GAO Reports on LOCAL TV Act

10/31. The General Accounting Office (GAO) released a report [PDF] titled "Local TV Act: Progress Made, but Timeliness and Cost Accounting Issues Need to be Addressed". The Congress passed this Act to create a loan guarantee program intended to facilitate access to local television stations' signals. The report states that the program is not being implemented expeditiously.

The Launching Our Communities' Access to Local Television Act of 2000 (or LOCAL TV Act) was originally a stand alone bill -- S 2097 -- in the 106th Congress. However, it was enacted by the passage of HR 4942, which in turn, incorporated HR 5548, the Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations Act, 2001. And this bill, in turn, included as Title X, the LOCAL TV Act. It is now Public Law No. 106-553.

The LOCAL TV Act created the Local Television Loan Guarantee Program and established the Local Television Loan Guarantee Board to approve guaranteed loans, totaling no more than $1.25 Billion, to finance projects that will provide access to local TV station signals, on a technology neutral basis, to households with limited over-the-air TV broadcast signals or cable service.

While members of Congress might have understood that the program would apply to satellite service providers, it was drafted in a technology neutral manner, thus allowing internet based services to qualify.

The report concludes that "The LOCAL TV Program has not been established in an expeditious fashion as specified by the Act. Given that funds were appropriated in November 2001, thus starting the clock on the 120 days allowed for completing program regulations and underwriting criteria, the Program should have been ready for implementation by March 2002. According to Board and RUS officials, three factors contributed to program delays: (1) initial uncertainties over program funding, (2) inadequate dedicated staff resources for program activities, and (3) the decision to issue a proposed rule. As of the end of August 2003, neither of these key documents, which provide the overall framework for the Program, was ready for implementation, thus delaying lending activities and ultimately, realization of improved television reception in target areas throughout the United States."

The report was written for Sen. Richard Shelby (R-AL), Chairman of the Senate Banking Committee, and Rep. Mike Oxley (R-OH), Chairman of the House Financial Services Committee.

NIST Releases Draft Information Security Guidelines for Federal Agencies

10/31. The National Institute of Standards and Technology (NIST) released the first public draft [238 pages in PDF] of NIST Special Publication (SP) 800-53, titled "Recommended Security Controls for Federal Information Systems". See also, NIST release.

Last year, the Congress enacted HR 2458 (107th Congress), the "E-Government Act of 2002". President Bush signed it on December 17, 2002. It then became Public Law No. 107-347. Title III of this act, which pertains to "Information Security", is also known as the "Federal Information Security Management Act of 2002".

It seeks to provide "a comprehensive framework for ensuring the effectiveness of information security controls over information resources that support Federal operations and assets". And it tasks the NIST, among other things, with "developing and overseeing the implementation of policies, principles, standards, and guidelines on information security"

In particular, the Act requires the NIST shall "(1) have the mission of developing standards, guidelines, and associated methods and techniques for information systems; (2) develop standards and guidelines, including minimum requirements, for information systems used or operated by an agency or by a contractor of an agency or other organization on behalf of an agency, other than national security systems (as defined in section 3542(b)(2) of title 44, United States Code); and (3) develop standards and guidelines, including minimum requirements, for providing adequate information security for all agency operations and assets, but such standards and guidelines shall not apply to national security systems."

SP 800-53 states that "The purpose of this special publication is to provide guidelines for selecting and specifying security controls for information systems. These guidelines have been developed to help achieve more secure information systems by: Facilitating a more consistent, comparable, and repeatable approach for selecting and specifying security controls for information systems; Providing a recommendation for baseline (minimum) security controls for information systems categorized in accordance with FIPS Publication 199, Standards for Security Categorization of Federal Information and Information Systems; Promoting a dynamic, extensible catalog of security controls for information systems to meet the demands of changing requirements and technologies; and Creating a foundation for the development of verification techniques and procedures for determining security control effectiveness."

SP 800-53 provides a method for categorizing security risk levels based upon another recent NIST document, the draft [13 pages in PDF] of Federal Information Processing Standards (FIPS) Publication 199, titled "Standards for Security Categorization of Federal Information and Information Systems", and dated "December 2003".

SP 800-53 is applicable to most federal agency information systems; it excludes national security systems. However, the NIST predicts that it is "expected to have a wide audience beyond the federal government."

SP 800-53 was authored by Ron Ross, Gary Stoneburner, Stuart Katzke, Arnold Johnson, and Marianne Swanson.

The NIST seeks public comments. Comments are due by January 31, 2003. Comments may be submitted to SEC-CERT@NIST.GOV or to the Computer Security Division, 100 Bureau Drive (Mail Stop 8930), Gaithersburg, MD, 20899-8930.

DC Circuit Rules In CFA's Challenge to AT&T Comcast Merger

10/31. The U.S. Court of Appeals (DCCir) issued its opinion [PDF] in CFA v. FCC. The Consumer Federation of America (CFA) filed an appeal of the Federal Communications Commission's (FCC) order approving the merger of AT&T and Comcast, and a petition for review of an order in the merger proceeding denying a motion brought by the CFA. The Appeals Court dismissed the petition and affirmed the order approving the merger. However, the Appeals Court held that the CFA had standing to challenge the merger order, even though this was a license transfer proceeding to which the CFA was not a party, because it has a member who consumes cable services.

The CFA, a Washington DC based interest group, and others, requested that the FCC place in the record of the merger proceeding (nominally, a license transfer proceeding) an agreement between AT&T and Time Warner, Inc. that established the terms by which Time Warner's AOL subsidiary would provide internet service to customers of the merged firm. The FCC did not place it in the record.

In November of 2002 the FCC conditionally approved the merger of AT&T and Comcast. See, Memorandum Opinion and Order [108 pages in PDF], adopted on November 13, and released on November 14. See also, story titled "FCC Releases AT&T Comcast Order" in TLJ Daily E-Mail Alert No. 550, November 15, 2002.

Just prior to approving the merger, the FCC released an Order [PDF] denying the motion of the CFA and Earthlink to require that AT&T and Comcast file with the FCC copies of several documents, including the AOL ISP agreement. See, story titled "FCC Does Not Require AT&T and Comcast to Publicly Disclose ISP Agreement With AOL" in TLJ Daily E-Mail Alert No. 544, November 7, 2002.

Ruling on Procedural Issues. The CFA asserted standing to challenge the merger order based on the affidavit of its Research Director and member, Mark Cooper. He stated that he subscribed to Comcast cable service, and had contemplated purchasing Comcast's high-speed internet service, but did not because of his inability to choose his ISP and because of restrictions on access to content.

The Appeals Court ruled the CFA has standing to challenge the merger order. Based upon the affidavit of Cooper, there is injury in fact, and that the injury can be traced to the FCC order.

The Court wrote that "This injury to Cooper may also be fairly traced to the Commission’s order. When an agency order permits a third-party to engage in conduct that allegedly injures a person, the person has satisfied the causation aspect of the standing analysis. ... The Consumer Federation had requested the Commission to condition the merger on a commitment from AT&T Comcast to allow unaffiliated ISPs access to its cable system and to refrain from interfering with content. In rejecting these demands, the Commission’s order permitted the practices to exist. This is enough to attribute Comcast’s conduct to the Commission for standing purposes. It follows that the injury is also redressable."

The Appeals Court held that the motion order was not a final order, and therefore not subject to a petition for review. But, this is of little consequence, because the motion order can be reviewed as part of the judicial review of the merger order.

Ruling on the Merits. The Appeals Court summarized the argument of the CFA as follows. The FCC "could not have properly completed its public interest review without first examining the AOL ISP Agreement. Their theory focuses on the allegation that several terms in the Agreement are unfavorable to AOL -- particularly the restriction on streaming video. According to the groups, the fact that AOL agreed to these terms demonstrates that AT&T Comcast would have substantial market power in the residential broadband market and that it is likely to use that power to interfere with users’ access to content. Therefore, the Commission should not have approved the license transfers without taking this danger into account, and it could not fully evaluate the danger without examining the AOL ISP Agreement."

The Court continued that the FCC "has initiated a rulemaking proceeding to deal with these issues on an industry-wide basis" and its "decision not to address them in this particular case is consistent with its broad discretion to choose between rulemaking and adjudication."

The Court concluded that "the consumer groups have the right to try to persuade the Commission to change its policy and condition the merger on open access for unaffiliated ISPs. If they needed the AOL ISP Agreement to make that argument, perhaps the Commission would have erred in excluding it. But the groups’ Petition to Deny fully explicated the case for open access without ever referring to the AOL ISP Agreement, let alone indicating that its exclusion hampered their ability to make their case. In fact, at oral argument, the groups could not point to one argument that the Commission's decision to exclude the Agreement prevented them from making. Similarly, the Commission rejected the groups' arguments without regard to the contents of the AOL ISP Agreement. Thus, the decision to exclude the Agreement from the record could not have affected the outcome of the proceeding. It was at worst harmless error."

This case is Consumer Federation of America v. FCC and USA, respondents/appellees, AT&T Corporation, et al., intervenors, Nos. 02-1337 and 02-1347. The FCC proceeding is titled "In the matter of Applications for Consent to the Transfer of Control of Licenses from Comcast Corporation and AT&T Corp., Transferors, to AT&T Comcast Corporation, Transferee". It is MB Docket No. 02-70.

People and Appointments

10/31. President Bush announced his intent to nominate Samuel Bodman (at right) to be Deputy Secretary of the Treasury, the number two position at the Department of the Treasury. He had previously nominated Susan Schwab for this position. She withdrew from consideration. Bodman is currently Deputy Secretary of Commerce. See, White House release. Bodman is an former MIT professor turned financier.

10/31. President Bush announced his intent to nominate Brian Roseboro to be Under Secretary of the Treasury for Domestic Finance. He is currently acting Under Secretary of the Treasury for Domestic Finance. Bush had previously nominated Kenneth Leet for this position. See, White House release.

10/31. President Bush nominated Walter Kelley to be a Judge of the U.S. District Court for the Eastern District of Virginia. See, White House release of October 31. Bush announced his intent to nominate Kelley on October 14, 2003. See, White House release of October 14. Kelley is a partner in the Norfolk office of the law firm of Troutman Sanders. He focuses on civil litigation, and has experience with information technology related patent and copyright infringement cases.

More News

10/31. The Department of Commerce's Bureau of Industry and Security (BIS) announced that on November 19, there will be another meeting of the public to private component U.S. India High Technology Cooperation Group (HTCG). This meeting will be held at the Hotel Leela Palace in Bangalore, India. Then, on November 20, there will be a government to government meeting in New Dehli, India. See, invitation letter [PDF] and response form [PDF].

10/31. President Bush signed HJRes 75, which provides FY 2004 appropriations for continuing projects and activities of the federal government through Friday, November 7, 2003. See, White House release.

10/31. The U.S. Bankruptcy Court (SDNY) approved WorldCom's (renamed MCI) plan of reorganization. See, WorldCom release.

10/31. The U.S. District Court (SDNY) issued an order in SEC v. Bear Stearns and related proceedings approving the $1.4 Billion global settlement of the Securities and Exchange Commission's (SEC) enforcement actions against ten investment firms and two individuals alleging undue influence of investment banking interests on securities research at brokerage firms. See, SEC release.

10/31. The Department of the Treasury announced that Pam Olson, the Assistant Secretary for Tax Policy, will be the luncheon speaker on Tuesday, November 4 at the 19th Annual High Technology Tax Institute, at the Crowne Plaza Cabana Hotel in Palo, Alto, California.10/31. The Progressive Policy Institute (PPI), a Democratic party think tank, released a report [25 pages in PDF] titled "Confronting Digital Piracy: Intellectual Property Protection in the Internet Era", by Shane Ham and Robert Atkinson. The report concludes that "there are no right or wrong answers, only the balancing of trade-offs. Policymakers must take steps to ensure that the individuals and companies that create and distribute content have their property protected from theft. At the same time, public policy must encourage the other myriad benefits both content and devices, disintermediation of middlemen that serve only to increase costs, and so on. By balancing these competing interests and creating an environment where content providers can take full advantage of digital technology, the digital era holds the promise of new vistas of creativity." See also, PPI summary.

10/31. The Internet Corporation for Assigned Names and Numbers (ICANN) announced that "it will launch a broad strategic initiative to enable new generic top level domains (gTLDs). The strategic initiative will include a two-stage approach to move to the full globalization of the market for top-level domains." See, ICANN release.

10/31. The U.S. District Court (DC) issued a Scheduling and Case Management Order [9 pages in PDF] in USA v. First Data & Concord EFS, Inc., D.C. No. 03-2169 (RMC). Trial will begin on December 15, and continue for seven business days. See also, story titled "DOJ Sues to Stop Merger of PIN Debit Networks", also published in TLJ Daily E-Mail Alert No. 765, October 24, 2003.

10/31. The Office of the U.S. Trade Representative (USTR) published a notice in the Federal Register requesting comments regarding barriers to U.S. exports of goods, services and overseas direct investment for inclusion in the USTR's annual National Trade Estimate Report on Foreign Trade Barriers (NTE). The USTR seeks comments on, among other issues, lack of intellectual property protection, trade restrictions affecting electronic commerce, restrictions on the use of data processing, technology transfer requirements, limitations on foreign equity participation, and anticompetitive practices. See, notice in the Federal Register, October 31, 2003, Vol. 68, No. 211, at Pages 62159 - 62160. Comments are due by December 12, 2003.

Commerce Department Releases Third Quarter GDP Data

10/30. The Department of Commerce's (DOC) Bureau of Economic Analysis (BEA) released gross domestic product and related data for the third quarter of 2003. The data shows that investment in computers and peripheral equipment has been growing at an annual rate of 35% for the past two quarters. In addition, it shows that investment in software has been growing at an annual rate of just over 4% for the past two quarters. The economy as a whole grew at an annual rate of 7.2% in the third quarter. This is the largest quarterly increase in 19 years. See, BEA data release. See, full story.

House Subcommittee Holds Hearing on Internet Wine Sales

10/30. The House Commerce Committee's Subcommittee on on Commerce, Trade, and Consumer Protection held a hearing titled "E-Commerce: The Case of Online Wine Sales and Direct Shipment". Rep. Clifford Stearns (R-FL) presided. The Subcommittee received testimony from the Federal Trade Commission (FTC), which has studied various state laws that impede e-commerce, the Wine and Spirits Wholesalers of America (WSWA), which opposes Internet sales of wine and other alcohol, and WineAmerica, which represents small wineries and opposes state prohibitions of Internet wine sales.

The FTC issued a report [139 pages in PDF] titled "Possible Anticompetitive Barriers to E-Commerce: Wine" on July 3, 2003. See, story titled "FTC Report Concludes That Allowing Direct Sales of Wines Would Enhance Consumer Welfare" in TLJ Daily E-Mail Alert No. 692, July 7, 2003. This report concluded that consumer welfare would be enhanced by allowing direct shipment of wines.

Todd Zywicki, Director of the FTC's Office of Policy Planning, wrote in his prepared testimony for this hearing that "Wine is a good example of how the Internet can permit fundamentally different business models to flourish. Through the Internet, many smaller vineyards, with limited distribution networks, can now market their wines to consumers around the country."

But, he continued, "many states limit or prohibit direct wine sales over the Internet. Under the common ``three tier´´ distribution system, many states require that wine pass through a wholesaler or a retailer before reaching the consumer. These states, and many commentators, contend that the distribution system furthers the state's interest in taxation, advances the Twenty-First Amendment's important public policy goal of temperance, and helps prevent alcohol sales to minors."

The 21st Amendment provides, in part, that "The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited."

Zywicki continued that the FTC has concluded that "consumers could reap significant benefits if they had the option of purchasing wine online from out-of-state sources and having it shipped directly to them. Consumers could save money, choose from a much greater variety of wines, and enjoy the convenience of home delivery. Indeed, in states that are litigating the constitutionality of direct shipping bans, several courts have found that the bans deprive the state’s consumers of lower prices and greater variety. In addition, many states appear to have found means of satisfying their tax and other regulatory goals that are less restrictive than an outright ban. These states generally report few or no problems with shipments to minors or with tax collection."

The WSWA submitted the prepared tesimony of Juanita Duggan. She emphasized the argument that direct sales of alcohol leads to purchases by minors, and that limiting sales to face to face transactions is the only way to enforce minimum age laws.

David Sloane of WineAmerica also submitted prepared testimony. He argued that the three tier distribution system, and bans on direct sales, harm small wineries.

He wrote that "While we do not recommend that Congress take any specific legislative action at this time to reduce barriers to online wine sales, given the importance and potential of the Internet, we do, however, recommend that Congress consider developing legislation to provide more generalized guidance to the states and courts in this area. Specifically, Congress could indicate that commerce -- especially e-commerce -- should be allowed in the absence of good, sufficient reasons to erect barriers, and when there is no alternative and less disruptive mechanism. The alternative -- that of allowing states to erect barriers without regard to the Commerce Clause -- will forever limit the potential of the Internet."

Rep. Stearns (at right) commented that in 26 states direct sales of alcohol is permitted interstate, although in some states it is conditioned upon reciprocity. He added that in 40 states direct sales of alcohol is permitted intrastate. He said that the WSWA argument "seems to me a little illogical". That is, direct sales works in these 26 and 40 states. He concluded that "all of these concerns that you have don't seem to be a problem" in those states.

The WSWA witness responded that with respect to the 40 states that allow intrastate direct sales, it is a matter of jurisdiction and control. When the winery or other retailer is in state, that state's courts have jurisdiction over that seller, and that state can revoke that retailer's license.

Commerce Secretary Evans Discusses Talks With China

10/30. Secretary of Commerce Donald Evans discussed his talks with representatives of the government of the People's Republic of China. He spoke and answered question at events in Beijing and Tokyo on October 29 and 30. He stated that he talked about, among other issues, the Doha round, protection of IPR in China, and U.S. restrictions on high-tech exports to China. 

On October 29, Evans held a press conference in Beijing, China. See, transcript. He stated that "One of the specific issues we focused on while we were here was the protection of intellectual property rights. There is too much piracy of intellectual property, too much counterfeiting, too much stealing. Over 90 percent of the intellectual property -- that is DVDs and CVDs and software -- that is sold is counterfeit. Some of it is being exported outside the country."

On October 30, Evans (at right) gave a speech and answered questions at an American Chamber of Commerce in Japan luncheon in Tokyo, Japan. He said that "We need to continue to work very hard on the Doha Round and WTO. Those are the kinds of places you can go to create standards, rules, laws, regulations so we're all on the same playing field. Another example that I used a lot when I was in China was the enforcement of the agreements that we signed. Intellectual Property Right protection, that's a huge, huge deal. About 90 percent of the CDs, DVDs, software sold in China are pirated, or they're stolen or they're counterfeit. That means wherever that intellectual property, that knowledge, that value is coming from, is being disadvantaged or on an unlevel playing field. So it's a matter of not only signing agreements where we all know what the rules are going to be, but it's also enforcing the rules -- effective enforcement of the rules."

He also addressed U.S. export controls on the 29th. He said that "China is the only country in the world, the only country in the world where we have difficulty in having access to the companies that are buying this high-technology equipment, what we would call end-use visits. As soon as we can get an end-use visit agreement in place so that we can tell the Congress of the United States and the American people that we are being provided access to visit the plants and the facilities and the businesses that are buying this high-tech equipment, I feel confident that it will improve the environment, improve the conditions for increasing high-technology trade between our two countries."

He also commented on the consequences of information technologies. He stated that "In the 21st century, because of technology, our borders are going to be connected by computer terminals all around the world. Borders are becoming more eroded all around the world, and that kind of way, the free flow of information and knowledge, is one of the reasons that we're seeing this incredible increase in productivity. Information is readily available, and doesn't cost you a lot to get it. I'm optimistic that we'll continue to see this power drive a more competitive, more productive global economy that will eventually get us to where we're all trying to be."

He also addressed other issues. He said that "it's essential that trade be fair, and we're all playing by basically the same rules."

"What I did talk about was that you have to enforce intellectual property rights, because 90 percent of what's being sold is stolen. It's pirated. That's not fair to American workers", said Evans. "I did talk about the fact that China has been relatively slow in establishing the regulations for allowing distribution systems to be set up in China, and trading licenses to be established in China, so that American companies can find ways to move their products into the China economy. I did talk about ways that this economy needs to continue to move towards free-market principles. Government needs to be less involved in trying to micromanage the economy, and you need to put the fiscal policies in place, the monetary policies in place, the regulatory policies in place that allow the private sector, the workers of the country to do what they do so well, which is to create the wealth and create the prosperity."

He added that there is a "VAT rebate tax that discriminates against foreign competition. We talked about standards that are being established that discriminate against foreign competition." He also said that "we didn't come over to talk about any differential in labor costs."

Senate Commerce Committee Holds Hearing on Universal Service

10/30. The Senate Commerce Committee held a hearing on the preservation and advancement of universal service. Michael Powell, Chairman of the Federal Communications Commission, wrote in his prepared testimony [MS Word] that "the FCC is currently reexamining nearly every aspect of the universal service program to ensure that the program is administered effectively and that it remains sustainable as major marketplace and technological developments take root."

Powell stated that "Traditional telecommunications services are migrating from old circuit-switched networks to new and advanced Internet protocol networks. The demand pull of consumer choice and technological push of network innovation mean that this migration is inevitable. Indeed, regulators cannot stop it, nor should we want to for it promises new competitive choices and spell-binding innovation for consumers. Our efforts to reform the nation's universal service programs must embrace change and provide sufficient, forward-looking flexibility to ensure that supported services remain affordable and ubiquitous."

But, he said, "Digital migration should not be seen as a threat to our universal service objectives, but an opportunity. Indeed, the fact that our Schools and Libraries program has succeeded in connecting 99 percent of public schools to the Internet is an example of universal service success in the Digital Age."

He offered several recommendations. First, he said, "we must reform the FCC’s contribution methodology for collecting Universal Service Funds to address changes in the market and to ensure a more stable funding base.  Several trends have put pressure on the contribution factor:  Interstate revenues have been flat or in decline since 1999 as a result of price competition, bundled packages and technology substitution. Moreover, expanding the base to include intra-state revenues may be needed to stem the declining tide."

"Second, we must control the growth of the Universal Service Fund, mindful that consumers ultimately pay for achieving our universal service objectives. Particularly, we need a more rational method of distributing universal service support that promotes competition, but preserves the fund. To this end, the Joint Board will soon make recommendations to the Commission on ETC eligibility and portability."

"Third, we must improve the administration of our vast and sometimes unnecessarily technical rules in our programs.  Clarifying and simplifying our eligibility criteria in the Schools and Libraries program, Rural Health Care program and low income programs has been a priority.  Indeed, at our November meeting, I will present to the Commission an item that will advance the important homeland security and public health interests of rural America by unlocking the funds that Congress designated for rural health care providers."

Fourth, he stated that "we must continue to diligently enforce the universal service rules that are currently on the books if we are to sustain universal service in a digital age, as well as maintain the accountability of these programs.   Our recent enforcement activities are designed to ensure that every responsible entity pays their fair share.  I am happy to announce that because of our stepped up enforcement efforts, the contribution factor for the first quarter of next year likely will drop below 9 percent, as opposed to increase to 10 percent as was feared."

Universal service subsidy requirements are codified at 47 U.S.C. § 254. See also, FCC's universal service web page.

More News

10/30. The Progress and Freedom Foundation (PFF) released a "study [PDF] titled "Verizon v. Trinko: Reconciling FCC Regulation and Antitrust Enforcement", by William Adkinson of the PFF. He states that "This controversy is nothing new -- the 1996 Act was in large part intended to replace years of regulation under the antitrust consent decree entered by Judge Greene in United States v. AT&T with a new FCC regulatory regime." He argues that "although there is no implied preemption or immunity under the 1996 Act, the regulatory system must inform the application of the antitrust laws in these cases. Plaintiffs should not be permitted to assert antitrust claims against ILECs based on alleged denials of interconnection or other conduct subject to the 1996 Act. Such claims are negated by the regulatory system, which imposes far more extensive obligations on ILECs than the antitrust laws ever could. Theories of refusals to deal, denial of access to an essential facility and the like make no sense when the 1996 Act and implementing regulations require that ILECs provide reasonable access. Indeed, permitting CLECs or retail customers to bring antitrust actions will interfere with the access system established by the 1996 Act." The Supreme Court heard oral argument in the Trinko case on October 14, 2003. See also, story titled "Supreme Court Grants Certiorari in Verizon v. Trinko", March 10, 2003, also published in TLJ Daily E-Mail Alert No. 620, March 11, 2003.

10/30. The Department of Justice's (DOJ) Antitrust Division announced that it will give an award to Richard Posner. He is judge of the U.S. Court of Appeals (7thCir). The DOJ argues cases before the Seventh Circuit. The award ceremony and reception will be held on November 6, 2003 at 3:00 -5:30 PM. See, DOJ release.

10/30. The International Telecommunications Union (ITU) announced that it will host, in collaboration with the ISO (International Organization for Standardization) and the ETSI (the European Telecommunications Standards Institute), a workshop on the future of communication technologies in motor vehicles. The event will be held in Geneva, Switzerland on November 24-25. See, ITU release.

10/30. Federal Communications Commission (FCC) Chairman Michael Powell met with Muna Nijem, Chairman and Chief Executive Officer of the Hashemite Kingdom of Jordan's Telecommunications Regulatory Commission (TRC). See, FCC release.

10/30. The U.S. District Court (DC) issued a Scheduling and Case Management Order [8 pages in PDF] in USA v. First Data and Concord EFS. See also, TLJ story titled "DOJ Sues to Stop Merger of PIN Debit Networks", October 23, 2003, also published in TLJ Daily E-Mail Alert No. 765, October 24, 2003.

DeWine and Kohl Introduce Bill to Revise Tunney Act

10/29. Sen. Mike DeWine (R-OH) and Sen. Herb Kohl (D-WI) introduced S 1797, the "Antitrust Criminal Penalty Enhancement and Reform Act of 2003". The bill would amend the Tunney Act to provide that the courts are to independently determine that civil antitrust settlements negotiated by the Department of Justice (DOJ) are in the public interest. It would also increase penalties for some criminal antitrust violations. It would also enhance the DOJ's existing leniency program.

Sen. DeWine is the Chairman of the Senate Judiciary Committee's Subcommittee on Antitrust, Competition Policy and Consumer Rights. Sen. Kohl is the ranking Democrat on the Subcommittee. The two typically work together on antitrust issues.

Sen. Kohl spoke in the Senate about the bill. He stated that "The Tunney Act was passed in 1974 in response to concerns that some Justice Department settlements were motivated by inappropriate political pressure and were simply inadequate to restore competition or protect consumers. Congress concluded that review by the district courts to be an essential safeguard to deter the Justice Department from settling cases without regard for the public interest or the interest of affected consumers. The Tunney Act was enacted to end the then-prevalent practice of district judges ``rubber stamping´´ antitrust consent decrees." See, Congressional Record, October 29, 2003, at S13519.

The Tunney Act is Section 5 of the Clayton Act, as amended, and is codified at 15 U.S.C. § 16. The bill would amend the Tunney Act to require that "The Court shall not enter any consent judgment proposed by the United States under this section unless it finds that there is reasonable belief, based on substantial evidence and reasoned analysis, to support the United States' conclusion that the consent judgment is in the public interest."

Sen. Kohl did not discuss the government antitrust case against Microsoft. However, he stated that "Unfortunately, in recent years, many courts -- including specifically the U.S. Court of Appeals for the District of Columbia Circuit -- have misconstrued the plain meaning of the Tunney Act and have returned to the practice of ``rubber stamp´´ review of antitrust settlements. The controlling precedent in the D.C. Circuit is now that trial courts must enter antitrust consent decrees as long as they do not make a ``mockery of the judicial power.´´ This standard is contrary to the intent of the Tunney Act and effectively strips the courts of the ability to engage in meaningful review of antitrust settlements."

He elaborated that "Our bill will restore the original intent of the Tunney Act by First, providing that courts are to independently determine that antitrust settlements are in the public interest, second, setting forth a specific list of factors that a court must examine in the course of its public interest review -- rather than may consider as the statute is currently written, and third, requiring the government establish that substantial evidence and reasoned analysis supports the government's belief that the consent judgment is in the public interest."

Sen. Kohl stated that the bill will also "increase the maximum corporate penalty from $10 to $100 million, will increase the maximum individual fine from $350,000 to $1 million, and increase the maximum jail term for individuals who are convicted of criminal antitrust violations from three to ten years. These changes will send the proper message that criminal antitrust violations -- crimes such as price fixing and bid rigging -- committed by business executives in a boardroom are serious offense that steal from American consumers just as effectively as does a street criminal with a gun."

Finally, he addressed the leniency program provisions of the bill. He said that "The leniency program rewards the first member of a criminal antitrust conspiracy to admit its crime to the Justice Department by granting the wrongdoer criminal amnesty. This is an important tool for law enforcement officials to detect and break up cartels that fix prices and limit supply in our economy. This new provision will give the Justice Department the ability to offer those applying for leniency the additional reward of only facing actual damages in civil suits arising out of the antitrust conspiracy, rather than the treble damage liability to which they would otherwise be subject."

The bill was referred to the Senate Judiciary Committee.

More News

10/29. The Federal Communications Commission (FCC) held a two day event on October 29-30 titled "E911 Coordination Initiative". See, speech [PDF] by FCC Chairman Michael Powell.

10/29. The Federal Trade Commission (FTC) filed a complaint [PDF] in U.S. District Court (SDNY) Epixtar Corporation, Liberty Online Services, Inc., National Online Services, Inc., B2B Advantage, Inc., aka SBA Online, and William Douglas Rhodes, alleging violation of the Federal Trade Commission Act (FTCA) in connection with billing for internet services represented as free. The FTC filed its complaint on October 28. On October 29, the District Court issued a temporary restraining order [PDF]. See also, FTC release. This case is FTC v. Epixtar Corporation, et al., D.C. No. 03 CV 8511 (DAB).

Groups Argue for Anonymity in Domain Name Registration

10/28. A collection of groups wrote a letter to the Paul Twomey, the P/CEO of the Internet Corporation for Assigned Names and Numbers (ICANN) "regarding the significant privacy issues surrounding the WHOIS database and the need to ensure that strong privacy safeguards are established".

The signatories include the the Electronic Privacy Information Center (EPIC), Media Access Project (MAP), American Library Association (ALA), and other groups.

They argue that "The WHOIS database was originally intended to allow network administrators to find and fix problems to maintain the stability of the Internet. It now exposes domain name registrants' personal information to many other users for many other purposes unrelated to network access. Anyone with Internet access can now have access to WHOIS data, and that includes stalkers, governments that restrict dissidents' activities, law enforcement agents without legal authority, and spammers. The original purpose for WHOIS should be reestablished."

They also state that "Although there are some domain name registrants who use the Internet to conduct fraud or to infringe on other people's or companies' intellectual property rights, we believe that a sensible privacy policy for WHOIS must protect the legitimate privacy expectations for domain registrants."

DC Circuit Upholds FCC DTV Tuner Mandates Order

10/28. The U.S. Court of Appeals (DCCir) issued its opinion [20 pages in PDF] in Consumer Electronics Association v. FCC, upholding the Federal Communications Commission's (FCC) order mandating that most TV sets be built with digital TV tuners. See, full story.

FTC Releases Report on Competition and Patent Law

10/28. The Federal Trade Commission (FTC) released a report titled "To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy". See, Executive Summary [18 pages in PDF] and Report [2.28 MB in PDF].

FTC Chairman Timothy Muris (at right) and Susan DeSanti, the FTC's Deputy General Counsel for Policy Studies, also conducted a media roundtable to discuss the report on October 28. They argued that while patent law can stimulate innovation, so can competition, and that competition law and patent law are not inherently in conflict. They stated that the FTC seeks a proper balance between patent and copyright law.

They continued that to attain this balance, the patent system needs to reduce the number of questionable patents, and increase the likelihood that valid patents are issued and upheld. The report of the FTC offers six recommendations for improving patent quality (including post grant administrative reviews of patents at the PTO, using a preponderance of the evidence standard in validity challenges, and providing adequate funding to the PTO). They added that anti-competitive uses of the patent system must also be addressed (including by requiring publication of all patent applications 18 months after filing, and addressing submarine patents). The report contains three recommendations on this matter.

The report offers ten recommendations:

1. "Enact Legislation to Create a New Administrative Procedure to Allow Post-Grant Review of and Opposition to Patents"

2. "Enact Legislation to Specify that Challenges to the Validity of a Patent Are To Be Determined Based on a ``Preponderance of the Evidence´´"

3. "Tighten Certain Legal Standards Used to Evaluate Whether A Patent Is ``Obvious´´"

4. "Provide Adequate Funding for the PTO"

5. "Modify Certain PTO Rules and Implement Portions of the PTO's 21st Century Strategic Plan"

6. "Consider Possible Harm to Competition -- Along with Other Possible Benefits and Costs -- Before Extending the Scope of Patentable Subject Matter"

7. "Enact Legislation to Require Publication of All Patent Applications 18 Months After Filing"

8. "Enact Legislation to Create Intervening or Prior User Rights to Protect Parties from Infringement Allegations That Rely on Certain Patent Claims First Introduced in a Continuing or Other Similar Application"

9. "Enact Legislation to Require, As a Predicate for Liability for Willful Infringement, Either Actual, Written Notice of Infringement from the Patentee, or Deliberate Copying of the Patentee's Invention, Knowing It to Be Patented"

10. "Expand Consideration of Economic Learning and Competition Policy Concerns in Patent Law Decisionmaking"

In 2002 the FTC and the Department of Justice's (DOJ) Antitrust Division jointly held 22 days of hearings under the title of "Competition and Intellectual Property Law and Policy in the Knowledge-Based Economy". The FTC has collected most of the prepared testimony of the speakers in a web site devoted to this topic. However, the present report was prepared only by the FTC.

Muris stated at a media roundtable on October 28 that this is the first of two reports. This just released report offers recommendations for improving the quality of patents. The second report, which will be issued jointly by the DOJ and the FTC, will make recommendations regarding antitrust law.

Muris said "we haven't set a date for the report". He added that "it's months, not weeks" away. He also said that it will address patent, but not copyright, law.

The present report contains no recommendations regarding business method patents. Although, the report notes that the FTC received comments on this subject. The report states that in recent years the scope of patentable subject matter has been expanded, not only to include business methods, but also living organisms and software. It recommends that in the future, before further expanding the scope of patentable subject matter, the possible harm to competition should be taken into consideration.

The recommendation as to adequate funding for the USPTO is vague. The FTC takes no position on what the level of funding should be, or whether the appropriations practice of diverting user fees collected by the USPTO should be terminated. The report simply makes the point that the USPTO needs adequate funding to improve patent quality. The FTC report stresses patent quality, rather than pendancy.

Muris stated that antitrust policy has in the past been hostile to patent protection, citing the FTC's nine no no's in the 1970s. However, he stated that this changed in 1981 when former Assistant Attorney General William Baxter was appointed to run the DOJ's Antitrust Division. He added that the historical hostility "is gone".

DeSanti also stated that there is nothing in the USPTO's 21st Century Strategic plan that contradicts anything in this FTC report.

Muris will give a luncheon address on Thursday, October 30, at a convention of the American Intellectual Property Law Association (AIPLA), at 12:30 - 2:00 PM. The title of his address will be "Intersection of Intellectual Property Law and Competition". This will be at the Grand Hyatt Washington, at 1000 H Street. See, convention agenda [44 pages in PDF].

Then, on Friday, October 31 at 12:15 - 1:45 PM, Rep. Lamar Smith (R-TX), the Chairman of the House Judiciary Committee's Courts, the Internet, and Intellectual Property Subcommittee will give a luncheon address at the AIPLA convention. This Subcommittee has jurisdiction over most of the legislative proposals contained in the FTC's report.

Evans Says China Must Move To A Market Based Economy and Provide Greater IPR Protections

10/28. Secretary of Commerce Donald Evans gave a speech in Beijing, China to the American Chamber of Commerce in which he called upon China to move to a market based economy, and afford greater intellectual property protections.

Evans (at right) said that "this trading relationship needs work -- a lot of work. A glance at the export tables makes clear that the United States is holding up our end of the bargain; the U.S. market is open to Chinese products. But the U.S. market will not remain open forever under unfair terms."

He continued that "China's leaders have promised to move to a market-based economy but the pace of change is a problem. China is moving far too slowly in its transition to an open, market-based economy. Time is running out. We need to see results. There is friction and the slow pace of reform in the Chinese market is the source of the friction."

He added that "We have been patient, but our patience is wearing thin. The American market will not remain open to Chinese exports indefinitely, if the Chinese market is not equally opened to U.S. companies and American workers."

Then he talked about intellectual property. He said that "Protecting intellectual property rights is another area where reform is urgently needed. We know that China's government understands the importance of IPR protections but the problems remain."

He said that "The Business Software Alliance estimates that software piracy rates in China exceed 90 percent. It is reasonable to assume that the vast majority of the Chinese government is operating with pirated software. ($2 billion per year). There is still a flood of counterfeit products of all types being produced and exported and consumed in China." (Parentheses in original.) See, BSA's 2003 Global Software Piracy Study [PDF].

He also asserted that "Effective protection requires criminal penalties for stolen intellectual property theft and fines large enough to be a deterrent rather than a business expense."

Hollings and Stevens Write FCC Re Broadcast Flag Proceeding

10/28. Sen. Ernest Hollings (D-SC) and Sen. Ted Stevens (R-AK) wrote a letter [PDF] to Federal Communications Commission (FCC) Chairman Michael Powell regarding the FCC's broadcast flag proceeding.

They wrote to urge the FCC "to implement a ``broadcast flag´´ solution that will protect digital content delivered via the broadcast platform. In our view, adoption of this technological tool will significantly advance the digital television transition and will help to place free, off-air broadcasters on a level playing field with cable and satellite platforms in their ability to protect high-value, digital content from illegal Internet redistribution."

Sen. Hollings (at right) and Sen. Stevens continued that "The ``broadcast flag´´ solution before the Commission is the result of lengthy, multi-industry negotiations organized by the Broadcast Protection Discussion Group (BPDG) that began in November 2001 between the motion picture, consumer electronics, and information technologies industries. Its aim was to develop a technological solution that would permit consumers to make copies of digital content for use on properly equipped recording devices while preventing the illegal redistribution of those copies. These talks culminated in a final report issued by the BPDG Co-Chairs in June 2002 supporting swift adoption of this technology."

The also wrote that "While the implementation of the ``broadcast flag´´ will not obviate the need for further work to address digital piracy risks resulting from the digital conversion of unprotected analog content (the so-called ``analog hole´´ problem), its adoption will mark a significant step forward in our efforts to improve protections for digital over-the-air broadcast programming while preserving the consumer's ability to make copies of such programs for time-shifting or other lawful purposes. Moreover, we believe this step can be taken consistent with the Commission's obligation to regulate in the public interest while honoring the legitimate rights of consumers to view and record digital content."

Sen. Hollings is the ranking Democrat on the Senate Commerce Committee. He is retiring at the end of the 108th Congress. Sen. Stevens is a senior Republican on the Committee, and the Chairman of the Senate Appropriations Committee.

The FCC adopted its Notice of Proposed Rulemaking (NPRM) [15 pages in PDF] in its proceeding titled "In the Matter of Digital Broadcast Copy Protection" on August 8, 2002. This is MB Docket No. 02-230.

The FCC stated in its report and order containing digital plug and play cable compatibility rules (announced on September 10, 2003) that the FCC "will address Digital Broadcast Copy Protection issues in the near future." See, story titled "FCC States That It Will Act On Broadcast Flag" in TLJ Daily E-Mail Alert No. 737, September 11, 2003.

More News

10/28. Sen. Ernest Hollings (D-SC), Sen. John McCain (R-AZ), Sen. Conrad Burns (R-MT), Sen. Ted Stevens (R-AK), Sen. Byron Dorgan (D-ND), Sen. Olympia Snowe (R-ME) and Sen. Daniel Inouye (D-HI) wrote a letter [PDF] to Federal Communications Commission (FCC) Chairman Michael Powell regarding wireless local number portability. The urged the FCC to "to hold fast to the current November 24,2003 deadline for the implementation of wireless local number portability for consumers in the top 100 metropolitan statistical areas." But, they continued, "We have a growing concern, however, regarding the absence of clear and comprehensive rules that would allow consumers to port telephone numbers between wireline and wireless carriers." They also stated that "We strongly urge the Commission to redouble its efforts to resolve outstanding wireline-wireless porting issues as quickly as possible."

10/28. The U.S. District Court (DC) issued a short order [PDF] in USA v. First Data and Concord EFS, which states that "trial on the merits in this matter shall begin on December 15, 2003". See also, TLJ story titled "DOJ Sues to Stop Merger of PIN Debit Networks", October 23, 2003, also published in TLJ Daily E-Mail Alert No. 765, October 24, 2003.

10/28. Microsoft announced that it has settled four private class action lawsuits that allege violation of antitrust law. Microsoft previously settled suits in several other states. There remain five states in which there are pending, and certified, class action lawsuits. Also, in some other states class action complaints were dismissed, or class certification denied. See, Microsoft release regarding the latest settlements, and summarizing the status of antitrust litigation. See also, transcript of press conference.

DOJ Creates Web Site to Defend the PATRIOT Act

10/27. The Department of Justice (DOJ) created a web site titled "Preserving Life and Liberty", which describes the changes in law brought about in 2001 by passage of the USA PATRIOT Act. The website includes a page that responds to some of the criticisms of the PATRIOT Act, and a page with hyperlinks to some of Attorney General John Ashcroft's speeches.

Ashcroft, however, has not testified before the Congress since last Spring. Senate Judiciary Committee Democrats criticized Ashcroft at a hearing on October 21 (which Ashcroft did not attend) for waging a publicity campaign. See, story titled "Senate Committee Holds Hearing on PATRIOT Act" in TLJ Daily E-Mail Alert No. 763, October 22, 2003.

On October 27, the Center for Democracy and Technology (CDT), which is one of the leading critics of the PATRIOT Act's provisions affecting electronic surveillance, published a short report titled "Setting the Record Straight: An Analysis of the Justice Department's PATRIOT Act Website".

On October 24, Steve Lilienthal of the Free Congress Foundation's (FCF) Center for Technology Policy (CTP), another critic of the PATRIOT Act, wrote in a FCF/CTP newsletter, that Ashcroft "went on tour" to defend the PATRIOT Act after the House passed Rep. Butch Otter's (R-ID) amendment regarding delayed notice of search warrants. This was House Amendment No. 292 to HR 2799, the Commerce, Justice, State and the Judiciary, and Related Agencies Appropriations Act for FY 2004.  The House approved the Otter amendment by a vote of 309-118 on July 22, 2003. See, Roll Call No. 408.

Lilienthal wrote that "Unfortunately, the Attorney General failed to engage in a true debate with those citizens and organizations that have expressed serious concerns about the powers contained within the Act."

FTC To Release First Report on IPR and Competition Law

10/27. The Federal Trade Commission (FTC) announced that it will host a media roundtable discussion on Tuesday, October 28, at 11:00 AM, to provide background information and answer questions about an FTC report titled "To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy."

In 2002 the FTC and the Department of Justice's (DOJ) Antitrust Division jointly held 22 days of hearings, mostly in Washington DC, but also around the U.S., under the general title of "Competition and Intellectual Property Law and Policy in the Knowledge-Based Economy". The FTC has collected most of the prepared testimony of the speakers in a web site devoted to this topic.

The FTC stated in an October 27 notice that "This is the first of two reports that stem from hearings convened in February 2002 by the FTC and the Department of Justice. Each report discusses finding and maintaining the proper balance of free market competition and patent law and policy. This report makes 10 recommendations for the patent system, including legislative and regulatory changes to improve patent quality."

The speakers will include FTC Chairman Timothy Muris and Susan DeSanti (Deputy General Counsel for Policy Studies).

The FTC notice also states that "Reporters unable to attend the event may call in. The call-in information is as follows: Dial-in Number: 1-877-777-0937. Confirmation Number: 20019380." The event will be held at the FTC, Room 432, 600 Pennsylvania Ave., NW.

People and Appointments

10/27. The Senate confirmed Dale Susan Fischer to be a Judge of the U.S. District Court for the Central District of California.

10/27. Jack Zinman will leave the National Telecommunications and Information Administration (NTIA) in November. He is currently Senior Advisor to Acting Assistant Commerce Secretary Michael Gallagher. See, NTIA release.

10/27. President Bush announced his intent to nominate Arnold Havens to be General Counsel for the Department of the Treasury. He currently is SVP for Government Affairs at CSX Corporation. Secretary of the Treasury John Snow was previously CEO of CSX. During the first Bush administration Havens was Special Assistant to the President for Legislative Affairs. See, White House release.

10/27. MCI stated in a release that it has "retained" former Sen. Warren Rudman (R-NH) as a senior advisor to Ch/CEO Michael Capellas and its Board of Directors. MCI added that "Rudman will focus his attention on ethics and corporate governance, assisting the company in completing and implementing its expanded corporate governance initiatives."

More News

10/27. The Department of Commerce's (DOC) Technology Administration (TA) published a notice in the Federal Register requesting nominations of individuals for appointment to the National Medal of Technology Nomination Evaluation Committee (NMTNEC). The notice states that "Typically, Committee members are present or former Chief Executive Officers, former winners of the National Medal of Technology; presidents or distinguished faculty of universities; or senior executives of non-profit organizations." Nominations are due by November 26. See, Federal Register, October 27, 2003, Vol. 68, No. 207, at Page 61190.

10/27. The House Ways and Means Committee approved HR 2896, the "American Jobs Creation Act of 2003" by a vote of 24-15. This bill would, among other things, replace the Foreign Sales Corporation (FSC) and Extraterritorial Income (ETI) tax regimes that the World Trade Organization (WTO) held to be illegal export subsidies. See, Committee release.

10/27. BellSouth announced in a release that its wholly owned subsidiary, BellSouth Intellectual Property Marketing Corporation (BIPMARK), and Glenayre Technologies "have entered into a license and settlement agreement to resolve a patent infringement lawsuit filed in January by BellSouth against Glenayre. As part of the settlement, Glenayre has taken a non-exclusive patent license from BIPMARK for a specific one-number technology involving sequential routing to locate a user. Although Glenayre agreed to the terms of the license, it does not acknowledge either infringement or validity of the patent. The license includes royalties for past and future sales, but detailed financial terms were not disclosed." On January 29, 2003, BellSouth filed a complaint in U.S. District Court (NDGa) against Glenayre and Call Sciences alleging infringement of its U.S. Patent No. 5,764,747 titled "Personal Number Communication System".

Go to News from October 21-25, 2003.