TLJ News: June 16-20, 2002.

News from June 16-20, 2002

Senate Judiciary Committee Approves Patent Reexamination Bills
6/20. The Senate Judiciary Committee approved HR 1866, a bill to clarify the basis for granting requests for reexamination of patents, and HR 1886, a bill to provide for appeals by third parties in certain patent reexamination proceedings.

HR 1886 affords all participants, including third party requesters, in reexamination proceedings, judicial review before the U.S. Court of Appeals (FedCir). Currently, only the patent owner may appeal an adverse determination. The House passed this bill on September 5, 2001.

HR 1866 is intended to overturn the 1997 opinion of the U.S. Court of Appeals (FedCir) in In Re Portola Packaging. In that case, the Appeals Court held that the restriction on the scope of reexaminations to "substantial new questions" precludes the consideration of prior art that was before the examiner. The key language of the HR 1866 amends 35 U.S.C. งง 303(a) and 312(a). It adds the following: "The existence of a substantial new question of patentability is not precluded by the fact that a patent or printed publication was previously cited by or to the Office." The House passed this bill on September 5, 2001.

The Senate Judiciary Committee also approved an amendment in the nature of a substitute to S 1754, a bill to authorize appropriations for the U.S. Patent and Trademark Office (USPTO) for FY 2002 through FY 2007.

House CIIP Subcommittee Holds Hearing on Patent Reexamination
6/20. The House Judiciary Committee's Subcommittee on Courts, the Internet and Intellectual Property (CIIP) held an oversight hearing titled "Patent Reexamination and Small Business Innovation". The House has already passed two bills pertaining to reexamination -- HR 1886 and HR 1866. Nevertheless, the hearing addressed these two bills. The hearing also focused on the views of the independent inventor, open source, and small business communities.

Rep. Howard Coble (R-NC), Chairman of the Subcommittee, presided. He stated in his prepared testimony that "Several years ago, an expanded reexamination system was proposed to permit the fuller participation of third parties. Often, small businesses and independent inventors are the very entities which cannot afford expensive federal trial litigation. Yet despite the benefits of such a system and after much debate, a slimmed down third party reexamination system was enacted. This system, while attempting to balance all of the concerns of the diverse interests, lacked some basic features for its use to be acceptable. In fact, it has only been used once in the several years it has been on the books."

He also referenced HR 1886. He stated that "Last year, the Subcommittee held two hearings and passed a modest, and badly needed bill to fix that made the third party reexamination system fair and practical. Specifically, accountability requires that there is the ability to appeal the decisions of the PTO to a higher authority."

Rep. John Conyers (D-MI), the ranking Democrat on the full Committee, expressed support for HR 1886. He said that when the Congress last amended the reexamination provisions of the Patent it, "we may have left out one thing." He stated that by allowing patent owners, but not third party participants, the right to appeal, "perhaps we have a lopsided system."

Rep. Howard Berman (D-CA), the ranking Democrat on the CIIP Subcommittee, stated that "I am an advocate for a more robust post grant patent reexamination procedure." He added that current procedures "don't allow for effective challenge." He also stated that HR 1866 and HR 1886 "constitute a good start towards refining the inter partes reexamination process", but that they "don't go far enough".

Rep. Berman and Rep. Rick Boucher (D-VA) are the co-sponsors of two bills pertaining to patent procedure: HR 1333, the Patent Improvement Act of 2001, pertaining to opposition procedures, and HR 1332, the Business Method Patent Improvement Act of 2001. Rep. Boucher is also a member of the CIIP Subcommittee. He did not participate in the June 20 hearing.

Rep. Marty Meehan (D-MA) stated that "the potential for invalid patents being issued is very high," and that this leads to uncertainty and litigation. He added that "patent reexamination provides a low cost alternative" to litigation. However, he added that there is "a potential for its abuse". He stated that he supports HR 1886.

The Subcommittee heard from one panel of witnesses. Mark Webbink, VP and General Counsel of Red Hat, an open source software and Linux operating system provider, offered an open source community perspective on patent law.

He stated in his prepared testimony that "The open source community largely disdains patent protection of software. The community does so, in part, because of a strong perception that, by extending patent protection to software, software developers are provided two bites at the intellectual property apple, one under copyright and a second under patent. The open source community also believes that patents on software have actually stifled innovation, rather than promoted it, because software development occurs at a much more rapid pace than one finds in the other patent arts. For example, time to market cycles for software are often measured in months and obsolescence in less than 10 years. By contrast, the time to market cycle alone for most pharmaceuticals is in excess of 10 years."

Webbink also stated that "the vast majority of open source software is developed by the collaborative efforts of individuals and small businesses. These individuals and businesses do not, for the most part, enjoy the same degree of capitalization or financial freedom to invest in patent protection as the large proprietary software behemoths. These small companies are at a distinct disadvantage under the law in protecting themselves from assertions of patent infringement."

Consequently, Webbink concluded that "it is imperative that the patent system, including the system for seeking reexamination of patents, be as unburdened as possible for third parties seeking to challenge such patents. Such steps ensure a level playing field and protect the public interest. To that end, we endorse" HR 1886.

Nancy Linck, General Counsel of Guilford Pharmaceuticals and a former Solicitor of the USPTO, also expressed support for HR 1886 in her prepared testimony.

She stated that "litigation could destroy a small company like Guilford financially, even though it might ultimately prevail." (Guilford's 2001 10-K states that the company, while not yet profitable, spent $54.3 Million on research and development.)

Linck said that "a strong patent system requires a meaningful way to challenge invalid patents without prohibitively costly, time consuming litigation. While the PTO is doing an outstanding job of examining patent applications, given the large number of applications and the resources they have, some patents issue that should not. These invalid patents stifle innovation and thus hurt the public, including patent owners.

She continued that "Making certain changes in our inter partes reexamination system would provide a fast, fair and effective way to address patents of questionable validity. I commend the House for taking a first step in that direction by passing H.R. 1886."

She testified that one of the problems with the current reexamination process is that "only the patent owner can appeal to the Federal Circuit." Another problem is that "the third party requester is estopped from later raising in federal court any issue it raised or could have raised, even though it has no right to appeal to the Federal Circuit." She also stated that "if a third party chooses reexamination to attack the validity of a patent and loses, the third party would have great difficulty defending itself in a later infringement action against a patent that has been strengthened through reexamination."

She continued that "there is a perception by third parties that, because the patentee is considered to be the PTO's customer, the PTO favors the patentee. In fact, given the time, money and manpower pressures on the PTO, it has a strong incentive to decide in the patentee's favor, thereby avoiding an appeal to the Federal Circuit. In addition, if the PTO rules in the patentee’s favor, there is no threat of reversal by the court. Because of these limitations and concerns, third parties do not and will not use the 1999 inter partes reexamination system. Permitting third parties to appeal to the Federal Circuit would address these limitations and concerns ..."

She also said that "In re Portola Packaging ... should be legislatively overruled to permit the PTO to rely on art previously in the record". (This is accomplished by HR 1866.)

Finally, Linck said that "PTO should be required to complete reexamination in an expeditious manner, for example, within 18 months of the filing of the request."

The Subcommittee also heard from Paul Heckel, an independent inventor. He stated that "the courts, especially the Federal Circuit, are strongly biased against independent inventors". He said that in a study, 13 out of 14 relevant cases in the Federal Circuit went against independent inventors. He said, "I call this the insider outsider bias."

The Subcommittee also heard colorful testimony from another independent inventor, Peter Theis. He asserted that "independent inventors ... are being vilified and demonized, ignored and expunged from the fabric of American society. We are being taxed for our inventions, denied a period of exclusivity, and denied justice by the courts."

He also attacked HR 1886. He stated that "This reexamination act, properly dubbed The Infringer Protection Act, brings down the cost of defense for infringers. Reexamination, unlike litigation, eliminates all risk of loss from an adverse decision. Because an industry can legally gang up against a patentee, they will succeed in defeating a patentee, at a low cost, by sequentially raising one reexamination challenge after another." He continued that "the worst part of the proposed Infringers Benevolent Act is that the Federal Circuit can review rational reexamination rulings of PTO." He also accused the Federal Circuit of "Orwellian doublespeak".

Rep. Lamar Smith (R-TX), who is a member of the Judiciary Committee, but not its CIIP Subcommittee, sat in on the hearing.

Librarian of Congress Releases Webcasting Rule
6/20. The Librarian of Congress issued his final rule providing the 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. ง 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. ง 112. The Librarian followed the recommendations of the Register of Copyrights, rather than the CARP.

The Librarian also released a summary stating that he "has accepted the recommendation of the Register of Copyrights and rejected the rates and terms recommended by a Copyright Arbitration Royalty Panel (CARP) ... The most significant difference between the CARP's determination and the Librarian’s decision is that the Librarian has abandoned the CARP's two tiered rate structure of 0.14ข per performance for ``Internet onlyดด transmissions and 0.07ข for each retransmission of a performance in an AM/FM radio broadcast, and has decided that the rate of 0.07ข will apply to both types of transmission."

The rule takes effect on September 1, 2002.

On February 2, 2002, the CARP released its report [143 pages in PDF] recommending that both webcasters and commercial broadcasters pay a performance fee of 0.07ข 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 0.14ข per performance and 9% of performance fees due for all other Internet transmissions.

The CARP further recommended that non commercial broadcasters pay a performance fee of 0.02ข per performance for simultaneous Internet retransmissions of over the air AM or FM radio broadcasts, and 0.05ข for other Internet transmissions, including up to two side channels of programming consistent with the public broadcasting mission of the station.

On May 21 the Librarian of Congress, at the recommendation of the Register of Copyrights, Marybeth Peters, issued an order rejecting the CARP's February 20 determination.

Cary Sherman, President of the Recording Industry Association of America (RIAA), stated in a release that "The import of this decision is that artists and record labels will subsidize the webcasting businesses of multi billion dollar companies like Yahoo, AOL, RealNetworks and Viacom. The rate, which cannot be squared with the decision of the arbitration panel, simply does not reflect the fair market value of the music as promised by the law. This decision will certainly reinforce the steadfast opposition of copyright owners to compulsory licensing."

John Simson, Executive Director of SoundExchange, stated in a release that "Today's decision by the Librarian of Congress, which disregarded voluminous economic and business evidence supporting a significantly higher rate, means that once again artists and record companies will not receive fair value for their labors. There is a reason why we have the expression, ``I can get it for a songดด. It is because we, as a culture, devalue artistic creation. This is just another example of that cultural discrimination. Recording artists and sound recording copyright owners should not be forced to subsidize the growth of webcasting as we've been forced to subsidize the radio industry for the past 70 years. Fair and equitable royalties and nothing less should be paid when recordings are used to build these new businesses."

USPTO Proposes Fee Increase Legislation
6/20. The U.S. Patent and Trademark Office (USPTO) released proposed legislation [12 pages in PDF] to amend 35 U.S.C. ง 41, regarding increases in patent and trademark fees. See also, USPTO summary.

House Commerce Committee Members Write Evans Re ICANN Reform
6/20. House Commerce Committee leaders wrote a letter to Commerce Secretary Donald Evans regarding "reform proposals being discussed June 24-28, 2002 at the Internet Corporation for Assigned Names and Numbers (ICANN) Board of Directors meeting in Bucharest, Romania."

They wrote that ICANN "was based on four principles: stability, competition, bottom-up coordination, and representation. However, over the past four years that ICANN has been in existence, we have seen few of these principles come to fruition. To the contrary, we believe ICANN now lacks the legitimacy needed to guide an international consensus body."

The letter was signed by Rep. Billy Tauzin (R-LA) and Rep. John Dingell (D-MI), the Chairman and ranking Democrat on the full Committee, and by Rep. Fred Upton (R-MI) and Rep. Ed Markey (D-MA), the Chairman and ranking Democrat on the Telecom and Internet Subcommittee.

"ICANN's Mission Should be Clearly Defined," wrote the four. "Regardless of how ICANN decides to spell out its mission, there needs to be clear, definable, and unalterable lines around the responsibilities of ICANN."

They also stated that "ICANN Must Be Accountable. One of ICANN's greatest obstacles has been its complete lack of clearly articulated decision-making processes. Any reform of ICANN must address this lack of accountability. As a non-governmental body responsible for managing a global Internet resource, ICANN's operating procedures must be transparent to any and all interested parties. This means far more than posting decisions on a website. ICANN must establish rules, not unlike those in the Administrative Procedures Act, that provide interested parties with predictability. Without defined notice and comment periods, established decision criteria, and the application of such criteria to the problem, petitioners are left with an ad hoc process. "

Finally, the letter states that further extensions of the Memorandum of Understanding between the ICANN and the Commerce Department's National Telecommunications and Information Administration (NTIA) should be earned. It states that "In November 1998, the Department of Commerce entered into a Memorandum of Understanding (MOU) with ICANN. Having been extended several times, most recently in September 2001, the MOU is set to expire on September 30, 2002. After monitoring ICANN's activities for the last four years, we strongly believe that the Department should only authorize a short term renewal of the MOU unless and until ICANN can show that reforms, necessary to limit its authority and provide for accountability and transparency, have been implemented."

Ridge Testifies on Department of Homeland Security
6/20. The Senate Governmental Affairs Committee held a hearing to examine the President's proposal to create a Department of Homeland Security (DHS). Tom Ridge, Director of the President's Office of Homeland Security addressed many topics in his prepared testimony [PDF] including the DHS's division for information analysis and infrastructure protection.

Ridge stated that this section "would complement the reforms on intelligence and information sharing already underway at the FBI and the CIA. The Department would analyze information and intelligence for the purpose of understanding the terrorist threat to the American homeland and foreseeing potential terrorist threats against the homeland."

He continued that the DHS "would comprehensively assess the vulnerability of America’s key assets and critical infrastructures, including food and water systems, agriculture, health systems and emergency services, information and telecommunications, banking and finance, energy (electrical, nuclear, gas and oil, dams), transportation (air, road, rail, ports, waterways), the chemical and defense industries, postal and shipping entities, and national monuments and icons."

He concluded that the DHS "would for the first time merge under one roof the capability to identify and assess threats to the homeland, map those threats against our vulnerabilities, issue timely warnings, and organize preventive or protective action to secure the homeland."

See also, opening statement by Sen. Joe Lieberman (D-CT).

House Commerce Committee Members Write Ridge Re Critical Infrastructure Protection
6/20. Rep. Billy Tauzin (R-LA), Chairman of the House Commerce Committee, and other Republican members of the Committee, wrote a letter to Tom Ridge, Director of the Office of Homeland Security, regarding the President's proposal to create a new Department of Homeland Security.

They expressed "support for the efforts of the Office of Homeland Security to coordinate a comprehensive and consistent approach for assessing threats and vulnerabilities posed by potential terrorist actions to America's critical infrastructures and manufacturing facilities. These include both publicly and privately owned assets that are integral to the delivery of telecommunications and information technology services, the production and distribution of energy, and the delivery of safe food and drinking water, as well as manufacturing facilities that may be targets of potential terrorist actions."

They also expressed concern about the environmental reporting requirements of the Clean Air Act. They wrote that "we must ensure that vulnerability assessments are never allowed to be used as roadmaps for terrorist action."

The letter was signed by Rep. Tauzin, Rep. Fred Upton (R-MI), Chairman of the Subcommittee on Telecommunications and the Internet, and six other members of the House Commerce Committee.

SEC Initiates Rule Making Proceeding
6/20. The Securities and Exchange Commission (SEC) proposed rules to reform oversight and improve accountability of auditors of public companies. See, SEC release.

The proposed rules would establish a system based on Public Accountability Boards (PAB). The proposed rules would provide, among other things, that the financial statements of SEC registered companies would not be deemed to comply with SEC requirements unless the company's outside auditors were members of a PAB. The SEC would also recognize and oversee PABs. Also, each PAB would be required to be dominated by persons not associated with the accounting profession.

Harvey Pitt, Chairman of the SEC stated that "The PAB will conduct frequent audit quality reviews -- every year for at least those firms that audit over 80% of public companies, which represents well over 90% of our market capitalization. Moreover, the PAB will discipline individual accountants or whole firms for unethical or incompetent conduct; and discipline accounting firms lacking quality control systems that meet or exceed the highest professional standards. The PAB's disciplinary and remedial arsenal will include fines, censures, removal from client engagements, limitations on activities and suspension from auditing SEC clients. Those failing to cooperate could be barred from doing public audits." See, Pitt transcript.

Pitt also said that "Some speculate we are competing with Congress to see who gets to solve our crisis of confidence. No such rivalry exists -- the only important thing is that this crisis is resolved. We've said all along, and proven, that we will work with both Houses of Congress in the development of legislative solutions to problems we've identified."

Gordon Moore Awarded Presidential Medal Of Freedom
6/20. President Bush announced recipients of the Presidential Medal of Freedom. The list includes Gordon Moore, co-founder of Intel. See, White House release. Moore postulated Moore's Law, which predicts that the number of transistors that could be placed on a computer chip will double every couple of years.

People and Appointments
6/20. Senate Judiciary Committee held a executive business meeting. It held over the nomination of Lavenski Smith to be a Judge of the U.S. Court of Appeals (8thCir). The Committee unanimously approved the nominations of David Cercone to be a Judge of the U.S. District Court (WDPenn), Morrison England to be a Judge of the U.S. District Court (EDCal), Kenneth Marra to be a Judge of the U.S. District Court (SCFl).

More News
6/20. The Federal Communications Commission (FCC) released a Notice of Apparent Liability (NAL) proposing a $1,200,000 fine against WebNet Communications for slamming. The NAL states that "we find that WebNet Communications, Inc. (WebNet) apparently willfully or repeatedly violated section 258 of the Communications Act of 1934, as amended (the Act), as well as Commission rules and orders, by changing the designated preferred carriers of 20 consumers without their authorization and verification, a practice commonly known as ``slamming.ดด Based upon our review of the facts and circumstances surrounding the violations, we find WebNet apparently liable for a forfeiture in the amount of $1,200,000." (Footnotes omitted.) See also, FCC release.

6/20. The National Telecommunications and Information Administration (NTIA) published in its web site an amendment to its contract with NeuStar regarding management of the .us top level domain.

6/20. California Governor Gray Davis signed into law Senate Bill 2061, regarding electronic communications and evidentiary privileges. The bill revises the law regarding privileges (such as attorney client, doctor patient, and clergyman penitent) and waiver of privilege. In particular, the bill provides that "A communication between persons in a relationship listed in subdivision (a) does not lose its privileged character for the sole reason that it is communicated by electronic means or because persons involved in the delivery, facilitation, or storage of electronic communication may have access to the content of the communication". The bill was sponsored by Sen. Bill Morrow (R - Oceanside).

Sen. Grassley Writes Ridge Re Cyber Security Provisions of DHS Bill
6/19. Sen. Charles Grassley (R-IA) wrote a letter to Tom Ridge, Director of the Office of Homeland Security, regarding the President Bush's proposed legislation to create a new Department of Homeland Security. He asked several questions pertaining to cyber security, information sharing, and intelligence gathering.

Sen. Grassley wrote that "The Information Analysis and Infrastructure Protection Division within the new Department will combine such entities as part of the National Infrastructure Protection Center (NIPC) from the FBI, the Critical Infrastructure Assurance Office (CIAO) from Commerce, and the Federal Computer Incident Response Center from the General Services Administration (GSA), among others. How does the Administration perceive this division working with the other federal infrastructure protection concerns not brought under the jurisdiction of the new department?"

He also asked "Will the current full time employees dedicated to these organizations be moved to the new department, i.e, the 795 FBI employees, the 27 Commerce employees, and the 23 GSA employees, in addition to the numerous detailees?"

Sen. Grassley is a senior member of the Senate Judiciary Committee, which has oversight jurisdiction regarding the Department of Justice (DOJ) and Federal Bureau of Investigation (FBI). Under the President's proposed legislation, this Committee's jurisdiction would be reduced, for example, by the removal of the NIPC from the FBI, and by removal of the Immigration and Naturalization Service (INS) from the DOJ.

Sen. Grassley also asked "What role will the President's Critical Infrastructure Protection Board (CIPB), the office headed by Richard Clarke, play in this new division?"

He also asked "What provisions have been made to guarantee the critical transfer of institutional knowledge, in addition to employees, hardware, and open cases?

Sen. Grassley also posed numerous questions regarding intelligence gathering, sharing and analysis. He asked about "turf issues" involving the new department and the FBI and Central Intelligence Agency (CIA). He also asked "Have we gone far enough in this reorganization plan? Should these organizations also be integrated into the Department of Homeland Security?"

Finally, he inquired about several technology issues. He wrote: "Sharing this information is important, but what exactly happens to it once it is received is critical. I'm referring to technology: data mining and link analysis, in addition to human intelligence. The application of commercially available software, let alone some proprietary confidential technology, will surely improve our ability to identify trends, patterns of behavior, and the precursors of an imminent attack. The proper handling and appropriate accountability thereof will prevent the mistakes previously made by our intelligence community. What new techniques does the department propose to employ that will ensure that intelligence information is handled and analyzed correctly?"

Sen. Grassley's letter also addresses whistle blowers, agency oversight, fiscal responsibility and other matters.

House Establishes Select Committee on Homeland Security
6/19. The House passed HRes 449, which establishes a Select Committee on Homeland Security. The initial members are Rep. Dick Armey (R-TX), Rep. Tom DeLay (R-TX), Rep. J.C. Watts (R-OK), Rep. Deborah Pryce (R-OH), Rep. Robert Portman (R-OH), Rep. Nancy Pelosi (D-CA), Rep. Martin Frost (D-TX), Rep. Robert Menendez (D-NJ), and Rep. Rosa DeLauro (D-CT).

Bush Speaks on Department of Homeland Security
6/19. President Bush gave a speech in Washington DC to the United Brotherhood of Carpenters and Joiners. He spoke about terrorism and his proposal to create a new Department of Homeland Security.

He stated that "I proposed a new Cabinet department. I want to explain quickly why I did so. There are over 100 agencies involved with homeland defense, and they're scattered all throughout Washington. It makes it difficult to do a job if you're trying to chase down 100 different agencies, because they're in different departments."

"What we need to do is to bring these agencies under one Cabinet Secretary, organize it so that information flows freely, organize it so there's responsibility and authority so we can have accountability, and help change cultures in agencies to the primary responsibility of the day, which is to protect the American homeland," said Bush.

"It's going to be a little difficult, because there is a tendency on Capitol Hill for people to what they call protect their turf. In other words, if you've got responsibility over funding one agency and that agency is going to be moved away from you, you might be somewhat resistant. And what I'd like to do is to call upon Congress -- and I hope you do, as well -- to think first and foremost about how best to protect the homeland, not how best to protect their political turf."

The President concluded that "we've got to match those threats with a new way of thinking, which means we've got to do a better job of collecting and sharing intelligence."

President Bush also gave a dinner speech in Washington DC in which he addressed the new department. He stated that "There are over 100 different agencies that have something to do with the homeland. And they're scattered everywhere, which makes it awfully hard to align authority and responsibility." He urged "the members of Congress to think what's best for the country, not what's best for their particular committee, and allow us to reorganize a singular function, all aimed at protecting the American people from attack."

700 MHz Auctions Delayed
6/19. On June 18, the Senate passed HR 4560, the Auction Reform Act of 2002, which delays most of the 700 MHz auctions. The House passed the bill on May 7. On June 19, President Bush signed the bill. See, White House release.

The Federal Communications Commission (FCC) had scheduled Auction 44 for June 19. Earlier this week, it postponed it for one day. On May 24, 2002, the FCC announced that Auction 31 was postponed until January 14, 2003, but that Auction 44 would proceed on June 19, 2002. See, FCC's May 24 notice of postponement.

The FCC issued a release on June 19 stating that "Bidders are advised that Auction No. 44 has been postponed and will not begin on June 20, 2002. Legislation has been passed by Congress and signed by the President directing the Commission to postpone the auction of certain spectrum licenses previously included in the Auction No. 44 inventory, and to commence the auction of the licenses in the C and D blocks of the Lower 700 MHZ band beginning no earlier than August 19, 2002, and no later than September 19, 2002."

The bill just enacted provides that "Except as provided in subparagraph (C), the Commission shall not commence or conduct auctions 31 and 44 on June 19, 2002, as specified in the public notices of March 19, 2002, and March 20, 2002 (DA 02-659 and DA 02-563)." Subparagraph (C) then provides that "Subparagraph (B) shall not apply to the auction of -- (I) the C-block of licenses on the bands of frequencies located at 710-716 megahertz, and 740-746 megahertz; or (II) the D-block of licenses on the bands of frequencies located at 716-722 megahertz." Subparagraph (C) further provides that auctions for these exempted bands "shall be commenced no earlier than August 19, 2002, and no later than September 19, 2002".

National Telecommunications and Information Administration (NTIA) Director Nancy Victory stated in a release that "I welcome Congress's action last night to delay the pending auctions of spectrum in the 700 MHz bands. It showed that sound spectrum policy triumphed over counterproductive deadlines. With the additional time, the FCC, the broadcasters and the potential bidders for the spectrum should work diligently to remove the uncertainties regarding when the spectrum can best be put to use for American consumers. The Administration stands ready to assist in that effort."

The Congressional findings recited in the bill state that "Circumstances in the telecommunications market have changed dramatically since the auctioning of spectrum in the 700 megahertz band was originally mandated by Congress in 1997, raising serious questions as to whether the original deadlines, or the subsequent revision of the deadlines, are consistent with sound telecommunications policy and spectrum management principles." The Congressional findings also recite that "No comprehensive plan yet exists for allocating additional spectrum for third generation wireless and other advanced communications services. The Federal Communications Commission should have the flexibility to auction frequencies in the 700 megahertz band for such purposes."

The Cellular Telecommunications and Internet Association (CTIA) praised passage of the bill. See, release.

Broadband Coalition Supports FCC Conclusion on Cable Modem Service
6/19. The High Tech Broadband Coalition (HTBC) submitted a comment [PDF] to the Federal Communications Commission (FCC) in its proceeding regarding the appropriate regulatory classification of cable modem service.

The HTBC wrote that it "supports the Commission's conclusion that cable modem service is an interstate information service that does not involve a separate offering of telecommunications. To the extent that any cable operator is offering unaffiliated Internet service providers (``ISPsดด) stand alone transmission service, that offering is private, not common, carriage. Thus, cable modem service is outside the bounds of Title II regulation, and the Commission cannot, and should not, require multiple ISP access. Maintaining the current deregulatory environment for cable modem service will spur continued investment and innovation in broadband technologies."

The HTBC is a recently formed group composed of the Business Software Alliance (BSA), Consumer Electronics Association (CEA), Information Technology Industry Council (ITIC), National Association of Manufacturers (NAM), Semiconductor Industry Association (SIA), and Telecommunications Industry Association (TIA). The FCC's proceeding is CS Docket No. 02-52.

FTC Files Administrative Complaint Against Rambus
6/19. The Federal Trade Commission (FTC) filed an administrative complaint against Rambus alleging anti competitive behavior in violation of Section 5 of the Federal Trade Commission Act (FTCA) in connection with its participation in a standard setting body for dynamic random access memory products. See also, FTC release.

Rambus is a Delaware corporation based in Los Altos, California, that develops and licenses designs for computer memory products. Its ticker symbol is RMBS.

The complaint pertains to Rambus's participation in he JEDEC Solid State Technology Association, which was formerly known as the Joint Electron Device Engineering Council. JEDEC develops and issues technical standards for a form of computer memory known as synchronous dynamic random access memory (SDRAM).

The complaint alleges that Rambus "has illegally monopolized, attempted to monopolize, or otherwise engaged in unfair methods of competition in certain markets relating to technological features necessary for the design and manufacture of a common form of digital computer memory, known as dynamic random access memory, or ``DRAM.ดด"

The FTC alleges that Rambus engaged in anticompetitive behavior in violation of Section 5 of the FTCA by "participating in the work of an industry standard setting organization, known as JEDEC, without making it known to JEDEC or to its members that Rambus was actively working to develop, and did in fact possess, a patent and several pending patent applications that involved specific technologies proposed for and ultimately adopted in the relevant standards. By concealing this information -- in violation of JEDEC's own operating rules and procedures -- and through other bad faith, deceptive conduct, Rambus purposefully sought to and did convey to JEDEC the materially false and misleading impression that it possessed no relevant intellectual property rights."

Section 5 of the FTCA, codified at 15 U.S.C. ง 45, provides, in part, that "Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful."

The complaint alleges three violations. First, it alleges that "Rambus has willfully engaged in a pattern of anticompetitive and exclusionary acts and practices, undertaken over the course of the past decade, and continuing even today, whereby it has obtained monopoly power in the synchronous DRAM technology market and narrower markets encompassed therein -- namely, the latency, burst length, clock synchronization, and data acceleration markets discussed above -- which acts and practices constitute unfair methods of competition in violation of Section 5 of the FTC Act."

Second, the complaint alleges that "Rambus has willfully engaged in a pattern of anticompetitive and exclusionary acts and practices, undertaken over the course of the past decade, and continuing even today, with a specific intent to monopolize the synchronous DRAM technology market and narrower markets encompassed therein, resulting, at a minimum, in a dangerous probability of monopolization in each of the aforementioned markets, which acts and practices constitute unfair methods of competition in violation of Section 5 of the FTC Act."

Third, the complaint alleges that "Rambus has willfully engaged in a pattern of anticompetitive and exclusionary acts and practices, undertaken over the course of the past decade, and continuing even today, whereby it has unreasonably restrained trade in the synchronous DRAM technology market and narrower markets encompassed therein, which acts and practices constitute unfair methods of competition in violation of Section 5 of the FTC Act."

The FTC also set a hearing date of September 18, 2002.

Rambus SVP and General Counsel John Danforth stated in a release that "We believe we have established that Rambus fully complied with JEDEC's disclosure policy and that Rambus had no undisclosed patents, or even applications, during the relevant time period that read on any proposed JEDEC standard ... At the end of the day, we believe that the FTC process, either at the administrative level or on appeal, will conclude that our actions were entirely appropriate and lawful."

The Rambus release also states that "The FTC's complaint stems from the same facts and the same core allegations as are currently being litigated in multiple private lawsuits, including the Infineon case, tried last year in Virginia, for which an appeal was heard before the United States Court of Appeals for the Federal Circuit on June 3, 2002. Two United States District Courts -- those hearing the Micron and Hynix cases -- have delayed their cases pending resolution of the Infineon appeals."

NTIA Director Victory Addresses Obstacles to Broadband Deployment
6/19. National Telecommunications and Information Administration (NTIA) Director Nancy Victory gave a speech in Washington DC titled "U.S. and European Approaches to the Future of Broadband". One of the issues which she addressed was "unnecessary government impediments to broadband competition and deployment"; that is, state and local government rights of way management.

She stated that "This is one issue where all sectors of the broadband industry -- Bell Operating Companies, CLECs, cable providers, cable companies, overbuilders, and wireless providers -- actually share the same point of view. All participants are concerned that restrictions by certain municipalities and federal government landowners on accessing public rights of way and tower sites might be inhibiting or at least delaying broadband network construction."

She continued that "NTIA is working closely with the National Association of Regulatory Utility Commissioners (NARUC), and particularly its Rights of Way Study Committee, to help identify best practices and recommendations for state actions to streamline the current process. NTIA is also meeting with representatives of the cities and their associations, such as the National Association of Telecommunications Officers and the National League of Cities, to identify means for improving and simplifying their current processes, while ensuring sufficient flexibility for municipalities to best serve their citizens. NTIA is also launching an initiative to streamline and improve the rights of way oversight practices of federal government agencies."

She also reviewed other Bush administration policies, current Federal Communications Commission (FCC) broadband related proceedings, spectrum management and Third Generation wireless issues, and ICANN governance.

More News
6/19. The Federal Communications Commission (FCC) approved Verizon's Section 271 application to provide in region interLATA service in the state of Maine. See, FCC release [MS Word].

6/19. The Federal Communications Commission (FCC) submitted its annual report [PDF] to the Congress on progress made in achieving the objectives of the Open-market Reorganization for the Betterment of International Telecommunications Act (ORBIT) Act.

6/19. The Senate Commerce Committee's Subcommittee on Science, and Transportation Communications held a hearing to examine future sufficiency and stability of the Universal Service Fund. See, prepared testimony [PDF] of witnesses: Dorothy Attwood (Chief of the FCC's Wireline Competition Bureau), Nan Thompson (Chair of the Alaska Public Utilities Commission), William Gregg (Director of the West Virginia Consumer Advocate Division), Lila Jaber (Florida Public Service Commission), Don Bond (Public Service Telephone Company), Margaret Greene (BellSouth), Victoria Harker (CFO of MCI Group), and Michael Altschul (Cellular Telecommunications & Internet Association).

House Judiciary Committee Approves Internet Gambling Bill
6/18. The House Judiciary Committee amended and approved HR 3215, the Combating Illegal Gambling Reform and Modernization Act, by a vote of 18-12. The Committee approved an amendment in the nature of a substitute offered by the bill's sponsor, Rep. Bob Goodlatte (R-VA), on June 13. The Committee also approved further amending language offered by Rep. Chris Cannon (R-UT) at the June 18 meeting.

"Gambling on the Internet has exploded into a lucrative business that sucks billions of dollars out of the U. S. economy each year and costs tens of thousands of jobs. There are over 2000 illegal, off shore gambling websites, which are unlicensed, untaxed, and unregulated," said Rep. Goodlatte. "Illegal gambling sites evade existing anti-gambling laws by operating off shore, providing a nearly undetectable harbor for criminal enterprises."

On June 18, the Committee rejected by a vote of 12-13 an amendment offered by Rep. Bobby Scott (D-VA) that would have extended the ban to include individual gamblers, not just gambling businesses. The Committee also rejected an amendment offered by Rep. Sheila Lee (D-TX) that would have created an exemption for gambling conducted by certain charitable institutions exempt from federal taxes under Section 501(c)(3) of the Internal Revenue Code. (Also, at the June 13 mark up meeting, the Committee rejected an amendment offered by Rep. Robert Wexler (D-FL) to create an exemption for jai alai and dog racing.)

Expansion of the Wire Act. HR 3215 would amend 18 U.S.C. งง 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 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).

The criminal prohibition of the Wire Act, 18 U.S.C. งง 1084, currently provides that "Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers ... shall be fined under this title or imprisoned not more than two years, or both." Since the current statute affects only wire communication facilities, and some Internet communications do not involve wires, it leaves open the possibility that some Internet gambling may not be illegal under the Wire Act.

HR 3215 provides that "whoever, being engaged in a gambling business, knowingly (1) for the transmission in interstate or foreign commerce ..." or between the U.S. and abroad "... of bets or wagers ... shall be fined under this title or imprisoned not more than five years, or both." Hence, it pertains to all communications, not just wire communications. Moreover, the maximum penalty for violation is increased from 2 to 5 years.

Also, HR 3215 would amend 18 U.S.C. ง 1081, which currently defines ''wire communication facility'' as "any and all instrumentalities, personnel, and services (among other things, the receipt, forwarding, or delivery of communications) used or useful in the transmission of writings, signs, pictures, and sounds of all kinds by aid of wire, cable, or other like connection between the points of origin and reception of such transmission." As amended, it would provide that "communications facility" means "any and all instrumentalities, personnel, and services (among other things, the receipt, forwarding, or delivery of communications) used or useful in the transmission of writings, signs, pictures, and sounds of all kinds by aid of wire, cable, satellite, microwave, or other like connection (whether fixed or mobile) between the points of origin and reception of such transmission."

Cannon Amendments. The Committee approved on June 18 two amendments offered by Rep. Cannon.

The first amendment removed Section 1084(d) from the amendment in the nature of a substitute. This subsection contained a number of exceptions to the general prohibition of Section 1084, such as "a gambling business [that] is in compliance with Federal law relating to gambling" and certain gambling pursuant to the Indian Gaming Regulatory Act. This Cannon amendment replaced the deleted subsection with the following language: "(d) Nothing in subsection (c) or (d) shall allow the use of a communication facility for the transmission of bets or wagers involving the purchase of a chance or opportunity to win a lottery, or the use of a communication facility for the transmission of information assisting in the placing of bets or wagers involving the purchase of a chance or opportunity to win a lottery, except that communication facilities may be used for the transmission of such bets or wagers and the transmission of information assisting such bets or wagers as long as such bets or wagers are placed on the premises of a retail outlet that is open to the public and licensed by the State in which it is located to sell chances or opportunities to win a lottery."

The second Cannon amendment adds a new subsection to Section 1084 that provides that "Nothing in this section allows the use of a communication facility for the purpose of placing a bet or wager or the use of a communication facility for the purpose of transmitting information assisting in the placement of bets or wagers that was illegal as of June 6, 2002."

Enforcement. In addition to criminal penalties, HR 3215 would allow federal, state, local, and tribal law enforcement agencies to obtain injunctions against violation of the act. It also provides that "any common carrier, subject to the jurisdiction of the Federal Communications Commission" may be enjoined from providing service to entities in violation of the act, and gives such carriers immunity from suit for discontinuing such service.

Internet Service Providers. The amendment in the nature of a substitute offered on June 13 changed the bill on the matter of ISPs, or interactive computer services. The language is as follows: "Relief granted under paragraph (1) against an interactive computer service (as defined in section 230(f) of the Communications Act of 1934) shall -- (A) be limited to the removal of, or disabling of access to, an online site violating this section, or a hypertext link to an online site violating this section, that resides on a computer server that such service controls or operates; except this limitation shall not apply if the service is violating this section or is in active concert with a person who is violating this section and receives actual notice of the relief; (B) be available only after notice to the interactive computer service and an opportunity for the service to appear are provided; (C) not impose any obligation on an interactive computer service to monitor its service or to affirmatively seek facts indicating activity violating this section; (D) specify the interactive computer service to which it applies; and (E) specifically identify the location of the online site or hypertext link to be removed or access to which is to be disabled."

The bill contains a notice and take down provision, which enables law enforcement authorities to obtain a court order compelling an ISP to take down a gambling web site, and a hyperlink to gambling web site. Rep. Cannon questioned this language at the June 18 mark up. First, he pointed out that while the bill allows law enforcement authorities to take action to break hyperlinks in web sites, it would do nothing affecting bookmarks stored in gamblers' browsers.

Second, Rep. Cannon questioned whether the ISP language would place a disproportionate economic burden small ISPs which lack the legal resources of large ISPs. He said that this would give a "competitive advantage to larger ISPs" such as AOL. Rep. Goodlatte disagreed.

History. Rep. Goodlatte and Sen. Jon Kyl (R-AZ) have been trying to pass a bill for three Congresses. This bill was introduced on November 1, 2001. See, bill as introduced [PDF]. (See, TLJ Daily E-Mail Alert No. 300, November 2, 2001.) The Subcommittee on Crime amended and approved the bill on March 11. (See, TLJ Daily E-Mail Alert No. 387, March 13, 2002.) On May 8, the full Judiciary Committee began its mark up, but only heard opening statements. The Committee held a mark up session on June 13, and completed its mark up on June 18.

House Financial Services Committee. The bill next goes to the House Financial Services Committee, because the bill also contains provisions pertaining to illegal gambling funding. It 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. The Financial Services Committee approved HR 556 on October 31, 2001. (See, TLJ Daily E-Mail Alert No. 299, November 1, 2001.)

Prospects for Passage. In the 106th Congress, the Judiciary Committee approved another Internet gambling bill sponsored by Rep. Goodlatte. The full House then considered it under a suspension of the rules, meaning that it could not be amended, and required a 2/3 majority for passage. It fell just short of a 2/3 majority. The Senate has also twice passed Internet gambling bills.

House Judiciary Committee Supports Ban on Computer Generated Child Porm
6/18. The House Judiciary Committee amended and all but approved HR 4623, the "Child Obscenity and Pormography Prevention Act of 2002." This bill is a reaction to the Supreme Court's April 16 opinion [PDF] in Ashcroft v. Free Speech Coalition, in which the Court held unconstitutional on First Amendment and overbreadth grounds provisions of the Child Pormography Prevention Act of 1996 (CPPA) banning computer generated images depicting minors engaging in sezually explicit conduct.

The vote on final passage was 16-2, which fell just short of a reporting quorum. Hence, Committee Chairman James Sensenbrenner (R-WI) eviscerated the vote until such time as a reporting quorum is present.

The bill, as approved but not reported, maintains the ban on certain computer generated images, but narrows the scope of the prohibition, and provides an affirmation defense that no child was involved in the alleged offense.

The CPPA expanded the federal prohibition on child pormography to encompass new technologies. 18 U.S.C. ง 2256, the section containing definitions, was amended to provides that child pormography means "any visual depiction, including any photograph, film, video, picture, or computer or computer- generated image or picture, whether made or produced by electronic, mechanical, or other means, of sezually explicit conduct, where (A) the production of such visual depiction involves the use of a minor engaging in sezually explicit conduct; (B) such visual depiction is, or appears to be, of a minor engaging in sezually explicit conduct; (C) such visual depiction has been created, adapted, or modified to appear that an identifiable minor is engaging in sezually explicit conduct; or (D) such visual depiction is advertised, promoted, presented, described, or distributed in such a manner that conveys the impression that the material is or contains a visual depiction of a minor engaging in sezually explicit conduct;"

Justice Kennedy wrote the opinion of the Court in Ashcroft v. FSC. He wrote that the CPPA, to the extent that it extends the federal prohibition against child pormography to sezually explicit images that appear to depict minors but were produced without using any real children, is substantially overbroad and violates the First Amendment.

He elaborated that the prohibited conduct is not obscene under the standard announced in Miller v. California, 413 U.S. 15 (1973), and it is not child pormography under the standard announced in New York v. Ferber, 458 U.S. 747 (1982).

Rep. Lamar Smith (R-TX) is the sponsor of the bill. Rep. Adam Schiff (D-CA) was also active in the debate at the June 18 mark up session. He stated that the Supreme Court's ruling leaves prosecutors unable to prosecute child pormography that involves the use of children, because it is nearly impossible to prove that a photograph is not computer generated.

This bill, which Rep. Schiff states will pass constitutional muster, would amend ง 2256(8)(B) to read "such visual depiction is a computer image or computer- generated image that is, or is nearly indistinguishable ... from, that of a minor engaging in sezually explicit conduct". However, the bill would also provide that "it shall be an affirmative defense to a charge of violating this section that the alleged offense did not involve the use of a minor or an attempt or conspiracy to commit an offense under this section involving such use."

This language would shift the burden of proving that an image is computer generated to the defendant. Opponents of the bill, such as Rep. Bobby Scott (D-VA), stated that this burden shifting is unconstitutional. Rep. Schiff disputed this. He further cited the concurring opinion of Justice Clarence Thomas in Ashcroft v. FSC. Thomas wrote that "technology may evolve to the point where it becomes impossible to enforce actual child pornography laws because the Government cannot prove that certain pornographic images are of real children. In the event this occurs, the Government should not be foreclosed from enacting a regulation of virtual child pornography that contains an appropriate affirmative defense or some other narrowly drawn restriction. ... The Court does leave open the possibility that a more complete affirmative defense could save a statute's constitutionality ..."

The Committee rejected an amendment offered by Rep. Scott that would have gutted the bill. The Committee also rejected an amendment offered by Rep. Sheila Lee (D-TX) that would have toughened the standard for child pormography cases by requiring that prosecutors must also meet the obscenity test of Miller v. California.

The Committee approved an amendment offered by Rep. Melissa Hart (R-PA) pertaining to the use of administrative subpoenas. The Committee also approved a lengthy amendment offered by Rep. Smith. It adds congressional findings identifying the government's compelling interest. It also narrows the definition of child pormography.

Editor's Note. TLJ Daily E-Mail Alert is delivered by e-mail. Some subscribers receive their copies via e-mail servers that run e-mail filtering software that blocks the TLJ Daily E-Mail Alert if it contains certain words. TLJ intentionally misspells certain words, such as pormography, to circumvent this blocking.

DC Circuit Rules in Verizon v. FCC
6/18. The U.S. Court of Appeals (DCCir) issued its opinion in Verizon v. FCC, consolidated petitions for review of a Federal Communications Commission (FCC) order implementing the Section 251 requirement that incumbent local exchange carriers (ILECs) make available to competitive local exchange carriers (CLECs) on their premises "physical collocation of equipment necessary for interconnection or access to unbundled network elements". The Appeals Court denied the petitions for review.

FCC Fines AT&T $100,000 for E911 Violations
6/18. The Federal Communications Commission (FCC) released an Order and Consent Decree in a proceeding titled "In the Matter of AT&T Wireless Services, Inc." terminating an investigation into possible violations by AT&T Wireless of the enhanced 911 Phase II provisions of Section 20.18 of the Commission's Rules with respect to its Time Division Multiple Access (TDMA) network. The order covers the manner in which AT&T Wireless agrees to comply with the E911 Phase II rules.

In addition, the order states that "AT&T Wireless agrees to make a voluntary contribution to the United States Treasury in the amount of One Hundred Thousand Dollars ($100,000)". Moreover, the order provides that if AT&T Wireless fails to comply with the order, it "will make a voluntary contribution to the United States Treasury in the amount of $300,000 for the first missed benchmark, $600,000 for the second missed benchmark and $1,200,000 for the third missed benchmark". See also, FCC release.

USPTO Awards Contracts for E-Filing Patent Applications
6/18. The U.S. Patent and Trademark Office (USPTO) announced the award of no cost contracts to five companies for the electronic filing of patent applications. The five companies are Aspen Grove, AutoDocs, First to File, LegalStar, and LexisNexis.

USPTO Director James Rogan stated that "Two weeks ago when I unveiled our 21st Century Strategic Plan, I indicated that we would be leveraging outside resources to assist us in moving toward a full paperless patent process by the end of 2004. That is precisely what these partnerships will do. This endeavor also fully supports President Bush's e-commerce goals by utilizing the private sector's business expertise to provide better, more efficient and less costly government services to our citizens." See, USPTO release.

Bush Specifies Information Analysis and Infrastructure Protection Section of Department of Homeland Security
6/18. President Bush sent to the Congress proposed legislation to create a Department of Homeland Security (DHS). The bill would, among other things, create an Under Secretary for Information Analysis and Infrastructure Protection. The bill defines this section's responsibilities, lists existing entities to be transferred to it, gives it broad authority to obtain information from other federal entities, and creates a broad Freedom of Information Act exemption for information provided voluntarily to it by non federal entities.

See also, White House section by section analysis of the Homeland Security Act of 2002, and Bush's message to Congress.

Units to Be Transferred. The existing federal government entities to be transferred to the DHS include all operations of the Federal Bureau of Investigation's (FBI) National Infrastructure Protection Center (NIPC), except for NIPC's Computer Investigations and Operations Section, the Department of Defense's (DOD) National Communications System, the Department of Commerce's (DOC) Critical Infrastructure Assurance Office, the National Institute of Standards and Technology's (NIST) Computer Security Division, the Department of Energy's (DOE) National Infrastructure Simulation and Analysis Center, and the General Service Administration's (GSA) Federal Computer Incident Response Center (CIRC).

Responsibilities. The President's proposed legislation provides that this part of the DHS would be given primary responsibility for "receiving and analyzing law enforcement information, intelligence, and other information in order to understand the nature and scope of the terrorist threat to the American homeland and to detect and identify potential threats of terrorism within the United States".

It would further be primarily responsible for "comprehensively assessing the vulnerabilities of the key resources and critical infrastructures in the United States" and "integrating relevant information, intelligence analyses, and vulnerability assessments (whether such information, analyses, or assessments are provided or produced by the Department or others) to identify protective priorities and support protective measures by the Department, by other executive agencies, by State and local government personnel, agencies, and authorities, by the private sector, and by other entities". (Parentheses in original.)

Its responsibilities would also include "developing a comprehensive national plan for securing the key resources and critical infrastructures in the United States".

It would also be responsible for "taking or seeking to effect necessary measures to protect the key resources and critical infrastructures in the United States, in coordination with other executive agencies and in cooperation with State and local government personnel, agencies, and authorities, the private sector, and other entities".

Finally, it would be responsible for "public threat advisories" and making policy recommendations regarding sharing of intelligence and information.

Access to Information. The proposed legislation would also give the DHS broad access to information collected by other federal entities, such as the CIA and FBI. It provides, in part, that "The Secretary shall have access to all reports, assessments, and analytical information relating to threats of terrorism in the United States and to other areas of responsibility described in section 101(b), and to all information concerning infrastructure or other vulnerabilities of the United States to terrorism, whether or not such information has been analyzed, that may be collected, possessed, or prepared by any executive agency, except as otherwise directed by the President. The Secretary shall also have access to other information relating to the foregoing matters that may be collected, possessed, or prepared by an executive agency, as the President may further provide."

Freedom of Information Act Exemption. The proposed legislation would also create a Freedom of Information Act exemption. It provides that "Information provided voluntarily by non-Federal entities or individuals that relates to infrastructure vulnerabilities or other vulnerabilities to terrorism and is or has been in the possession of the Department shall not be subject to section 552 of title 5, United States Code." Several bills pending in the House and Senate contain similar proposals.

EPIC Comments on Privacy Implications of Classification of Cable Modem Service
6/18. The Electronic Privacy Information Center (EPIC) submitted a comment [PDF] to the Federal Communications Commission (FCC) in its proceeding regarding the appropriate classification of cable modem services. It wrote that "the Commission reached the correct result in its Declaratory Ruling that cable modem service is included in the category of ``other servicesดด as defined by section 631 of the Cable Communications Policy Act. This determination makes cable modem service operators subject to the privacy mandates of the Act, which meets the Commission's responsibility to protect the privacy interests of those using the Nation’s cable services and uphold the Congressional intent of Section 631 which was to protect consumer privacy in the interactive network environment."

The EPIC continued that "Many consumers would be understandably concerned if cable operators begin to monitor Americans' use of cable system viewing preferences, or for other services such as telecommunications services, including broadband access to Internet via cable modems. Citizens have a legitimate and significant expectation of privacy with respect to sensitive personal information such as services subscribed to and web browsing habits. In addition, customers have a right to personally determine how those cable service providers in possession of their personal information shall use this information."

People and Appointments
6/18. Mark Grady, Dean of the George Mason University School of Law, joined the Board of Directors of the Progress & Freedom Foundation. See, PFF release. James Miller became an emeritus board member. See, PFF release.

More News
6/18. The U.S. Court of Appeals (8thCir) issued its opinion [PDF] in Lee v. Summit and Ernst & Young, a federal securities fraud case. Summit is a Minneapolis, Minnesota company that provides clinical outcomes medical database software and related products and services. Lee and other shareholders filed a complaint in U.S. District Court (DMinn) against Summit, some of its officers and directors, and its auditor, Ernst & Young, alleging violation of federal securities laws. The District Court dismissed the claims against Ernst & Young for lack of standing. The Appeals Court reversed and remanded.

FCC Receives Comments on Classification and Regulation of Cable Modem Services
6/17. June 17 was the deadline to submit comments to the Federal Communications Commission (FCC) regarding its Notice of Proposed Rulemaking (NPRM) regarding the consequences of the FCC's classification of cable modem service as an information service. The FCC received, and published in its web site, nunerous comments that it received.

Providers of cable modem services generally supported the FCC's declaratory ruling that cable modem service is an information service, rather than a cable or telecommunications service. They also opposed the imposition of forced access requirements. In contrast, state and local entities generally opposed the information service classification, and advocated the right of local governmental entities to impose open access requirements, collect fees from cable modem service providers, and regulate cable modem service.

This is CS Docket No. 02-52. See, FCC release [PDF] and notice in Federal Register, April 17, 2002, Vol. 67, No. 74, at Pages 18848 - 18854.

The National Cable Telecommunications Association (NCTA) submitted a comment [59 pages in PDF] in which it stated that the FCC's "determination that cable modem service is an interstate information service provides a sound basis for allowing marketplace forces to propel the continued investment in and deployment of affordable broadband Internet access service throughout the nation. The Communications Act neither requires nor authorizes the Commission to impose a mandatory multiple ISP access requirement on cable modem service. Such a requirement would impose substantial costs and burdens on the Commission, on cable operators, and -- most importantly -- on consumers without providing any countervailing benefits."

The NCTA continued that "state and local governments have no basis -- in Title VI of the Act or anywhere else -- for imposing access requirements or otherwise regulating the provision of this interstate service. Cable operators have already been granted the right to use public rights of way within their cable franchise areas. No additional franchise or permission is necessary -- nor may any such permission be required -- for the provision of cable modem service over the same rights of way. Moreover, the Act precludes state and local governments from imposing fees attributable to the provision of services that, like cable modem service, are not a ``cable service.ดด"

The NCTA concluded that "This is as it should be. There is, as Congress has recognized, a vibrantly competitive marketplace for Internet services -- including broadband Internet access. The public interest is best served, as Congress also recognized, when that competitive marketplace is allowed to develop ``unfettered by Federal or state regulation.ดด The Commission should, in this proceeding, make clear that this is precisely what follows from its determination that cable modem service is neither a cable service nor a telecommunications service but an interstate information service."

AT&T submitted a comment [58 pages in PDF] in which it stated that "the Commission should again decline to impose cable forced access regulation but should affirmatively preempt state and local regulation of cable Internet services".

AT&T wrote that the FCC should "affirmatively choose not to regulate ISP access to cable facilities on the basis that market forces will far better guarantee efficient, customer friendly arrangements between cable operators and ISPs (and, indeed, are already doing so). Moreover, the Commission can, and should, declare that state and local authorities cannot impose various forms of arbitrary and anticompetitive assessments and regulations that threaten the continued growth and development of interstate cable Internet services."

AT&T elaborated that "Regulation of cable Internet services is unwarranted because cable operators have clear incentives to maximize usage of broadband services and to reach commercially reasonable deals with any ISPs that might improve the customer experience. By contrast, continued regulation of wireline broadband services is necessary because the Bells have substantial market power and are strongly influenced by the reality that broadband services compete with their legacy monopolies."

AT&T also argued that "At least four categories of state and local laws and regulations are inconsistent with Title VI and thus should be declared to be preempted and superseded: (1) franchising authority regulations imposing open access requirements on cable Internet access; (2) state and local laws assessing franchise fees on cable modem service; (3) local franchising authorities. regulation of the terms and conditions for cable Internet services; and (4) state and local laws restricting a cable provider's right to collect or disclose its customers. personally identifiable information to market its services."

BellSouth provides DSL service, not cable modem service. However, it submitted a comment [12 page in PDF] anyway. It wants deregulation of DSL service.

It wrote that "The action that the Commission takes regarding broadband services must focus not only on the appropriate regulatory treatment of cable modem services, but on the appropriate regulatory treatment of the entire market for broadband services that provide access to the Internet. This market includes both broadband Internet services provided by cable modem as well as broadband services that utilize other technologies and network architectures, e.g., wireline facilities utilized by ILECs to provide service. The regulatory treatment of the entire market must be not only consistent, it must be identical. Any other approach will result in asymmetric regulation that will have an anticompetitive effect, distort the market and impede competition."

BellSouth added that it "supports the decision of the Commission to categorize cable modem service as an information service. BellSouth also supports the tentative conclusion that, as an information service, cable modem service should not be subject to Title II, and to the attendant obligations and requirements. This same approach must be applied to wireline broadband services for precisely the same reasons that support the above referenced conclusions. The restrictions on the provision of broadband Internet services by ILECs must be removed in this and related dockets, so that there will be appropriately consistent treatment of all services offered in this competitive market."

However, BellSouth added the caveat that if the FCC does not deregulate its DSL services, "then there is only one way to ensure regulatory symmetry and avoid anti- competitive consequences: Title II obligations must, in that event, be imposed upon the providers of cable modem service."

The state of California and the California Public Utilities Commission submitted a comment [43 pages in PDF] in which they urged the FCC "to adopt an open access regime for cable modem service. California further urges the FCC not to forbear from regulating the transport component of cable modem service as common carriage under Title II of the Act. The adoption of an open access regime and the regulation of cable modem transport under Title II are essential to meet the core policies of the 1996 Act -- enhanced consumer choice of services at lower prices, and the offering of services on just, reasonable, and nondiscriminatory terms."

The state of Texas submitted a comment [6 pages in PDF] also. It first questioned the FCC's conclusion that cable modem services are information services. It wrote that "We agree that while this may arguably be one conclusion, it is not a complete conclusion and does not fully address other important issues which are relevant to meeting the Commission's previously and widely stated goal of advancing high speed access to the internet regardless of the platform used."

Texas elaborated that "The categorization of services as either telecommunications services, cable services, or information services are not mutually exclusive, contrary to the statement in ถ41 of the Notice of Proposed Rulemaking. A cable modem service provider could easily be selling its regular cable programming, an information service through an ISP, and also providing voice over IP telephony and/or local exchange services, which are arguably telecommunications services. It would be fundamentally unfair to allow cable modem service providers to offer telecommunications services to customers without also obligating them to meet the regulatory requirements applicable to other providers of the identical services, the most important of these requirements being open access."

It added that "Cable modem service is fundamentally both an information service, the ISP element, AND a high speed transport for the data which is the source of the information. This is seen most obviously by the fact that ISP services are offered through dial-up, wireline broadband and cable modem. The internet service remains the same and this is the ``information serviceดด component focused upon by the Commission in its tentative conclusion. These services are therefore not easily or correctly categorized as one type, but a hybrid of all three."

Texas concluded that "Cable modem services are not in and of themselves information services as they are really just a means of providing high speed transport of the ISP information to the customer. Because of the inherent duality of the nature of these services it is incumbent upon the Commission to proceed cautiously and to avoid an absolute reclassification of these services as purely information services to which few common carrier or consumer protection obligations attach."

Texas also argued that "The following current telecommunications service provider requirements must apply to cable modem service providers: 1.Open access requirements; and 2.Consumer protection requirements."

The ACLU also submitted a comment [PDF] in which it urged the FCC to adopt open access requirements. It also argued that the FCC "was mistaken when it classified cable modem service as an information service".

Rep. Smith Addresses Piracy in Cyberspace
6/17. Rep. Lamar Smith (R-TX), Chairman of the House Judiciary Committee's Crime Subcommittee, published an essay titled "Piracy in Cyberspace" in his Congressional web site.

He compared pirates of intellectual property today to the buccaneers of the 17th and 18th Centuries who "wrecked havoc on the high seas". He also stated that "Pirates affect not only our economic security, they affect our national security. Their profits fund other illegal activities, including terrorism."

He also said that "I will introduce legislation to update and strengthen the federal criminal code, which currently makes it a crime to traffic in counterfeit labels or copies of certain forms of intellectual property, but not authentication features. My legislation will also criminalize trafficking in counterfeit music, movies and other audiovisual works and it will give victims of intellectual property theft an opportunity to recover damages in federal court."

Deputy Commerce Secretary Bodman Addresses IPR
6/17. Deputy Secretary of Commerce Samuel Bodman gave a speech in Washington DC to the U.S. India Business Council Annual Meeting in which he addressed intellectual property rights protection.

Bodman stated that "Intellectual property protection is one of the most powerful instruments for economic development, export growth, and diffusion of new technologies. Technology based firms rely on intellectual property protection to maintain their competitive market share. Intellectual property rights serve important functions in fostering domestic technology based industries, and in the development and marketing of cutting edge products."

He also addressed IPR in India. He said that "there is more to do -- particularly in terms of developing and maintaining key components of India's economic infrastructure. India has a significant number of IPR-intensive sectors including the pharmaceutical, software, and film industries. But, the government's protection of intellectual property rights needs improvement."

Bodman continued that "India has realized the benefits of strong intellectual property protection in the area of copyright legislation and has a growing domestic software industry as a result. And, we know that India has just enacted an amendment to its patent law. We will be analyzing it further ... we are concerned that it does not bring India's laws into full WTO compliance. We encourage the Indian government to pass laws inline with its obligations -- and we hope that you will join us in that effort."

He also addressed IPR enforcement. "To further grow its successful software sector and others, India must aggressively enforce its IP laws to prevent violators from free riding on the investment and innovation of others."

"Adequate intellectual property protection in India will attract foreign direct investment and will permit technology transfer. It also means more exports of advanced products. This, of course, translates into jobs creation," concluded Bodman.

7th Circuit Criticizes But Follows Brulotte
6/17. The U.S. Court of Appeals (7thCir) issued its opinion [PDF] in Scheiber v. Dolby Laboratories, a case involving enforcement of a patent licensing agreement that provides for royalty payments beyond the expiration of a patent term. The District Court declined to enforce the agreement. The Appeals Court reluctantly affirmed, citing the Supreme Court's decision in Brulotte v. Thys. However, Judge Richard Posner thoroughly criticized the Brulotte case.

Brulotte and Patent Misuse. The Supreme Court held in Brulotte v. Thys Co., 379 U.S. 29 (1964) that a patent holder's attempt to collect royalties beyond the term of the patent constituted misuse of the patent. Judge Posner, writing for a three judge panel, stated that "we have no authority to overrule a Supreme Court decision no matter how dubious its reasoning strikes us, or even how out of touch with the Supreme Court's current thinking the decision seems." While applying the Brulotte decision in this case, he went on to explain at length why Brulotte is such an awful precedent.

Background. Scheiber is a musician turned inventor who held U.S. and Canadian patents on the audio system known as "surround sound". The last of these patents expired in 1993 and 1995. Dolby Laboratories makes audio equipment. These parties reached a settlement to a 1983 patent infringement suit that included a patent license agreement that provided for the payment of royalties beyond the expiration of a patent term. Following expiration of the patent, Dolby refused to make further payments.

District Court. Scheiber filed a complaint in U.S. District Court (SDInd) against Dolby for enforcement of the licensing agreement. Dolby relied upon Brulotte. The District Court granted summary judgment to Dolby. Scheiber appealed.

Appeals Court. The Appeals Court noted that the facts in Brulotte were "just like this case; the two cases are indistinguishable." Hence, the Appeals Court affirmed.

"The decision has, it is true, been severely, and as it seems to us, with all due respect, justly, criticized, beginning with Justice Harlan's dissent", wrote Posner. "The Supreme Court’s majority opinion reasoned that by extracting a promise to continue paying royalties after expiration of the patent, the patentee extends the patent beyond the term fixed in the patent statute and therefore in violation of the law. That is not true. After the patent expires, anyone can make the patented process or product without being guilty of patent infringement. The patent can no longer be used to exclude anybody from such production. Expiration thus accomplishes what it is supposed to accomplish."

And because of this, Posner elaborated that if the parties negotiate an agreement that provides that royalties will be paid beyond the term of the patent, then amount of the royalty payment will reflect this fact, and the payment will be lower.

He wrote that "charging royalties beyond the term of the patent does not lengthen the patentee's monopoly; it merely alters the timing of royalty payments. This would be obvious if the license agreement between Scheiber and Dolby had become effective a month before the last patent expired. The parties could have agreed that Dolby would pay royalties for the next 100 years, but obviously the royalty rate would be minuscule because of the imminence of the patent’s expiration."

Federal Circuit. The U.S. Court of Appeals (FedCir), which has jurisdiction over appeals from patent cases, has also stated that it views the misuse doctrine with disfavor, and will apply it only in clear cases, such those matching the facts of Brulotte.

In contrast, some academics have argued for an expansion of the reasoning of Brulotte, by analogy, to copyright law. For example, Brulotte could be the basis of a court imposed limitation upon the anti circumvention rights created by the Digital Millennium Copright Act (DMCA), 17 U.S.C. ง 1201.

7th Circuit Jurisdiction. This case was heard by the Seventh Circuit, rather than the Federal Circuit. Judge Posner noted that "Federal jurisdiction over the suit is based on diversity of citizenship, because a suit to enforce a patent licensing agreement does not arise under federal patent law."

Supreme Court News
6/17. The Supreme Court returned from recess, and issued several non technology related opinions. The Court also announced decisions on numerous petitions for writ of certiorari. The Court then recessed until Thursday, June 20.

The Supreme Court denied certiorari in Satellite Broadcasting and Communications Association v. FCC, No. 01-1332. See, Order List [PDF] at page 4. This case pertains to the FCC's carry one, carry all rule for satellite broadcasters. This is a petition for writ of certiorari to the U.S. Court of Appeals (4thCir), No. 01-1818, et seq.

The Supreme Court denied certiorari in Celtronix Telemetry, Inc. v. FCC, No. 01-1504. See, Order List [PDF] at page 4. This is a petition for writ of certiorari to the U.S. Court of Appeals (DCCir), Nos. 00-1400 and 00-1401, pertaining to FCC Interactive Video and Data Service licenses. See, opinion of the Court of Appeals.

NTIA Releases Rule on Spectrum Reallocation Costs
6/17. The National Telecommunications and Information Administration (NTIA) published a notice in the Federal Register containing a final rule regarding reimbursement of costs for federal to commercial spectrum reallocation.

The notice states that the NTIA has adopted rules "governing reimbursement to Federal entities by the private sector as a result of reallocation of frequency spectrum. This rule implements provisions of the Strom Thurmond National Defense Authorization Act for Fiscal Year 1999 (NDAA 99) which authorized Federal entities to accept compensation payments when they relocate or modify their frequency use to accommodate non- Federal users of the spectrum. By this action, spectrum that has been identified for reallocation can be provided to the private sector for future commercial wireless service, and the Federal Government will be compensated for the costs incurred in making that reallocated spectrum available."

These rules are effective June 17, 2002. See, Federal Register, June 17, 2002, Vol. 67, No. 116, at Pages 41182 - 41196. See also, NTIA release.

RIAA Settles with AudioGalaxy
6/17. The Recording Industry Association of America (RIAA) announced that a settlement has been reached in Zomba Records v. Audiogalaxy.com and Michael Merhej. Last month the RIAA and the National Music Publishers' Association (NMPA) filed a complaint [78 pages in PDF] in U.S. District Court (SDNY) against Audiogalaxy.com on behalf of members of the RIAA and NMPA. The complaint alleges vicarious and contributory copyright infringement in connection with the operation of a Napster like peer to peer music copying service.

The RIAA stated in a release that the settlement "would allow Audiogalaxy to operate a ``filter-inดด system, which requires that for any music available, the songwriter, music publisher, and/or recording company must first consent to the use and sharing of the work. The other key provision of the agreement is for Audiogalaxy to pay the music publishers and recording industry a substantial sum based on Audiogalaxy's assets and interest in resolving this case quickly."

More News
6/17. The Interior Department's National Indian Gaming Commission published a notice in the Federal Register announcing the adoption of a final rule that includes changes in the definitions of "electronic, computer or other technologic aid" and "electronic or electromechanical facsimile." See, Federal Register, June 17, 2002, Vol. 67, No. 116, at Pages 41166 - 41174.

6/17. XO Communications filed a Chapter 11 bankruptcy petition in the U.S. Bankruptcy Court (SNDY). See, XO release.

6/17. Sen. Tom Daschle (D-SD) and Sen. Robert Torricelli (D-NJ), introduced S 2629, a bill to provide for an agency assessment, independent review, and Inspector General report on privacy and data protection policies of federal agencies. It was referred to the Senate Committee on Governmental Affairs.

6/17. Ihsan Elashyi, aka Sammy Elashi, plead guilty in U.S. District Court (NDTex) to exporting computer equipment to Saudi Arabia in violation of a Department of Commerce Temporary Denial Order. Elashyi plead guilty to violation of 50 U.S.C. ง 1701, et seq. and accompanying sections of Title 15 of the Code of Federal Regulations, for shipping in violation of a Temporary Denial Order. He also plead guilty to access device fraud, money laundering, and wire fraud. See, USAO release and BIS release.

Nacchio Resigns
6/16. Joseph Nacchio resigned his positions as Chairman and CEO of Qwest Communications. The Board of Directors elected Richard Notebaert, a former Chairman and CEO of Ameritech, to replace him. Philip Anschutz resigned as non-executive Chairman of the Board, but remains a Director and Chairman of the Executive Committee of the Board. See, Qwest release.

Go to News from June 11-15, 2002.