librarian of
Congress in the above- captioned proceeding. In accordance with 17 U.S.C. 802(f),
the Librarian is given 90 days from date of delivery of a CARP report to review
the determination and issue a decision setting forth the final royalty fee and
terms of payment. However, if the Librarian rejects the CARP's determination,
section 802(f) provides an additional 30 days for the Librarian to render his
final determination. The Register of Copyrights recommends, and the Librarian
agrees, that the CARP's determination must be rejected. A final decision will be
issued no later than June 20, 2002."
The Recording Industry Association of America
(RIAA) responded in a release:
"The Librarian has rejected the arbitration panel’s determination, but we
do not know why or what decision the Librarian will ultimately make based on the
evidence presented. Since both sides appealed the panel’s determination,
anything is possible. We look forward to the conclusion of this process on June
20th, and to the day when artists and labels finally get paid for the use of
John Simson of SoundExchange stated
in a release
that "Given the complexity of the issues, I am not surprised by the
Librarian's decision. I remain confident that we can find creative solutions to
enable webcasting to thrive while providing recording artists and those who
invest in sound recordings a fair and equitable royalty in return. Over the past
three years, webcasters have paid for bandwidth, rent, hardware, software and
other business expenses. It is time that they finally start to pay the Artists
and record companies whose creative output is the most important component of
FRB Governor Addresses Technology, Privacy and Banking
5/21. Federal Reserve Board
Governor Mark Olson
gave a speech
titled "A Look at the Banking Industry in 2002.
Olson stated that "The major driver of future change will undoubtedly
continue to be technological changes. With all the changes in technology to this
point, experts tell us we are nowhere near the limits of technological
improvement. As new options become available, decisions regarding the use of
technology may be the most critical decision that bank management will make.
That banks first identify a business strategy and then make technology decisions
to support that strategy has become increasingly critical. The range of choices
is not limited to large institutions. Even the smallest institutions can offer
real time online account access to their customers and can have access to data
on customer profitability, which allows them to better develop and price their
He continued that "Greater technological sophistication has two other
important ramifications for banks. First, it allows your nonbank competitors to
improve both the speed to market and the quality of their financial products.
Second, it continues to concern customers who more and more ask for assurances
about the privacy of their financial information. Privacy issues continue to be
topics for potential state and federal legislation. Though the banking industry
is rightfully concerned about the effects of these legislative initiatives, it
must remember that privacy is a political issue because it reflects the genuine
concern of bank customers. Providing the assurance of financial privacy is a
vital part of managing technological change in the banking industry."
Olson spoke at the 107th Annual Convention of the Maryland Bankers Association,
Palm Beach, Florida.
SEC Initiates Actions Against Software Companies
5/21. The Securities and Exchange Commission
(SEC) announced a series of civil, administrative and criminal actions against
former officers of three northern California software companies in connection
with accounting practices. See, SEC release.
The SEC filed a civil complaint in
U.S. District Court (NDCal) against
David Malmstedt and Mark Huetteman, former executives at Legato Systems, alleging violation of federal
securities laws for causing Legato to recognize revenue on unconsummated
"sales". Legato is a Delaware corporation based in Mountain View,
California, that develops and markets software for managing the data storage
functions of computer networks.
The SEC also filed a civil complaint in U.S. District Court (NDCal) against Unify Corporation, and two of its former
executives, Reza Mikailli and Gary Pado, alleging violation of federal
securities laws in connection with the improper recognition of revenue. Unify is
a software company based in Sacramento, California, that manufactures and sells
database management software. See, SEC release.
The SEC also filed a civil complaint in U.S. District Court (NDCal) against Alan
Anderson alleging violation of federal securities laws for forging contracts,
e-mails, purchase orders, letters, and an audit confirmation in order to boost
Quintus' financial results. The SEC also announced that the U.S. Attorneys Office (NDCal) has
charged Anderson with one count of securities fraud. See, SEC release.
In addition, on May 20, the SEC announced that it initiated administrative
proceedings against former officers of Legato Systems, Quintus, and Unify for
perpetrating financial accounting frauds. See, SEC release. See for
Instituting Public Cease and Desist Proceedings, Making Findings and Issuing a
Cease and Desist Order in its proceeding titled "In the Matter of:
Legato Systems, Inc. and Stephen Wise". Stephen Wise was Legato's Chief
DC Circuit Rules in ACS of Anchorage v. FCC
5/21. The U.S.
Court of Appeals (DCCir) issued its opinion
in ACS of
Anchorage v. FCC, a case regarding regulatory classifications of
calls to Internet service providers (ISPs).
ACS is the incumbent local exchange
carrier (ILEC) in Anchorage, Alaska. ACS classified ISP related traffic as
interstate for the purpose of apportioning costs, which had the effect of
increasing its reported interstate costs, thereby making its expected rate of
return lower than it otherwise would have been. General
Communications, Inc. (GCI) filed a complaint with the Federal Communications Commission (FCC) alleging,
among other things, that ACS had improperly calculated its interstate costs by
treating ISP calls as interstate, and had violated its proscribed rate of
return. The FCC issued an order, siding with GCI. It found that ACS exceeded its
permissible rate of return, and directed ACS to pay damages.
ACS filed a petition for review with the Appeals Court, raising three issues,
including the ISP calls classification issue. (ACS also argued that the FCC
erred in failing to treat its 47 U.S.C. § 204(a)(3)
tariff filings as a bar to damages; it also contested the rate selected for
ACS argued that since the FCC has found that ISP calls are interstate for
jurisdictional purposes under its end to end analysis in a proceeding regarding
reciprocal compensation, it should also find that ISP calls are interstate for
the purpose of apportioning costs (separations) between interstate and
intrastate communications. However, the Appeals Court wrote that while
"generally speaking, separations will follow jurisdiction", in this
case, "practical considerations may justify divergent treatment -- at least
temporarily". The Appeals Court held that the FCC's classification was not
arbitrary or capricious, and hence, denied the petition for review on this
See also, FCC's Order
on Remand and Report and Order [PDF], In the Matter of Implementation of the
Local Competition Provisions in the Telecommunications Act of 1996 Intercarrier
Compensation for ISP-Bound Traffic (CC Docket Nos. 96-98 and 99-68), adopted
April 18, 2001.
The Appeals Court did, however, grant the petition for review on the Section 204
issue, and remanded on the prejudgment interest issue.
5/21. The U.S.
Court of Appeals (5thCir) issued its opinion
Abrams v. Baker Hughes, a class action securities case involving
the pleading requirements of the Private Securities Litigation Reform Act
(PSLRA). The District Court dismissed for failure to state a claim, on the basis
that the plaintiffs failed to adequately allege particularized facts to
establish the necessary element of scienter. The Appeals Court affirmed.
5/21. The U.S. Postal Service (USPS)
published a notice
in the Federal Register containing a proposed rule to require, in most
instances, that participants in USPS proceedings file documents electronically
over the Internet. The USPS requests public comments by June 21 on this proposed
rule -- on paper. See, Federal Register, May 21, 2002, Vol. 67, No. 98, at Pages
35766 - 35774.
5/21. Sen. Byron Dorgan (D-ND) and Sen. John Ensign (R-NV) introduced S 2537,
a bill to facilitate the creation of a new, second level Internet domain within
the U.S. country code domain that provides access only to material that is
suitable for minors and not harmful to minors. The bill was referred to the Senate Commerce Committee, of which
both Sen. Dorgan and Sen. Ensign are members. The House passed its version of
this bill, HR 3833,
the Dot Kids Implementation and Efficiency Act of 2002, on May 21 by a vote of
Go to News from May 16-20, 2002.