News from April 1-5, 2003

FRB Vice Chairman Ferguson Addresses Business Method Patents

4/5. Federal Reserve Board (FRB) Vice Chairman Roger Ferguson gave a speech titled "Patent Policy in a Broader Context".

He spoke at a conference titled "2003 Financial Markets Conference -- Business Method Patents and Financial Services". See, conference agenda, with hyperlinks to some of the papers presented at the conference. The conference was hosted by the Federal Reserve Bank of Atlanta, the Center for Banking and Finance, and the University of North Carolina School of Law. The conference was held on April 3-5 in Sea Island, Georgia.

Roger FergusonFerguson (at right) stated that "I want to briefly discuss the importance of information technology and intellectual property in the ``new´´ economy. ... The economies of the United States and other countries have seen huge productivity gains from the development and rapid adoption of new information and communication technologies. The mechanisms for protecting intellectual property, and the degree to which they are used, vary from industry to industry and over time, but the incentives created by intellectual property protections have likely been important in fostering economic growth."

He the addressed the opinion of the U.S. Court of Appeals (FedCir) in State Street Bank & Trust v. Signature Financial Group, 149 F.3d 1368 (1998). He stated that "The State Street case was decided during a period of intense innovation and creativity in the U.S. economy that led to gains in productivity. As we are coming to understand, the sources of these productivity gains go way beyond the increased technological ability to gather, store, process, and disseminate information. Rather, much of the increase in productivity we have seen stems from the simultaneous invention of new forms of economic organization and of innovations in business practices, both within and across economic entities. ... The decreased search and transaction costs in new electronic marketplaces allow transactions to occur that were prohibitively expensive before."

Ferguson continued that "economists have argued that information technology is best thought of as general purpose technology (GPT). A key characteristic of GPT is that technical progress depends not only on invention but also on so-called co-invention, that is innovation in complementary technologies that increases the productivity of the GPT. New processes and new procedures that best use the technology."

He added that "These processes and procedures are precisely the focal point of business method patenting. Following State Street, inventors can now gain protection for their innovations in this area: Not only the hardware and software but also the embedded business method is patentable. Inventors of new ways of using these technologies can now gain protection for their work."

Moreover, said Ferguson, "Economic gains are likely to be found not just in the invention of new products but also in reorganizing the firms and markets themselves. Here, too, business method patents are likely to be important. In recent years, huge improvements have occurred in supply chain management linking manufacturers directly with their distributors. Several companies were founded on the notion of bringing industry participants together in new ways, using new technologies and business practices. Although some of these firms are no longer with us, the electronic sharing and processing of information that they introduced is unlikely to stop."

"The widespread adoption of technologies in these latter cases rests fundamentally on the adoption of standards, on the idea that all industry participants use compatible technologies. In the parlance of economics, such technologies exhibit network effects: The value of the innovation to a given user increases with the number of other users. In this case, the efficiency gains arise when a large number of users sign on to the standard. The key issue, therefore, is who owns this standard, that is, whether any market participant may have open access to a public standard or whether the property rights to that technology are owned by a given firm. Further, with business method patents, these property rights may attach not to a specific technological standard but more generally to a method of transacting or some other business process", said Ferguson.

He concluded that "The task for public policy in the post State Street world is to strike the right balance -- to encourage innovation and rapid adoption of new products and processes while limiting the damage from granting monopoly power. The United States has been in the forefront of the financial services industry, a position we want to maintain. But how do we structure the institutions of public policy to attain these goals? To make matters more complex, how do we achieve this balance when not only is the technology rapidly advancing but the realm of patentable material is expanding as well?"

Greenspan Addresses Intellectual Property Laws

4/4. Federal Reserve Board (FRB) Chairman Alan Greenspan gave a speech titled "Market Economies and Rule of Law". He spoke primarily about developing a legal regime for intellectual property that maximizes economic growth. He offered some insights into how to analyze the problem, and asked some rhetorical questions, but offered no specific policy recommendations. He said that the "more general challenge is to develop a framework that fosters the growth of an economy increasingly dominated by conceptual products." See, full story.

Commerce Department Official Addresses Nanotechnology

4/4. Phil Bond, Under Secretary of Commerce for the Technology Administration (TA), gave a speech titled "Growth and Policy Implications of Nanotechnology" at the National Nanotechnology Initiative 2003 Conference in Washington DC.

Phil BondBond (at right) reviewed some of the potential applications of nanotechnology, such as "Nanocomputers smaller than a bacterium" and "Data storage devices with memory densities sufficient to store the entire collection of the Library of Congress on a device the size of a sugar cube".

"The good news is the United States is uniquely positioned to reap the potential of nanotechnology", said Bond. "Not only has President Bush has proposed record levels of Federal support for nanotechnology through the NNI, but state governments are spending additional millions to create and support nanotechnology centers at universities around the country. Our institutions of higher education are unparalleled in their ability to educate students and to conduct cutting edge research. Nano business and professional associations are forming faster than self-replicating nanobots. And we have an entrepreneurial culture and business climate that is the envy of the world."

He concluded with a discussion of societal and ethical issues raised by Michael Crichton and others. Bond said that "The hard truth is, despite all these encouraging activities surrounding the development and commercialization of nanotechnology, many Americans’ understanding of nanotechnology are being shaped by Michael Crichton’s new book, Prey."

Bond observed that "All disruptive technologies face some level of social resistance. During the Industrial Revolution, workers in Holland fearful for their jobs threw their wooden shoes -- sabots -- into the machinery, delivering the term ``sabotage´´ to our vocabulary."

"In the past, some of these fears have been well-founded and rational, it seems to me that most of them have not been well-founded. As we have seen in the early days of biotechnology, the more revolutionary a technology is, the more likely it is to face public resistance in its development and application. Already there are groups advocating a preemptive ban on nanotechnology research until any potential downside can be assessed. I submit that we need not sacrifice jobs on the alter of values, nor values on the alter of jobs", said Bond.

He concluded that "Nanotechnology's future runs through the nation’s capital. The federal government plays an important role in funding fundamental, high-risk research. To borrow a line from BASF ads: We don’t make nanotechnology products, but we fund the science and technology that makes nanotechnology products and processes possible. In addition, many of the societal and ethical concerns about nanotechnology research and products will be debated and addressed here in Washington. Whether that's for the good or detriment of society depends on each of us."

House and Senate Conferees to Meet on Child Protection Bill

4/4. House and Senate conferees announced that they will meet regarding S 151, the "Prosecutorial Remedies and Tools Against the Exploitation of Children Today Act of 2003", also known as the PROTECT Act.

The Senate bill is sponsored by Sen. Orrin Hatch (R-UT), Chairman of the Senate Judiciary Committee. The Senate passed its version of the bill on February 24, 2003 by a vote of 84-0.

The House bill, which was originally numbered HR 1104, and titled "Child Abduction Prevention Act", is sponsored by Rep. James Sensenbrenner (R-WI), the Chairman of the House Judiciary Committee. The House passed its version on March 27. The House version includes a ban on misleading domain names that is not in the Senate version of the bill. Both bills address, with different language, the Supreme Court's April 16, 2002, 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.

Rep. Sensenbrenner stated in a release that "I'm pleased the Senate finally will join the House at the negotiating table on legislation critically important to protecting our kids from kidnappers, molesters, and others that would prey upon them. I am committed to resolving the differences promptly and sending this child protection legislation to President Bush by the Easter recess." Both the House and the Senate plan to begin their recess at the end of this week.

The Senate conferees are Orrin Hatch, Charles Grassley (R-IA), Jeff Sessions (R-AL), Lindsey Graham (R-SC), Patrick Leahy (D-VT), Ted Kennedy (D-MA), and Joe Biden (D-DE). The House conferees are James Sensenbrenner, Howard Coble (R-NC), Lamar Smith (R-TX), Mark Green (R-WI), Melissa Hart (R-PA), John Conyers (D-MI), and Bobby Scott (D-VA).

See also, stories titled "House Passes HR 1104", TLJ Daily E-Mail Alert No.  633, March 31, 2003; "Rules Committee Adopts Rule for HR 1104", TLJ Daily E-Mail Alert No.  631, March 26, 2003; "Rep. Pence Introduces Truth in Domain Names Act", TLJ Daily E-Mail Alert No.  616, March 4, 2003; and "Senate Passes PROTECT Act", TLJ Daily E-Mail Alert No. 611, February 25, 2003.

More News

4/4. The U.S. Patent and Trademark Office (USPTO) published a notice in the Federal Register announcing that May 12, 2003 is the deadline to submit nominations for members of the Patent Public Advisory Committee and the Trademark Public Advisory Committee. See, Federal Register, April 4, 2003, Vol. 68, No. 65, at Pages 16480 - 16481.

4/4. The National Institute of Standards and Technology (NIST) released its second draft [2.60 MB in PDF] of Special Publication 800-50 titled "Building an Information Technology Security Awareness and Training Program". The publication provides guidance on designing, developing, implementing, and maintaining an awareness and training program within an agency's IT security program. The deadline for public comments is May 2, 2003. Submit comments to Mark Wilson at

4/4. The Electronic Privacy Information Center (EPIC) published in its web site copies of more documents that it has received from the federal government regarding the Total Information Awareness (TIA) project. The EPIC has submitted Freedom of Information Act (FOIA) requests to, and filed complaints in U.S. District Court against, the Department of Defense. See, page with hyperlinks to PDF copies of recently obtained documents.

House Financial Services Committee Holds Hearing on Information Security

4/3. The House Financial Services Committee's Subcommittee on Financial Institutions and Consumer Credit and Subcommittee on Oversight and Investigations held a joint hearing titled "Fighting Fraud: Improving Information Security".

Kevin Mitnick, a convicted hacker, testified regarding thieves who gain unauthorized access to computer networks and their databases containing credit card information. He stated in his prepared testimony [6 pages in PDF] that "these types of attacks happen quite frequently" and "will continue to be attractive to electronic criminals as long as credit-card details are stored by businesses connected to the Internet."

He added that many "attacks on networks containing financial information are not detected by the owner or operator. It is important to realize that many of these security incidents remain undetected because of poor security and auditing practices."

He recommended that "attempting to solve the complex problem by micro-managing every online site that accepts credit card transactions would turn out to be a wasteful, inefficient, and not very successful exercise. Instead, I recommend that the committee look in a different direction. I recommend that you explore mitigation strategies which focus on improving the authentication of the credit card user."

James Farnan, Deputy Assistant Director of the Federal Bureau of Investigation's (FBI) Cyber Division addressed investigation and prosecution of internet fraud and online identity theft in his prepared testimony [PDF]. He also addressed "cyber terrorism, terrorist threats, foreign intelligence operations, and criminal activity precipitated by illegal computer intrusions into U.S. computer networks, including the disruption of computer supported operations and the theft of sensitive data via the Internet. The FBI assesses the cyber-threat to the U.S. to be rapidly expanding, as the number of actors with the ability to utilize computers for illegal, harmful, and possibly devastating purposes is on the rise."

Rep. Mike Oxley (R-OH), the Chairman of the full Committee, wrote in his opening statement [PDF] that "consumers will quickly lose confidence in our nationwide credit system if we don’t do everything practical to improve security and protect sensitive data. ... Improving information security has to be one of our top priorities in protecting the confidentiality and integrity of our financial system."

See also, prepared testimony [19 pages in PDF] of Howard Beales, Director of the Bureau of Consumer Protection of the Federal Trade Commission (FTC). And see, web page with hyperlinks to opening statements of Representatives and prepared testimony of other witnesses.

USTR Releases US Chile FTA

4/3. The Office of the U.S. Trade Representative (USTR) released the text of the U.S. Chile free trade agreement (FTA). It is a large document. Several chapters pertain specifically to technology and communications. See especially, Chapter 15 [3 pages in PDF] pertaining to electronic commerce, and Chapter 17 [32 pages in PDF] regarding intellectual property rights, Chapter 13 [16 pages in PDF] regarding telecommunications, and Chapter 20  [3 pages in PDF] regarding transparency.

Intellectual Property. The FTA contains detailed provisions pertaining to a wide range of intellectual property rights (IPR) issues, including domain name disputes, domain name databases, trademark protection, copyright, anticircumvention, rights management information, patents, enforcement of intellectual property rights, and limitations on liability of internet service providers.

With respect to domain names, the FTA provides that "Each Party shall require that the management of its country-code top level domain (ccTLD) provide an appropriate procedure for the settlement of disputes, based on the principles established in the Uniform Domain-Name Dispute-Resolution Policy (UDRP), in order to address the problem of trademark cyber-piracy." It also provides that "Each Party shall, in addition, require that the management of its respective ccTLD provide online public access to a reliable and accurate database of contact information for domain-name registrants, in accordance with each Party’s law regarding protection of personal data."

The FTA also addresses anticircumvention in detail. It begins by stating that "In order to provide adequate legal protection and effective legal remedies against the circumvention of effective technological measures that are used by authors, performers, and producers of phonograms in connection with the exercise of their rights and that restrict unauthorized acts in respect of their works, performances and phonograms, protected by copyright and related rights: (a) each Party shall provide that any person who knowingly circumvents without authorization of the right holder or law consistent with this Agreement any effective technological measure that controls access to a protected work, performance, or phonogram shall be civilly liable and, in appropriate circumstances, shall be criminally liable, or said conduct shall be considered an aggravating circumstance of another offense." The FTA then goes on to address procedures and remedies, permissible exceptions, accidental circumvention, and other anticircumvention issues.

Electronic Commerce. The FTA contains a brief section on electronic commerce. It provides that "Neither Party may apply customs duties on digital products of the other Party transmitted electronically." It also provides that neither party may accord less favorable treatment to the digital products of the other in certain enumerated circumstances.

For example, the FTA provides that "A Party shall not accord less favorable treatment to a digital product than it accords to other like digital products, on the basis that: (a) the digital product receiving less favorable treatment is created, produced, published, stored, transmitted, contracted for, commissioned, or first made available on commercial terms in the territory of the other Party; or (b) the author, performer, producer, developer, or distributor of such digital products is a person of the other Party."

Telecommunications. The chapter on telecommunications addresses access to public telecommunications networks and services under reasonable and non-discriminatory terms, interconnection, unbundled network elements, colocation, and resale.

The telecommunications chapter also addresses information services. It provides that "Neither Party may require an enterprise in its territory that it classifies as a supplier of information services (which supplies such services over facilities that it does not own) to: (a) supply those services to the public generally; (b) cost-justify its rates for such services; (c) file a tariff for such services; (d) interconnect its networks with any particular customer for the supply of such services; or (e) conform with any particular standard or technical regulation for interconnection for the supply of such services other than for interconnection to a public telecommunications network." However, the FTA provides a competition law exception.

This chapter also addresses independent telecommunications regulators, dispute resolution, judicial review, and universal service. It only briefly touches upon spectrum management and rights of way management.

House CIIP Subcommittee Holds Hearing on USPTO Fees

4/3. The House Judiciary Committee's Subcommittee on Courts, the Internet and Intellectual Property (CIIP) held a hearing on HR 1561, the "United States Patent and Trademark Fee Modernization Act of 2003".

This bill would raise patent and trademark fees. It is cosponsored by Rep. Lamar Smith (R-TX) and Rep. Howard Berman (D-CA), the Chairman and ranking Democrat on the CIIP Subcommittee. The hearing also focused on the diversion of U.S. Patent and Trademark Office (USPTO) fees to subsidize other government programs, patent pendency, patent quality, the proposed outsourcing of patent searches, and the USPTO's 21st Century Strategic Plan.

Rep. Lamar SmithRep. Smith (at right) read a prepared statement. He said that "The fee schedule has been developed in large part based on funding shortfalls at the agency that have resulted from revenue diversion. Everyone in this room is aware of the ongoing appropriations practice of using a portion of PTO fee revenue to subsidize other programs unconnected to the agency. None of us like it, but progress has been made in the past two or three years in curtailing fee diversion. We all want an efficient and productive PTO that has the resources it needs to serve the inventors and trademark holders of the United States."

Rep. Berman argued that "before we consider the issue of fee increases, it seems to me, without taking a look at the issue of fee diversion, and to understand where we all stand in terms of our commitment to end this practice. Without a willingness from all of us, Members, interested parties, and the PTO, to put in a sincere effort to end the diversion of PTO funds, I don't see the logic of raising the fees. I have in the past, I am willing to now, to work for this goal. But, I wouldn't expect my colleagues to champion a cause ... without having the active participation and a firm commitment from all the influential industry groups that want us to deal with this backlog, that are willing to support a reasonable fee increase to increase the productivity, but don't prioritize the goal of stopping the diversion."

"If you want to put in a freeze on the top tax bracket, I am fine with you. If you want to increase the gas tax, I am fine with you. There are other ways to find appropriation revenues for the federal government to spend on the problems of the American people", said Rep. Berman. "But the notion that we are going to take this foolish method, which is, we are going to tax innovation through a substantial increase in fees, in order to actually divert it into more general fund appropriations is the dumbest way to do it. And, I don't see why we should be part of that process. I think we have to address the issue of diversion. And, at least I am not persuaded that the administration at its highest level is a partner in that effort."

Rep. Zoe Lofgren (D-CA), who represents a Silicon Valley district, spoke in opposition to HR 1561. She said that every year there are proposals to end the fee diversion, but it never ends. She said that it is time to "follow the First Lady's advice -- just say no".

Rep. Zoe LofgrenRep. Lofgren (at right), continued that "I don't think I am going to vote to increase any fees until we get this stopped. I think the fee increase for a diversion is simply a tax on innovation. And the technology sector, the inventors, are willing to pay their income tax, and they are willing to pay the increased fees for the patent office. I just don't think it is appropriate to pass them on".

"At a time when the tech sector is flat on it back is not the time to continue to short the patent office", said Rep. Lofgren. "I am not going to vote for this until we get a solution for it."

Rep. Berman and Rep. Lofgren also argued that the Congress and interested parties have not gotten serious about this issue. Rep. Lofgren said that "We have never really gotten serious", while Rep. Berman said that "I don't think that there has been a serious attempt" to end fee diversion. He characterized prior efforts as "rhetorical flourishes" and bill introductions. Rep. Lofgren said that support for ending fee diversion is bipartisan. Rep. Berman added that Republicans can be supportive because they do not like tax increases, while Democrats can be supportive because of they want to assist technology development.

James Rogan, Director of the U.S. Patent and Trademark Office's (USPTO), testified regarding the USPTO's 21st Century Strategic Plan and advocated enactment of a new fee bill. He described the introduction of HR 1561 as "a critical step".

He warned that "The consequences of failing to enact the fee bill and giving the USPTO access to those fees will mean quality and pendency will continue to significantly suffer. We will be unable to hire needed examiners, and over 140,000 patents will not issue over the next five years. The inventory of unexamined patent applications will skyrocket to a backlog of over one million applications by 2008 -- more than double the current amount -- and pendency (as measured from the time of filing) will jump to over 40 months average in the next few years." See, prepared testimony.

He also opposed putting a sunset provision in the fee increase bill.

Michael Kirk, Executive Director of the American Intellectual Property Law Association (AIPLA), stated that the USPTO is "in crisis". He elaborated that "To date, over $650,000,000 in patent and trademark fees paid by PTO users have been diverted from, rescinded, or made unavailable to the Office. Quality has suffered. Large and small companies are increasingly being subjected to litigation (or its threat) on the basis of questionable patents. Patent applicants are encountering longer delays in obtaining protection for valuable new technologies." See, prepared testimony [PDF].

He said he supports the fee increase bill. "Failure to enact an appropriate fee bill to fund a sound Strategic Plan is not an option." However, he said that he also supports a sunset provision. "Should there be no progress in eliminating diversion in the next three fiscal years, then the higher fees would end on September 30, 2006, and applications filed after that date would be assessed fees at the rates set in the current fee schedule."

He also said that "we believe that separating search and examination makes no sense. This requires two individuals to familiarize themselves with the details of the invention -- one to search and the other to examine. That is not as efficient as having one person responsible for both search and examination."

John Williamson testified on behalf of the Intellectual Property Owners Association (IPO). He said that the IPO supports "paying for the plan by raising patent and trademark fees to the level proposed in the draft legislation if Congress appropriates an amount to the PTO for fiscal year 2004 equal to projected fee collections, and provided certain technical changes are made." See, prepared testimony,

He also advocated outsourcing of patent searching. He said that "outsourcing could have benefits, for example, by enabling faster elimination of PTO backlogs and encouraging development of private search companies with high levels of expertise in specific technologies. We support the outsourcing initiative provided there is adequate testing and evaluation."

Ronald Stern, President of the Patent Office Professionals Association (POPA), opposed the outsourcing of patent searching. See, prepared testimony

Greenspan Addresses Role of Information Technology in Financial Education

4/3. Federal Reserve Board (FRB) Chairman Alan Greenspan gave a speech titled "Financial Education" at the JumpStart Coalition's annual meeting in Washington DC. He discussed the role of information technologies.

He stated that "as technological advances have contributed significantly to the dramatic changes within the financial services market, consumers more generally must be familiar with the role that computers play in the conduct of every traditional financial transaction, from withdrawing funds to gaining access to credit."

He continued that "just as universities provide remote learning options to allow students to pursue continuing education via the Internet, consumers can use software to create customized budgets to develop long-term savings strategies for retirement or for their children's college education. In both scenarios, technological advances represent the opportunity for achieving efficiencies and exercising preferences, but only when the end users possess the knowledge necessary to access pertinent information and to capitalize on it."

He concluded that "Building bridges between community organizations, our educational institutions, and private businesses will be an essential aspect of our efforts to increase familiarity with new technological and financial tools that are fundamental to improving individual economic well-being. And the success of such efforts will bear significantly on how well prepared our society is to meet the challenges of an increasingly knowledge based economy."

FCC Fines Broadcaster for Indecency, Threatens Revocation

4/3. The Federal Communications Commission (FCC) issued a Notice of Apparent Liability (NAL) to Infinity Broadcasting Operations, the licensee of WKRK-FM in Detroit, Michigan, for broadcasting indecent material. (A transcript is in the NAL.) The FCC proposed a forfeiture of $27,500. See also, FCC release.

The NAL also concluded with the statement that "We take this opportunity to note that given the egregiousness of this violation, additional serious violations by Infinity may well lead to the initiation of a revocation proceeding.  Moreover, other broadcasters are on notice that the Commission will not hesitate to adopt strong enforcement actions in the future, including the potential initiation of revocation proceedings."

18 U.S.C. § 1464 provides that "Whoever utters any obscene, indecent, or profane language by means of radio communication shall be fined under this title or imprisoned not more than two years, or both."

Commissioner Michael Copps dissented. He wanted a license revocation hearing in this proceeding. He wrote, "The extreme nature of  this broadcast -- among the worst we have faced in the Commission's history -- and the fact that it was broadcast in the middle of the day, gives the FCC the responsibility to take serious action. I dissent from the majority's decision because I believe that a financial slap on the wrist does not adequately reflect the seriousness of the station's actions. To fulfill our duty under the law, we should initiate a hearing to determine whether the WKRK-FM license should be revoked. I am deeply disappointed that the majority proposes a mere $27,500 fine against this station. Such a fine will easily be absorbed by the station as a ``cost of doing business.´´"

Bills Introduced

4/3. Rep. Lee Terry (R-NE) and others introduced HR 1582, the "Universal Service Fairness Act of 2003", a bill to amend 47 U.S.C. § 254, by adding a new subsection pertaining to universal service support for high cost areas. The bill was referred to the House Commerce Committee.

4/3. Rep. Collin Peterson (D-MN) and others introduced HR 1626, the "Local Voices on TV Act of 2003", a bill to amend 47 U.S.C. § 534 regarding cable television carriage requirements regarding class A local television service. The bill was referred to the House Commerce Committee.

4/3. Rep. Adam Schiff (D-CA) and others introduced HR 1633, the "SCHIP Web-Based Enrollment Act of 2003", a bill to amend title XXI of the Social Security Act to encourage the use of web-based enrollment systems in the state children's health insurance program (SCHIP). The bill was referred to the House Commerce Committee.

4/3. Rep. Cliff Stearns (R-FL) and others introduced HR 1636, the Consumer Privacy Protection Act. The bill was referred to the House Commerce Committee and to the House International Relations Committee. See also, Stearns release.

4/3. Rep. Anthony Weiner (D-NY) introduced HR 1642, the "Cell Phone Service Disclosure Act of 2003", a bill to amend 47 U.S.C. § 332 to require the Federal Communications Commission (FCC) to monitor complaints regarding the quality of wireless telephone service. The bill was referred to the House Commerce Committee.

People and Appointments

4/3. Greg Garcia joined the Information Technology Association of America (ITAA) as VP for Information Security Policy and Programs. He previously worked for the House Science Committee's Subcommittee on Research. Before that, he was Director of Global Government Relations and head of the Washington office for 3Com Corporation. See, ITAA release.

More News

4/3. The U.S. Court of Appeals (4thCir) heard oral argument in Sun Microsystems v. Microsoft, No. 03-1116. The U.S. District Court (Maryland) issued a preliminary injunction against Microsoft in this antitrust action. The District Court held in its December 23, 2002 opinion [42 pages in PDF] that Microsoft must carry the latest Java runtime environment on any product carrying Microsoft's .NET, including Windows XP. Microsoft appealed. The Court of Appeals has stayed the preliminary injunction. See, Corrected Order [2 pages in PDF].

4/3. The Federal Communications Commission's (FCC) Wireline Competition Bureau (WCB) announced that it has implemented its new Electronic ARMIS Filing System (EAFS). See, FCC release [MS Word].

4/3. Deputy U.S. Trade Representative (USTR) Peter Allgeier announced that the U.S. will contribute $1 Million to a voluntary World Trade Organization (WTO) Global Trust Fund to provide technical assistance for developing country trade capacity building efforts. See, USTR release.

4/3. The American Electronics Association (AEA) wrote a letter to leaders of the House and Senate tax committees urging the Congress to make permanent the research and development tax credit. The AEA also stated that "The credit also should be strengthened so that it provides an incentive for even more businesses engaged in significant research to invest in R&D in the United States. An increase in the Alternative Incremental Research Credit (AIRC) rates and a new elective alternative credit formula, as proposed in H.R. 463 and S. 664, would provide such an incentive." The letter was sent to Rep. Bill Thomas (R-CA), Rep. Charles Rangel (D-NY), Sen. Charles Grassley (R-IA), and Sen. Max Baucus (D-MT), the Chairman and ranking Democrats on the House Ways and Means Committee and the Senate Finance Committee.

AOL Time Warner Petitions FCC for Relief From Instant Messaging Restriction

4/2. AOL Time Warner submitted a petition [58 pages in PDF] to the Federal Communications Commission (FCC) requesting relief from the FCC's January 22, 2001 Memorandum Opinion and Order (MOO) approving the merger of AOL and Time Warner, and imposing conditions upon AOL Time Warner regarding instant messaging services. Specifically, AOL Time Warner seek relief from the condition restricting its ability to offer internet users streaming video advanced Instant Messaging based high speed services (AIHS) via AOL Time Warner broadband facilities. See, full story.

FCC Releases NPRM Regarding Re-examination of ITFS Rules

4/2. The Federal Communications Commission (FCC) released a document [137 pages in PDF] titled "Notice of Proposed Rulemaking and Memorandum Opinion and Order" (NPRM & MOO). This item is a re-examination of the FCC's rules pertaining to Multipoint Distribution Service (MDS), Multichannel Multipoint Distribution Service (MMDS), and Instructional Television Fixed Service (ITFS) in the 2500 to 2690 MHz spectrum band. The FCC announced, but did not release, this NPRM & MOO at its March 13 meeting.

This NPRM & MOO states that the FCC "seeks to promote competition, innovation and investment in wireless broadband services".

It states that "we do not intend to evict any incumbent licensees from the affected band if they have been in compliance with our rules and continue to comply with our rules when we modify or augment them nor do we intend to undermine the educational mission of ITFS licensees." However, it does seek comment "on how best to promote increased access to and efficient utilization of ITFS spectrum"

Commission Michael Copps wrote in his separate statement that "The NPRM asks whether the Commission should remove the requirement that ITFS licensees use the spectrum entrusted to them for educational purposes. It also asks whether the Commission should allow ITFS licensees to sell their licensees to the highest bidder, where a private company could buy the spectrum and dispense with any educational activity. Such an outcome would threaten this important educational tool. If ITFS becomes just another commercial service, we will have lost the last place on the spectrum reserved specifically for education."

See also, statement [PDF] by Chairman Michael Powell and statement [PDF] by Commissioner Kathleen Abernathy. This is WT Docket No. 02-68, 03-66, and 03-67, and MM Docket No. 97-217.

GAO Reports on Cyber Security at Four Agencies

4/2. The General Accounting Office (GAO) released a report [72 pages in PDF] titled "Critical Infrastructure Protection: Challenges for Selected Agencies and Industry Sectors". The report finds that four key government agencies have not fully complied with PDD-63.

In May 1998, former President Clinton signed Presidential Decision Directive 63 (PDD-63). It states that "the United States will take all necessary measures to swiftly eliminate any significant vulnerability to both physical and cyber attacks on our critical infrastructures, including especially our cyber systems." PDD-63 further provides that "No later than 180 days from the issuance of this directive, every department and agency shall develop a plan for protecting its own critical infrastructure, including but not limited to its cyber-based systems. The National Coordinator shall be responsible for coordinating analyses required by the departments and agencies of inter-governmental dependencies and the mitigation of those dependencies. The Critical infrastructure Coordination Group (CICG) shall sponsor an expert review process for those plans. No later than two years from today, those plans shall have been implemented and shall be updated every two years."

The GAO examined four agencies, the Department of Health and Human Services, the Department of Energy, and the Department of Commerce, and the Environmental Protection Agency. It found that these agencies "have made progress in implementing several PDD 63 requirements, such as appointing chief information assurance officers and preparing initial CIP plans. However, none of the agencies has fully implemented all requirements, including the fundamental processes of identifying agency assets that are critical to the nation and determining their dependencies on other public and private assets, as well as assessing these assets’ vulnerabilities. In addition, although most agencies have tentatively identified their critical assets, these efforts could take years to complete given the current pace and estimated time and resource needs."

Rep. Billy Tauzin (R-LA) and Rep. John Dingell (D-MI) released a joint statement regarding the report. They wrote that "Today's GAO report reveals that, while progress has been made since that time, the current situation remains unacceptable -- and that much more work is necessary just to assess all of our critical asset dependencies and vulnerabilities, the basic preconditions for adequate protection."

Rep. John DingellRep. Tauzin and Rep. Dingell (at right) continued that "It has now been five years since these agencies were instructed to determine where their own critical systems were vulnerable and to develop the countermeasures necessary to assure that the most important functions of government would continue in the face of a terrorist attack. These agencies should have completed these tasks long ago."

The two also wrote that "We note that the President's proposed 2004 budget for critical infrastructure protection efforts by the new Department of Homeland Security represents a substantial increase, from roughly $177 million in 2003 to more than $800 million next year. We urge Congress to fully support this request."

Rep. Tauzin and Rep. Dingell are the Chairman and ranking Democrat on the House Commerce Committee, which has oversight responsibilities with respect to the four agencies that were examined in this GAO report.

USTR Releases Report on Market Access in Foreign Telecom Markets

4/2. The Office of the U.S. Trade Representative (USTR) released a report [6 pages in PDF] titled "Results of 2003 ``Section 1377´´ Review of Telecommunications Trade Agreements". The report, which is based upon comments received by the USTR, focuses on the high rates for connecting calls to mobile and fixed line networks in foreign markets, the lack of reasonable access to leased lines, and the lack of independent regulators and transparent procedures with adequate notice and comment. See, web page with hyperlinks to comments.

The report finds that "The high wholesale cost of completing calls onto mobile networks in foreign countries continues to hinder U.S. telecommunication suppliers seeking to offer competitively priced services."

The report also notes that "Internet service providers have complained about inadequate access to high-speed data transport services provided by Canadian cable companies."

The report also finds that the "Lack of an independent regulator with adequate authority has been the Achilles heel of competition in telecommunications markets throughout the world. Addressing this problem has been identified as a priority matter in China, France, Germany, India, Japan, Mexico, South Africa and Switzerland. An independent regulator is also a necessary condition for adequate implementation of WTO commitments. Aspects identified as necessary to bolster the effectiveness and independence of regulators includes strong enforcement authority, transparent procedures with adequate notice and comment, and full privatization of government-owned operators."

The report also states that the USTR has sought to incorporate provisions regarding independent regulators and transparency in free trade agreements (FTAs) with Chile and Singapore, and intends to continue to do so with other FTA negotiations and in ongoing WTO services negotiations.

USTR Robert Zoellick stated in a release that ""Without fair and transparent telecom regulatory treatment, the investment needed for the growth and development of the telecom sector will be constrained -- hurting consumers, workers and companies here and abroad. The United States will keep a sharp focus on implementation of these rules, engaging directly with trade partners and, where appropriate, pursuing enforcement action in the WTO."

People and Appointments

Robert MmCallum4/2. President Bush announced his intent to nominate Robert McCallum (at right) to be Associate Attorney General. He is currently Assistant Attorney General in charge of the Civil Rights Division, and acting Associate Attorney General. He previously was a partner in the Atlanta based law firm of Alston & Bird. See, White House release. President Bush made a similar announcement late in the 107th Congress. See, story titled "Bush Names McCallum Associate Attorney General" in TLJ Daily E-Mail Alert No. 561, December 5, 2002. The Associate Attorney General oversees many of the civil units of the DOJ, including five key divisions: Civil, Antitrust, Tax, Environment and Natural Resources, and Civil Rights. He does not have authority over the Solicitor General, the Office of Legal Counsel, or any of the crime related units. See, DOJ Organizational Chart.

4/2. President Bush announced his intent to nominate Peter Keisler to be Assistant Attorney General in charge of the Civil Division. He is currently a Principal Deputy Associate Attorney General. Previously, he was a partner in the the law firm of Sidley Austin, where he represented AT&T in telecom matters. See, White House release.

4/2. President Bush announced his intent to nominate James Jochum to be Assistant Secretary of Commerce (Import Administration) at the Department of Commerce (DOC). He is currently Assistant Secretary for Export Administration at the DOC's Bureau of Industry and Security (BIS). He previously worked in government relations for Accenture. Before that, he was Majority Counsel for the Senate Banking Committee, and Trade Counsel and Legislative Director for Sen. Charles Grassley (R-IA). See, White House release.

4/2. President Bush nominated William Moschella to be Assistant Attorney General in charge of legislative affairs. The President announced his intent to make the appointment on March 4. He is currently the Chief Legislative Counsel and Parliamentarian for the House Judiciary Committee. See, White House release.

More News

4/2. The Senate Commerce Committee's Communications Subcommittee held a hearing on universal service subsidies, and policies that may ensure future stability and sufficiency. Federal Communications Commission (FCC) Commissioner Kathleen Abernathy testified. See also, prepared testimony of Carson Hughes (Telepax), Joel Lubin (AT&T), Matthew Dosch (Comporium Communications), Robert Orent (Hiawatha Communication), William Gillis (Center to Bridge the Digital Divide, Washington State University), Thomas Meade (Alaska Commnuications System), and Jack Rhyner (TelAlaska).

4/2. The Business Software Alliance (BSA) released a report that concludes that worldwide, 40% of software programs are pirated. The BSA seeks strong intellectual property protection for business software. See also, BSA release.

4/2. The Federal Communications Commission (FCC) issued an Order [PDF] dismissing a request for a declaratory ruling that all emissions associated with digital circuitry used to generate ultrawideband (UWB) emissions are required to meet the radiated emission limits provided in Subpart F of Part 15 of the FCC's rules for UWB transmitters. The FCC wrote that "the Commission has been clear in its recent decisions that the standard specified in Section 15.521(c) applies to emissions from all digital circuitry contained within UWB transmitters. As long as these emissions are not intended to be radiated from the antenna, they are subject to the limits specified in Section 15.209.

House Subcommittee Holds Hearing on Bill to Make Internet Tax Moratorium Permanent

4/1. The House Judiciary Commitee's Subcommittee on Commercial and Administrative Law held a hearing on HR 49, the "Internet Tax Nondiscrimination Act".

The 105th Congress passed the Internet Tax Freedom Act in 1998, creating a three year moratorium on multiple or discriminatory internet taxes. The moratorium also extended to taxes on Internet access, with a grandfather clause for existing taxes. The 107th Congress passed HR 1552 in 2001, which extended the moratorium until November 1, 2003.

HR 49, which is sponsored by Rep. Chris Cox (R-CA), and its companion bill in the Senate, S 52, which is sponsored by Sen. Ron Wyden (D-OR), would permanently extend the ban on multiple or discriminatory taxes. These bills would also terminate the grandfathering of access taxes that existed in 1998.

Rep. Chris Cannon (R-UT), the Chairman of the Subcommittee, spoke in support of the bill. He said that he opposed linking this bill with the issue of taxation of remote sales. He said that the Subcommittee will hold another hearing on that issue. However, the Subcommittee has not yet scheduled a markup of HR 49, or a hearing on taxation of remote sales.

Rep. Chris CoxRep. Cox (at right), who is not a member of the Subcommittee, was permitted to participate on the panel. He spoke in support of his bill, and questioned witnesses. He argued that internet taxes are regressive, and "would discourage the adoption of broadband".

No member of the Subcommittee spoke in opposition to the bill. However, Rep. Tammy Baldwin (D-WI) spoke about access taxes. She said that Wisconsin has such a tax, but the proportion of people in the state with internet access continues to grow. She also stated that several states with such taxes in 1998 had lower than average percentages of residents with internet access in 1998, but now have a higher than average percentages of residents who are online.

James Gilmore, a former Governor of Virginia and the former Chairman of the Advisory Commission on Electronic Commerce, testified in support of the bill. He stated, and wrote in his prepared testimony, that the imposition of new taxes would inhibit internet and broadband adoption, exacerbate digital divides, and harm small internet service providers.

Gilmore also said that taxing the internet would be "European". He wrote that "America currently dominates the world market in electronic services, software development and digital content. We should strive to build on our competitive position even further. Tax policy favorable to Internet access and the content and information transferred over the Internet is critical to maintaining our competitive position in the world marketplace. Europe is looking for more ways to tax the Internet and the content, software and information exchanged over the web. We should resist the European paradigm of imposing VAT taxes on Internet service and the content and information accessed over the Internet."

Jack Kemp, a former Representative and former Secretary of Housing and Urban Development, also testified in support of the bill. He advocated passing "a clean moratorium" that does not also provide for a "national sales tax cartel". See also, prepared testimony.

Harris Miller, President of the Information Technology Association of America (ITAA) also testified in support of the bill. See, prepared testimony [PDF].

This left the dissent to Harley Duncan, Executive Director of the Federation of Tax Administrators. He stated that any extension of the moratorium should be temporary, rather than permanent. He also stated that it should preserve the grandfather rights of states that already have internet access taxes.

He also took issue with the bill's definition of the internet access and discriminatory tax. He wrote that definition of internet access "effectively allows a broad range of content and other services to be bundled with Internet access and potentially be considered as protected under the prohibition on the imposition of new taxes on Internet access." See, prepared testimony.

House Judiciary Committee Seeks More Information From DOJ Regarding USA Patriot Act Implementation

4/1. Rep. James Sensenbrenner (R-WI) and Rep. John Conyers (D-MI) wrote a letter to Attorney General John Ashcroft regarding implementation of the USA PATRIOT Act. The letter is a long list of written interrogatories, and a request for production of documents, pertaining to the use of preexisting authorities and the new authorities conferred by the Act. The letter asks numerous questions about data mining and electronic records.

The letter covers a wide range of topics. Several are technology related. For example, the letter includes this: "The Department has increased the use of ``national security letters´´ that require businesses to turn over electronic records about finances, telephone calls, e-mail and other personal information. A. Please identify the specific authority relied on for issuing these letters. B. Has any litigation resulted from the issuance of these letters ..."?

The letter also asks "Has any administrative disciplinary proceeding or civil action been initiated under section 223 of the Act for any unauthorized disclosure of certain intercepts?"

The letter also asks numerous questions about "data mining". It states that "The new guidelines allow FBI agents to attend a public event, such as a political demonstration or a religious service, and to use data mining services, provided doing so is for the purpose of preventing or detecting terrorism." It then asks, "What level of predication is required to permit FBI agents to attend public events or to use data mining services?"

It also asks, "Are FBI agents required to record in writing -- before they use data mining techniques or attend a public event under the guidelines -- how such activity is for the purpose of detecting or preventing terrorism?"

The letter also states that "With the FBI's authority to ``data mine´´ under the Guidelines, many fear that the FBI will have too much information and that the Bureau does not currently have the tools necessary to make good use of intelligence or to keep vast amounts of information secure." It then asks, "What has been done and is being done to improve the Bureau’s ability to interpret all of this new data? What security measures have been implemented to prevent unauthorized access to such data?"

It further inquires, "What type of supervision will be required when agents use data mining? Will field agents be able to initiate data mining on their own or will they be required to obtain approval from a supervisor?" Also, "What data mining services has the FBI used? How long will data obtained through data mining be retained and how will it be indexed?"

The data mining questions continue. "Where and how is information obtained through data mining stored? Is access to data obtained through data mining limited to those involved in a particular investigation? How is erroneous information corrected or purged, if at all? Has the Department issued written policies to provide guidance in this area? Does it plan to issue such policies? ... Has, and from what companies, the Department purchased information or entered into contracts with data mining companies? To what extent and how will persons listed in such information be able to correct errors or inaccuracies?"

The letter also asks, "Is the Department assisting in the implementation of the Computer Assisted Passenger Prescreening System (CAPPS I or II), which would be used to screen airline passengers?"

Rep. Sensenbrenner and Rep. Conyers are the Chairman and ranking Democrat on the House Judiciary Committee.

House Subcommittee Holds Hearing on Bill to Replace CARPs

4/1. The House Judiciary Commitee's Subcommittee on Courts, the Internet, and Intellectual Property held a hearing on HR 1417, the "Copyright Royalty and Distribution Reform Act".

This bill would replace Copyright Royalty Arbitration Panels (CARP), which is currently a system of ad hoc arbitration panels that recommend the royalty rates and distribution of royalty fees collected under certain of the statutory licenses and set some of the terms and conditions of some of the statutory licenses. The bill would replace the CARP system with a single permanent Copyright Royalty Judge, who would be appointed by the Librarian of Congress for a five year term, and be supported by two full-time professional staff members.

Marybeth Peters, the Register of Copyrights, stated in her prepared testimony that this bill would "would make significant changes to the CARP process to reduce costs, promote stability and the administrative efficiency of the copyright royalty distribution and rate adjustment system".

She identified several shortcomings of the current system. "First, there is no question that the CARPs are very costly both to the participants in a proceeding and on an institutional scale. Arbitrators are typically compensated at between $200 and $400 an hour for their work which, in hotly contested proceedings that involve many parties and large amounts of testimony (such as the recent rate setting proceeding for webcasting music over the Internet), can add up to considerable sums. In the case of a royalty rate adjustment proceeding, the arbitrators must be paid by the parties out of their own pockets. There is no question that in some rate adjustment proceedings, some interested parties conclude that they cannot afford the cost of participating."

She also said that "because of the ad hoc nature of the CARPs, there is a lack of stability and predictability in the process." Also, "there is a considerable lack of institutional expertise on the CARP panels."

Michael Remington, an attorney with the law firm of Drinker Biddle & Reath, which represents Broadcast Music, Inc. (BMI), stated in his prepared testimony that "the CARP system is in dire need of reform" and HR 1417 "is a positive step forward". He elaborated that "The system is time-consuming, formal and very expensive. It has neither promoted stability and predictability of results nor does it discourage resort to the costly, formal and protracted process. Settlements are all too often hard to achieve."

Remington testified that "H.R. 1417 also cures two serious defects in the current CARP system. First, currently the Copyright Office is placed in the schizophrenic situation of being the intake agency (a clerk of court, of sorts) and the appellate court (as advisor to the Librarian) for CARP decisions. Such dual responsibility is extremely rare in the United States and the Office clearly has struggled with balancing its two roles. H.R. 1417 both eliminates the Office’s intake role and removes the Librarian’s appellate responsibilities. A consultative role is appropriately preserved for the Office. The bill should specify that any advice rendered by the Office is limited to legal issues. Second, H.R. 1417 permits a single appeal to the U.S. Court of the Appeals for the D.C. Circuit (which has developed expertise in reviewing copyright royalty appeals)." (Parentheses in original.) He also offered several proposed refinements to the bill.

Bruce Rich, an attorney with the law firm of Weil Gotshal & Manges, which represents broadcast, cable and new media, stated in his prepared testimony that "the present CARP system’s reliance on three, newly-selected arbitrators for each CARP proceeding suffers serious shortcomings". He listed "Transient expertise and lack of continuity of decision-makers", "Lack of familiarity with prior precedents and, given the lack of probability of being chosen again to be an arbitrator, little incentive to craft meaningful precedent", "Wasteful expenditures of time in intra-arbitrator conferences on procedural and substantive issues", and "An inevitable tendency to reach compromise decisions, reflected in the remarkable tendency of virtually every party to a CARP proceeding to appeal the arbitrators’ rulings". He added that HR 1417 "commendably eliminates this cumbersome and inefficient approach in favor of the use of a single Copyright Royalty Judge ..."

Robert Garrett, an attorney with the law firm of Arnold & Porter, testified on behalf of Major League Baseball, the National Basketball Association, the National Football League, the National Collegiate Athletic Association, and other sports entities. He wrote in his prepared testimony that "The CARP structure should not be replaced with an entirely new decision-making body".

The CIIP Subcommittee also held a hearing on this issue on June 13, 2002. See, statements of Rep. Howard Coble (R-NC),  Rep. Darrell Issa (R-CA), Rep. Zoe Lofgren (D-CA), Rep. Rick Boucher (D-VA), Rep. John Conyers (D-MI), and prepared testimony of witnesses, Marybeth Peters, Bruce RichMichael Remington, Alan Garrett, and David Mandelbrot. See also, Final Print (Serial #78) [177 pages in PDF], and hearing transcript.

GAO Reports on U.S. Efforts to Monitor China's WTO Compliance

4/1. The General Accounting Office (GAO) released a report [44 pages in PDF] titled "World Trade Organization: First-Year U.S. Efforts to Monitor China's Compliance". This report examines key agencies' organizational changes following the PR China's accession to the World Trade Organization (WTO), and the interagency process used to carry out compliance responsibilities. It also reviews how these agencies have addressed the compliance issues that arose during the first year of China's WTO membership.

The report states that China's accession to the WTO has led to "increased monitoring and enforcement responsibilities for the U.S. government. In response to these increased responsibilities, the U.S. Trade Representative and the departments of Commerce, Agriculture, and State have undertaken various efforts to enhance their ability to monitor China’s compliance with its World Trade Organization commitments."

The report notes that the "USTR's Office of Services, Investment, and Intellectual Property has the lead role on China related intellectual property issues, such as monitoring China's compliance with WTO rules on enforcing patent and trademark protection. However, the office coordinates with the Office of North Asian Affairs to ensure information sharing between the two units." It also notes that "The embassy has also established a working group specifically focused on monitoring China’s intellectual property legislation and enforcement."

People and Appointments

4/1. Christi Harlan, who is currently Director of Public Affairs at the Securities and Exchange Commission (SEC), will leave the SEC to become Director of Public Affairs at the Public Company Accounting Oversight Board. See, SEC release.

More News

4/1. Federal Communications Commission (FCC) Commissioner Kathleen Abernathy gave a speech [5 pages in PDF] to the Cable Television Public Affairs Association Forum regarding cable programming that is not appropriate for families and children, and educating consumers about the value of digital television.

Go to News from March 26-31, 2003.