News from February 11-15, 2004

USTR Announces Plans to Negotiate FTA with Thailand

2/13. Robert Zoellick, the U.S. Trade Representative (USTR) wrote letters to Congressional leaders notifying them of President Bush's intent to negotiate a free trade agreement (FTA) with Thailand. See, letter [10 pages in PDF] to Rep. Denny Hastert (R-IL), the Speaker of the House, and redundant letter [PDF] to Sen. Ted Stevens (R-AK), President Pro Tempore of the Senate.

The letters also set forth the objectives and goals of the negotiations, including goals regarding electronic commerce, protection of intellectual property rights, and telecommunications market access.

Robert Zoellick

Zoellick (at right) stated in a release [3 pages in PDF] that "We believe the United States has much to gain in pursuing a negotiation with Thailand. Thailand already is our 18th largest trading partner with $19.7 billion in total trade during 2002. The increased access to Thailand’s market that an FTA would provide would further boost trade in a wide range of both goods and services, enhancing employment opportunities in both countries".

The USTR release adds that "An FTA would create opportunities for U.S. manufacturers and service suppliers in a wide range of sectors, including information technology, telecommunications, financial services, audiovisual, automotive and medical and other equipment."

It also states that "bringing Thailand's intellectual property regime up to the standards set in other recent FTAs that the United States has negotiated will be a high priority of these negotiations."

Electronic Commerce. The USTR's letters to Congress state that one of the objectives of the negotiations is to "Seek to have Thailand affirm that it will allow U.S. goods and services to be delivered electronically to its market and to ensure that Thailand does not apply customs duties to digital products or unjustifiably discriminate among products delivered electronically."

Intellectual Property Rights. The USTR's letters to Congress state that the objectives in the area of intellectual proporty rights include to "Seek to establish standards to be applied in Thailand that build on the foundations established in the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights and other international intellectual property agreements, such as the World Intellectual Property Organization (WIPO) Copyright Treaty, the WIPO Performances and Phonograms Treaty, and the Patent Cooperation Treaty.

The letters state that another objective is to, "In areas such as patent protection and protection of undisclosed information, seek to have Thailand apply levels of protection and practices more in line with U.S. law and practices, including appropriate flexibility."

Another objective is to "Seek to strengthen Thailand’s laws and procedures to enforce intellectual property rights, such as by ensuring that Thai authorities seize suspected pirated and counterfeit goods, equipment used to make such goods or to transmit pirated goods, and documentary evidence."

Finally, another objective of the negotiations is to "Seek to strengthen measures in Thailand that provide for compensation of right holders for infringements of intellectual property rights and to provide for criminal penalties under Thai law that are sufficient to have a deterrent effect on piracy and counterfeiting."

Other Issues. The USTR's letters also list a wide range of other objectives, regarding other sectors of the economy, and regarding labor and environment issues.

Another objective is to "Pursue a comprehensive approach to market access, including any necessary improvements in access to the telecommunications, financial services, professional services, or other sectors."

The USTR's letters also state that the negotiations will "Address possible issues involving competition-related matters, if appropriate."

And finally, another objective is to "Seek improved transparency and predictability of Thai regulatory procedures, specialized disciplines for financial services, and additional disciplines for telecommunications and other sectors as necessary." The letters say nothing about improving transparency and predictability of US regulatory procedures for telecommunications.

Appeals Court Addresses Meaning of "Necessary" in FCC Biennial Review Process

2/13. The U.S. Court of Appeals (DCCir) issued its opinion [24 pages in PDF] in Cellco Partnership v. FCC, petitions for review of certain parts of the Federal Communications Commission's (FCC) biennial regulatory reviews.

Section 11 of the Telecommunications Act of 1996, which is codified at 47 U.S.C. § 161, provides for biennial reviews of all FCC regulations. This case pertains to the biennial review process, and in particular, the meaning of the term "necessary".

47 U.S.C. § 161 states that "In every even-numbered year (beginning with 1998), the Commission -- shall review all regulations issued under this chapter in effect at the time of the review that apply to the operations or activities of any provider of telecommunications service; and (2) shall determine whether any such regulation is no longer necessary in the public interest as the result of meaningful economic competition between providers of such service." (Parentheses in original.)

It then provides that the FCC "shall repeal or modify any regulation it determines to be no longer necessary in the public interest".

This case also involves two particular regulations that the FCC did not repeal. First, 47 C.F.R. § 43.61(a) pertains to reports of international telecommunications traffic. Second, 47 U.S.C. § 63.21(i) pertains to conditions applicable to all international Section 214 authorizations; subsection (i) pertains to notifications of name changes.

The Court of Appeals denied the petitions for review. It concluded that "Because of the chameleon-like nature of the term ``necessary,´´ whose meaning depends on its statutory context, we defer to the Commission's reasonable interpretation of § 11 as requiring it to apply the same standard used to adopt regulations under 47 U.S.C. § 201(b) to determinations of whether the regulations remain necessary in the public interest, and as imposing a time limit for Commission action only in § 11(a)."

The Court also rejected the argument that the FCC's orders were arbitrary and capricious.

This case is Cellco Partnership, dba Verizon Wireless v. FCC and USA, No. 02-1262, and Verizon Telephone Companies, Inc., et al. v. FCC and USA, respondents, and AT&T and Cingular Wireless, intervenors, No. 03–1080, petitions for review of final orders of the FCC.

FTC Releases Data on Do Not Call Registry Complaints and Registrations

2/13. The Federal Trade Commission (FTC) released a report [4 pages in PDF] regarding the National Do Not Call Registry. The report states that during the time period October 11, 2003 through December 31, 2003, 150,409 consumers submitted complaints regarding violation of the Do Not Call rules.

Timothy MurisThe FTC also issued a release that associates the word "only" with the number "150,409". In addition, FTC Chairman Timothy Muris (at right) states in this release that "The telemarketing industry has shown exceptional compliance with the National Do Not Call Registry ... The Do Not Call program has been highly successful in protecting consumers' privacy. While we appreciate the high rate of compliance".

The FTC report also states that as of December 31, 2003, there have been 55,849,898 registrations of telephone numbers.

See also, the FTC's National Do Not Call Registry web site.

People and Appointments

2/13. Ken Johnson, Communications Director and Deputy Staff Director for the House Commerce Committee, announced his resignation, effective February 16. He is a long time staff assistant to Rep. Billy Tauzin (R-LA), who has also announced his retirement.

Sen. Alexander Introduces Bill Regarding Internet Tax Moratorium

2/12. Sen. Lamar Alexander (R-TN) and others introduced S 2084, the "Internet Tax Ban Extension and Improvement Act". The title of the bill is not descriptive of its content. The bill would nominally extend the Internet Tax Freedom Act through November 1, 2005. However, it would also allow a range of new taxes that could be imposed by state and local governments. See, full story.

GAO Report Finds CAPPS II Fails to Meet Congressional Criteria

2/12. The General Accounting Office (GAO) released a report [53 pages in PDF] titled "Aviation Security: Computer-Assisted Passenger Prescreening System Faces Significant Implementation Challenges". The appropriations bill for the Department of Homeland Security (DHS) for FY 2004 established criteria for the CAPPS II program, and required that the GAO report on the program's compliance with these criteria. The report finds that the most of the criteria have not been met. See, full story.

Viacom Seeks FEC Advisory Opinion on Mock Online Election

2/12. The Federal Elections Commission (FEC) published in its web site a request for an advisory opinion [PDF] submitted to the FEC by Viacom, Inc. (owner of MTV) regarding its plans to conduct an online mock election. The original request is dated January 16, 2004. The FEC also published follow-up correspondence.

MTV Networks (MTVN) is a division of Viacom International, Inc., which is a subsidiary of Viacom. Inc. The request states that MTVN plans to conduct a mock presidential election, to be conducted online. The request states that "Both voting and registration will be available online, through and/or, and potentially via a toll-free telephone number."

Viacom's advisory opinion request (AOR) also describes various communications of political information that will be made as a part of this online election system.

The AOR raises a number of issues regarding the application of federal election laws to online political activity. For example, Viacom requests an opinion that "none of the funds expended for the production or promotion costs of the Preelection will constitute a corporate contribution, expenditure, or electioneering communication."

Viacom asserts that it activities are covered by the press exemptions contained in the Federal Election Campaign (FECA), and FEC regulations. That is, it asserts that "The entire process is a form of commentary and reporting on the election process ..."

Viacom's request does not raise online privacy issues associated with its planned mock online election.

Viacom further states in its AOR that "Participants must provide sufficient personally identifying information to enable a third-party verification of their identity and registered address. Participants will be issued a unique user ID ..." It also states that "Third-party verification, e-mail confirmation, and unique participant IDs will be used ..."

It further states that "Registration and voting will be open to any U.S. resident or U.S. citizen over the age of 12."

The Children's Online Privacy Protection Act (COPPA), which is codified at 15 U.S.C. §§ 6501-6505, and the Federal Trade Commission's (FTC) COPPA Rule, apply to collection of personally identifying information online from children who are 12 and under.

By letter dated January 27, 2004, the FEC propounded several questions to Viacom. Viacom responded by letter dated February 5, 2004. (These are attached to the above hyperlinked AOR.)

GAO Reports on Government Information Technology Management

2/12. The General Accounting Office (GAO) released a report [pages in PDF] titled "Information Technology: Management: Governmentwide Strategic Planning, Performance Measurement, and Investment Management Can Be Further Improved".

The report states that "According to the President’s most recent budget, the federal government spends billions of dollars annually on information technology (IT) -- reportedly investing about $50 billion in fiscal year 2002 and expecting to invest about $60 billion in fiscal year 2004. Despite this substantial investment, the government’s management of information resources has produced mixed results."

The report finds that "Agencies' use of IT strategic planning/performance measurement practices is uneven -- 46 percent of the practices are in place, 41 percent are partially in place, and 7 percent are not in place."

The report further finds that "Agencies' use of IT investment management practices is also mixed in that 44 percent of the practices are in place, 37 percent are partially in place, and 17 percent are not in place."

The report was prepared for the House Government Reform Committee and the Senate Governmental Affairs Committee.

Sen. Susan Collins (R-ME), the Chairman of the Senate Committee, stated in a release that "Agencies are doing well in their selection of their IT projects, but oversight of these projects remains weak ... Without oversight, there is no way to ensure that the projects are completed on time, and within budget, and that they work as anticipated."

Rep. Tom Davis (R-VA), the Chairman of the House Committee, stated that "Agencies' full use of IT strategic planning, performance measurements, and investment management practices needs to be increased. If the Federal government is going to spend over $60 billion a year on IT products, then 100% of the agencies should have these measures in place; the taxpayers deserve nothing less. No country, government, agency, or IT shop should be complacent. Overall results are encouraging but so much more can be done. At the end of the day, agencies need to realize that it does not matter how much money you spend on IT, but how you spend the money".

FCC Adopts NPRM Regarding Regulation of Internet Protocol Services

2/12. The Federal Communications Commission (FCC) adopted, but did not release, a notice of proposed rulemaking (NPRM) regarding regulation of internet protocol services, including voice over internet protocol (VOIP), at its February 12 meeting.

The FCC issued a short press release [2 pages in PDF] describing this NPRM, and each of the Commissioners wrote (and read or paraphrased) a separate statement. This NPRM is FCC 04-28 in Docket No. WC 04-36.

The FCC release states that the NPRM "asks broad questions covering a wide range of services and applications to differentiate between Internet services and traditional telephony services and to distinguish among different classes of Internet services. Specifically, the Notice asks which regulatory requirements -– for example, those relating to E911, disability accessibility, access charges, and universal service – should be extended to different types of Internet services. The Notice also asks questions on the legal and regulatory framework for each type of Internet service and the relevant jurisdictional considerations for each category."

FCC Chairman Michael Powell said that "This NPRM is, in many ways, the curtain going up on a really new era in communications. ... This is digital migration in spades." He added that this is "this is the most important item, I am aware of, in communications history, in some ways".

"The Communications Act is being rewritten by technology," said Powell, not by the FCC.

Russell Hanser, of the FCC's Wireline Competition Bureau's (WCB) Competition Policy Division (CPD), summarized the contents of NPRM at the FCC's February 12 meeting.

He said that "The notice of proposed rulemaking that you have before you initiates a proceeding to examine issues relating to services and applications making use of the internet protocol (IP), including, but not limited to voice over IP service. We collectively call these offerings IP enabled services, which we define to include communications capabilities making use of the internet protocol, as well as software based applications that facilitate use of those capabilities. The notice describes the fundamental changes resulting from the rise of broadband facilities, and the IP enabled services that typically ride over them."

Hanser continued that "The notice requests comment on ways in which the Commission might categorize IP enabled services to ensure that any regulations applied are applied only where they are most appropriate. For example, the item asks whether the Commission might [inaudible words] to IP enabled services, on the basis of whether they are treated by the public as substitutes for traditional telephony, on the basis of whether they interconnect with the public switched network, or on any other basis." (TLJ transcribed Hanser's statements from an audio recording.)

He stated that "the item asks whether the jurisdictional conclusion should govern the treatment of other IP enabled services, and seeks comments on the applicability of other jurisdictional principles to these services."

Hanser stated that "The notice then asks how each category of IP enabled service should be classified under the communications Act, and whether, and which particular regulatory requirements they then should apply. Specifically, the notice addresses vital concerns regarding broader universal service obligations and and entitlements with respect to IP enabled services. It posses critical questions regarding the collection of access charges in relation to these services."

He stated that "The notice also reaffirms the Commission's commitment that communications are available to all Americans, and are configured to protect public safety. To that end it raises questions about how the Commission might best the address the needs of individuals with disabilities, and preserve or expand the 911 and E911 systems in the context of IP enabled services."

Finally, he said that "the notice asks whether various other regulatory requirements, including traditional economic common carrier regulation, and various consumer protections, should apply to any category of IP services."

Chairman Powell wrote in a separate statement [PDF] that "While IP-enabled services should remain free from traditional monopoly regulation, rules designed to ensure law enforcement access, universal service, disability access, and emergency 911 service can and should be preserved in the new architecture. In today's Notice, we seek comment on whether and how to apply discrete regulatory requirements where necessary to fulfill important federal policy objectives."

Kathleen AbernathyFCC Commissioner Kathleen Abernathy (at right) made several points in separate statement [PDF]. She wrote that "I believe that the regulatory framework for IP-based services must be predominantly federal. ... Moreover, most forms of IP communications appear to transcend jurisdictional boundaries, rendering obsolete the traditional separation of services into interstate and intrastate buckets."

Second, she wrote that "I am deeply skeptical about the application of economic regulation to these nascent services. Public-utility regulations have traditionally been imposed on local exchange carriers to restrain their market power. Services such as VOIP, by contrast, appear to have low barriers to entry and it does not appear that any provider occupies a dominant market position."

Third, Abernathy wrote that "I am committed to ensuring that our regulatory approach meets certain critical social policy objectives. As most policymakers at the federal and state level have recognized, we will need to find solutions to guarantee access to 911 services, the ability of law enforcement agencies to conduct surveillance, the preservation of universal service, and access by persons with disabilities."

See also, FCC Commissioner Kevin Martin's separate statement [PDF]. He concluded, that, "as we move forward, we should all be trying to work toward policies that try to treat similar services in a similar fashion, and don't create kind of unfortunate regulatory arbitrage opportunities that Commissioner Abernathy and others have talked about."

FCC Commissioner Michael Copps wrote in his separate statement [PDF] that "I limit my support to concurring here because this proceeding on IP-enabled services strikes me as getting rather too close to final conclusions. In this Notice, we seem to be judging IP-related services without defining them. We ask questions about how to classify these ill-defined services, but then presume, or at least suggest, the answers. The impression is left that we are asking what rules we should apply when we relocate whole services and technologies to Title I from Title II. Were we eventually to take this route, we would be rewriting the 1996 Act -- from top to bottom. This agency has no right to substitute its reclassification wishes for the will of Congress."

He added that "we need to address intercarrier compensation to create a level playing field that minimizes arbitrages and maximizes the opportunities for new technologies to flourish."

FCC Commissioner Jonathan Adelstein emphasized universal service in his separate statement [PDF]. He wrote that "The Act charges us to maintain universal service, which is crucial in delivering communications services to our nation’s schools, libraries, low income consumers, and rural communities. We will need to look closely at how IP-enabled services affect our ability to fund and deliver those services. The support that our universal service programs bring to our nation’s rural communities is critical, so I am particularly glad that this Notice seeks direct comment on issues of concern to Rural America."

FCC Rules Pulver's FWD Is Not Telecommunications, Is Not Telecommunications Service, and Is Information Service

2/12. The Federal Communications Commission (FCC) adopted, but did not release, a Declaratory Ruling (DR) on's petition for declaratory ruling regarding the classification of its Free World Dialup (FWD) service. The FCC issued a press release [PDF] that reveals almost nothing about the content of the DR.

Terri Natoli, of the FCC's Wireline Competiton Bureau's (WCB) Competition Policy Division (CPD), presented this item at the FCC's February 12 meeting. She stated that the DR finds that FWD is "not telecommunications as defined by the Act", that FWD is "not telecommunications service as defined by the Act", and that FWD is "an information service as defined by the Act". See, full story.

Reaction to the FCC's Pulver Ruling

2/12. Jeff Pulver wrote this in the website: "The Commission should be commended for providing key and necessary clarification that the FWD computer-to-computer VoIP service is not a telecommunications service. By doing this, the FCC has sent a strong signal to consumers and capital markets that the FCC is not interested in subjecting end-to-end IP Communications services to traditional voice telecom regulation under the Communications Act. It is indeed a great day for the Internet!"

Pulver added that "This has been a long and windy road, but one which I recommend others consider traveling on in the future. This is a great day for the worldwide IP Communications Industry!"

Michael Gallagher, the acting head of the National Telecommunications and Information Administration (NTIA), stated in a release that "The Internet is a primary catalyst for the growth of our economy. The Department of Commerce commends the FCC for its actions today to provide a foundation for exciting new services such as VoIP that will enhance the productivity of the American worker and enrich the lives of American consumers. Capital investment and entrepreneurial innovation, not regulation, will maintain U.S. leadership in voice, video and interactive data services. We also support the Commission's efforts to provide law enforcement the 21st century tools to track those who seek to threaten our homeland using 21st Century networks."

Ed Black, President of the Computer & Communications Industry Association (CCIA), stated in a release that "The Commission got this one right, there's no doubt about it ... Applying old regulations to modern Internet technology that bares only a passing resemblance to yesterday's phone network just doesn't make sense."

FCC Adopts Broadband Over Powerline NPRM

2/12. The Federal Communications Commission (FCC) adopted, but did not release, a notice of proposed rulemaking (NPRM) regarding technical rules intended to facilitate the deployment of broadband over powerline (BPL) at its February 12 meeting. This item is FCC 04-29 in ET Docket No. 04-37.

Commissioners stated that BPL has the potential to become a facilities based broadband internet access provider, and therefore it is appropriate to adopt technical rules. In addition, while Commission Copps agreed that the FCC should adopt technical rules, he criticized the NPRM for not also addressing related policy issues.

The FCC issued a short press release summarizing the NPRM, and each Commissioner made a statement.

The FCC release states that this NPRM sets forth "procedures to measure the radiofrequency (RF) energy emitted by equipment used to provide broadband service over power lines and establish particularized interference mitigation requirements."

The FCC release further states this NPRM "proposes rules requiring BPL devices to employ adaptive interference mitigation techniques to prevent harmful interference to existing users, such as public safety and amateur radio operators. These techniques would enable BPL devices to cease operations altogether, dynamically reduce transmit power, and/or avoid operating on specific frequencies to prevent harmful interference".

It also states that this item "proposes developing a public database that would include such information as location, operational frequencies, and modulation type of BPL devices, which will facilitate the resolution of interference issues in a timely fashion". It also seeks comments on "specific RF measurement guidelines for BPL devices and other carrier current systems".

FCC Chairman Michael Powell wrote in a separate statement (which he read at the FCC meeting), that "Another broadband pipe is coming closer to reality."

Michael CoppsFCC Commissioner Michael Copps (at right) wrote in a separate statement (which he read) that "I strongly support the technical inquiries and proposals we make today." He continued that "Today’s item dodges some of the hardest questions, however. For the same reasons it is important to provide certainty for industry and consumers as concerns interference, it is important to provide certainty on the policy implications that we will surely face as powerline broadband expands. These questions are hard and uncomfortable ones.  But we should never shy away from asking the hard questions."

He added that "I would tackle now issues such as CALEA, universal service, disabilities access, E911, pole attachments, competition protections, and, critically here, how to handle the potential for cross-subsidization between regulated power businesses and unregulated communications businesses.  Is it right to allow electricity rate payers to pay higher bills every month to subsidize an electric company’s foray into broadband?"

FCC Commissioner Kathleen Abernathy wrote in a separate statement this item "is an important step forward in promoting the Commission's goal of facilitating the deployment of broadband services to all Americans. Moving toward commercial deployment of BPL systems also will further our goal of developing robust facilities-based competition. I want consumers to have a choice of multiple, facilities-based providers, such as cable, DSL, wireless, satellite, and to the extent possible, power line."

FCC Commissioner Kevin Martin wrote in a separate statement that "Because power lines are ubiquitous -- reaching virtually every community and every home -- BPL systems have the potential to become a last-mile solution throughout the United States.  As such, they would not only provide competition to cable broadband and DSL, they could bring Internet access and high-speed broadband to rural and isolated areas, which have been difficult to serve because of the high infrastructure costs of reaching those areas. BPL systems also serve an important homeland security function, providing a redundant data network."

See, also, FCC Commissioner Jonathan Adelstein's separate statement [PDF]

On April 23, 2003, the FCC adopted a Notice of Inquiry [21 pages in PDF] in this proceeding, which is titled "In the Matter of Inquiry Regarding Carrier Current Systems, including Broadband over Power Line Systems". It released the text on April 29. See also, notice in the Federal Register, May 23, 2003, Vol. 68, No. 100, at Pages 28182 - 28186.

See also, story titled "FCC Announces NOI Regarding Broadband Over Powerlines" in TLJ Daily E-Mail Alert No. 628, April 24, 2003, and story titled "FCC Releases NOI on Broadband Over Power Lines" in TLJ Daily E-Mail Alert No. 656, May 7, 2003. The NOI is FCC 03-100.

Michael Gallagher, the acting head of the National Telecommunications and Information Administration (NTIA), stated in a release that "Broadband over power lines holds promise to be the ``Third Wire´´ into American homes -- a competitive, facilities-based, cost-effective new way to deliver high-speed Internet services to American citizens. We are pleased that the FCC is moving forward on broadband over power lines." He added that "The Commission's proposed rules, as informed by the NTIA interference analysis, will provide policy makers with the rigorous technical data and measurements that will be necessary to accurately and fairly judge the prospects of this exciting, innovative new use of existing infrastructure."

2nd Circuit Rules in Internet Wines Sales Case

2/12. The U.S. Court of Appeals (2ndCir) issued its opinion [28 pages in PDF] in Swedenburg v. Kelly,. The District Court held that the NY statute prohibiting out of state wineries from selling directly to NY residents, such as via the internet wine, violated the Commerce Clause of the Constitution. The Appeals Court reversed, holding that NY's statute is a permissible exercise of authority granted to states under the 21st Amendment, thus rejecting the Commerce Clause challenge.

The Appeals Court also rejected the out of state wineries' Privileges and Immunities Clause argument. However, it held unconstitutional under the First Amendment one statutory provision that bans certain commercial speech.

The 2nd Circuit reaches the same result, on the Commerce Clause issue, as the 7th Circuit. However, it is in conflict with the 4th, 5th, 6th and 11th Circuits.

Parties. Small wineries and wine consumers challenge the constitutionality of a New York state liquor control law, which prohibits out of state wineries from selling directly to New York residents. The state statute at issue is not directed solely at internet sales. However, it has the effect of restricting internet sales.

The winery plaintiffs are the Swedenburg Winery in the state of Virginia, which is owned by Juanita Swedenburg, and the Lucas Winery, located in Lodi, California. The plaintiffs are represented by the Institute for Justice.

The defendants are Edward Kelly and other members of the New York State Liquor Authority. There are also several intervening and amicus parties on appeal.

A New York state statute, which is enforced by Kelly and others, prohibits Swedenburg and Lucas from selling directly to prospective customers in New York state. The New York system for alcohol sales requires that alcohol producers must go through licensed wholesalers and distributors who must in turn go through licensed retailers who then may sell to consumers. The New York statutes provide several exceptions to the ban on direct sales, but they apply only to wineries located within the state of New York.

District Court. The wineries and oenephiles filed their Original Complaint in U.S. District Court (SDNY) against the members of the NY State Liquor Authority, in their official capacities, on February 3, 2000, arguing that the NY statute violates the dormant commerce clause, the privileges and immunities clause and the First Amendment.

The state moved to dismiss. The District Court issued its Decision and Order denying that motion on September 5, 2000. See, story titled "Federal Court Denies Motion to Dismiss in Internet Wine Sales Case", September 8, 2000.

On November 12, 2002, the District Court issued its opinion [32 page PDF scan] holding that New York state's ban on the direct shipment of out of state wine is unconstitutional. The District Court held that New York's ban on direct wines sales violates the dormant Commerce Clause of the U.S. Constitution. See, story titled "Court Holds New York's Ban on Internet Wine Sales Is Unconstitutional" in TLJ Daily E-Mail Alert No. 551, November 18, 2002.

Dormant Commerce Clause. Article I, Section 8, of the Constitution provides that "The Congress shall have Power ... to regulate Commerce with foreign Nations, and among the several States ..." The dormant commerce clause is the judicial concept that the Constitution, by delegating certain authority to the Congress to regulate commerce, thereby bars the states from legislating on certain matters that affect interstate commerce, even in the absence of Congressional legislation. It is applied to block states from regulating in a way that materially burdens or discriminates against interstate commerce. See, Gibbons v. Ogden, 22 U.S. 1 (1824), and Cooley v. Board of Wardens, 53 U.S. 299 (1851). More recent treatments of the concept include Healy v. The Beer Institute, 491 U.S. 324 (1989), and CTS Corp. v. Dynamics Corp. of America, 481 U.S. 69 (1987).

21st Amendment. 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."

New York Statute. New York Alco. Bev. Cont. Law § 102(1)(c) provides in part: "No alcoholic beverages shall be shipped into the state unless the same shall be consigned to a person duly licensed hereunder to traffic in alcoholic beverages. This prohibition shall apply to all shipments of alcoholic beverages into New York state and includes importation or distribution for commercial purposes, for personal use, or otherwise, and irrespective of whether such alcoholic beverages were purchased within or without the state ..."

New York Alco. Bev. Cont. Law § 102(1)(d) provides in part: "No common carrier or other person shall bring or carry into the state any alcoholic beverages, unless the same shall be consigned to a person duly licensed hereunder to traffic in alcoholic beverages ..."

New York Alco. Bev. Cont. Law § 102(1)(a) provides that: "No person shall send or cause to be sent into the state any letter, postcard, circular, newspaper, pamphlet, order kit, order form, invitation to order, price list, or publication of any kind containing an advertisement or a solicitation of any order for any alcoholic beverages, irrespective of whether the purchase is made or to be made within or without the state, or whether intended for commercial or personal use or otherwise, unless such person shall be duly licensed hereunder to traffic in alcoholic beverages."

Appeals Court. The Court of Appeals affirmed in part, reversed in part, and remanded.

The Court wrote that "This case requires us to reconcile the competing demands of the Twenty-first Amendment's grant of authority to the states to regulate the intrastate traffic of alcohol, with the power reserved to Congress under the Commerce Clause ``[t]o regulate Commerce ... among the several States.´´" The Court concluded that "the challenged regime is within the ambit of the Twenty-first Amendment".

The Appeals Court also rejected the plaintiffs privileges and immunities clause argument. It wrote that "the statutory scheme operates without regard to residency and does not provide New York residents with advantages unavailable to nonresidents. ... Accordingly, we find that the regulatory scheme does not violate the Privileges and Immunities Clause."

However, the Appeals Court held that § 102(1)(a) is overbroad and violates the First Amendment.

After the ruling the wineries' counsel, Clint Bolick, of the Institute for Justice stated in a release that "This decision will be a momentary blip on the legal radar screen ... The liquor distributors who benefit from the state-imposed monopoly can hold off popping the champagne corks. The decision is profoundly anti-consumer and anti-free trade, and will not stand." Bolick added that "The 2nd Circuit decision is an anomaly in a tide of jurisprudence that is striking down barriers to protectionism across the country".

Opinions in Other Circuits. On April 8, 2003, the U.S. Court of Appeals (4thCir) issued its opinion [20 pages in PDF] in Beskind v. Easley, holding that North Carolina's ban on direct shipment of wine from out of state wineries to North Carolina residents violates the Commerce Clause. See, story titled "4th Circuit Holds North Carolina Ban On Internet Wine Sales Is Unconstitutional", also published in TLJ Daily E-Mail Alert No. 640, April 9, 2003).

On June 26, 2003, the U.S. Court of Appeals (5thCir) issued its opinion [39 pages in PDF] in Dickerson v. Bailey, a constitutional challenge to Texas' ban on direct sale by out of state wine sellers. The Appeals Court held that the Texas statute violates the dormant commerce clause. See, story titled "5th Circuit Holds Texas Wine Sales Statute Unconstitutional" in TLJ Daily E-Mail Alert No. 690, June 30, 2003.

Other opinions holding that state direct sales statutes are unconstitutional under the Commerce Clause include Heald v. Engler, 342 F.3d 517 (6th Cir. 2003), and Bainbridge v. Turner, 311 F.3d 1104 (11th Cir. 2002).

However, the U.S. Court of Appeals (7thCir) reached a different conclusion in its opinion in Bridenbaugh v. Wilson. In that case, the plaintiffs challenged the constitutionality of an Indiana statute that made it unlawful for persons in another state to ship an alcoholic beverage directly to an Indiana resident. The District Court held that the Indiana direct shipment regulation was unconstitutional under the Commerce Clause, and granted the plaintiffs' summary judgment motion (Bridenbaugh v. O'Bannon, 78 F. Supp.2d 828 (N.D. Ind. 1999)). Then, the Seventh Circuit reversed, upholding the constitutionality of the state ban.

The 7th Circuit wrote that "Indiana insists that every drop of liquor pass through its three-tier system and be subjected to taxation. Wine originating in California, France, Australia, or Indiana passes through the same three tiers and is subjected to the same taxes. Where's the functional discrimination?"

The present case is Juanita Swedenburg, et al. v. Edward Kelly, et al., U.S. Court of Appeals for the 2nd Circuit, Nos. 02-9511 and 03-7089, appeals from the U.S. District Court for the Southern District of New York, Judge Richard Berman presiding.

Federal Circuit Rules in Patent Case Involving Interactive Program Guides

2/12. The U.S. Court of Appeals (FedCir) issued its opinion [MS Word] in Superguide v. DirecTV, a patent infringement case involving interactive electronic program guides. The District Court ruled that DirecTV and other defendants did not infringe the patents in suit. The Court of Appeals reversed.

Program guides provide viewers of television programming with information about upcoming programming. Interactive electronic program guides (IPGs) display information on a television screen, and allow viewers to control what information is displayed.

SuperGuide Corporation holds U.S. Patent No. 4,751,578 titled "System for electronically controllably viewing on a television updateable television programming information", U.S. Patent No. 5,038,211 titled "Method and apparatus for transmitting and receiving television program information", and U.S. Patent No.5,293,357 titled "Method and apparatus for controlling a television program recording device". Gemstar Development Corporation is a licensee.

Defendants DirecTV and Echostar are direct broadcast satellite (DBS) operators whose transmissions include program guide information that supports IPGs.

Defendants Hughes Electronics Corporation and Thomson Consumer Electronics manufacture systems that receive DirecTV broadcasts and process them for display on television, including antennas, filters, and set top boxes.

SuperGuide filed a complaint in U.S. District Court (WDNC) agaisnt DirecTV, Echostar, Hughes, and Thomson alleging infringement of the three patent in suit. DirecTV and Hughes moved to implead implead Gemstar as a third-party defendant; the District Court granted this motion.

The District Court granted summary judgment of non-infringement in favor of all defendants as to all asserted claims and products with the exception of two EchoStar models. However, the parties filed a stipulation that SuperGuide would be unable to establish infringement of the two EchoStar models if the District Court's claim construction and summary judgment rulings were upheld on appeal.

These appeals followed. The Court of Appeals held that the District Court erred in construing certain of the claims upon which its non-infringement judgment was based. It affirmed in part and reversed in part.

This case is Superguide Corporation v. Directv Enterprises, Inc., et al., U.S. Court of Appeals for the Federal Circuit, Nos. 02-1561, 02-1562, and 02-1594, appeals from the U.S. District Court for the Western District of North Carolina, Judge Lacy Thornburg presiding.

More FCC News

2/12. The Federal Communications Commission (FCC) announced that its Internet Policy Working Group (IPWG) will hold the first in a series of a meetings which it titles "Solutions Summits" on March 18, 2004. The FCC stated in a release [PDF] that "leaders in government and industry can discuss creative ways to address policy issues that arise as communications services move to Internet-based platforms". The March 18 meeting will focus on 911/E911 issues.

2/12. The Federal Communications Commission (FCC) adopted, but did not release, a notice of proposed rulemaking (NPRM) regarding network outage reporting at its February 12 meeting. This item is FCC 04-30 in ET Docket No. 04-35. The FCC issued a release [PDF] that states that "proposes to require wireless, wireline, cable, and satellite telecommunications providers to report information electronically to the Commission about significant disruptions to their communications systems." See, also, FCC Chairman Michael Powell's separate statement [PDF], Commissioner Kathleen Abernathy's separate statement [PDF], Commissioner Kevin Martin's separate statement [PDF], and Commissioner Jonathan Adelstein's separate statement [PDF].

2/12. The Federal Communications Commission (FCC) adopted, but did not release, a Report and Order pertaining to interstate access charges and the universal service support system for rate of return incumbent local exchange carriers (ILECs). This item is FCC 04-31 in CC Docket No. 00-256. The FCC issued a press release summarizing this item.

2/12. The Federal Communications Commission (FCC) released a Memorandum Opinion and Order [21 pages in PDF] granting the applications of NextWave to assign PCS licenses to Cingular Wireless. This proceeding is titled "In the matter of Applications for Consent to the Assignment of Licenses Pursuant to Section 310(d) of the Communications Act from NextWave Personal Communications, Inc., Debtor-in-Possession, and NextWave Power Partners, Inc., Debtor-in Possession, to subsidiaries of Cingular Wireless LLC". The MO&O also denies the Petition to Deny filed by Eldorado Communications and NY Telecom. The MO&O is FCC 04-26 in WT Docket 03-217.

People and Appointments

2/12. President Bush nominated William Duane Benton to be a Judge of the U.S. Court of Appeals for the 8th Circuit. See, White House release.

2/12. Federal Communications Commission (FCC) Chairman Michael Powell announced at the FCC's February 12 meeting that Yvonne Hughes, is leaving the FCC. She is a member of Powell's staff. She is Special Assistant to the Chief of Staff and is responsible for scheduling appointments and travel arrangements, and providing administrative assistance to the FCC's Homeland Security Policy Council.

2/12. The Senate confirmed Samuel Bodman to be Deputy Secretary of the Treasury.

More News

2/12. Microsoft announced in a release that "On Thursday, February 12, Microsoft became aware that portions of the Microsoft Windows 2000 and Windows NT 4.0 source code were illegally made available on the Internet. Subsequent investigation has shown this was not the result of any breach of Microsoft’s corporate network or internal security, nor is it related to Microsoft's Shared Source Initiative or its Government Security Program, which enable our customers, partners and governments to legally access Microsoft source code." Microsoft added that it "is working closely with the U.S. Federal Bureau of Investigation on this matter. Microsoft source code is both copyrighted and protected as a trade secret."

2/12. Robert Zoellick, the U.S. Trade Representative (USTR), held a press conference in Beijing, PR China. See, transcript [10 pages in PDF]. He was asked about China's non-compliance with its World Trade Organization (WTO) obligations regarding protection of intellectual property rights. Zoellick stated that he did not discuss this issue on this trip. Nevertheless, he added that "Intellectual property rights is clearly a very important one that we discussed at length with the Chinese on a number of occasions. There’s issues about whether one is using value-added taxes, for example in the area of semiconductors, in a way that is not consistent with WTO rules."

Greenspan Testifies Regarding Monetary Policy, IT Spending, IT Based Productivity Gains, and Tech Stocks

2/11. Federal Reserve Board Chairman Alan Greenspan testified before the House Financial Services Committee regarding the Federal Reserve's Monetary Policy Report to the Congress.

Alan GreenspanSpending on Technology. Greenspan (at right) stated that "A strengthening in capital spending over 2003 contributed importantly to the acceleration of real output. In the first quarter of the year, business fixed investment extended the downtrend that began in early 2001. Capital spending, however, ramped up considerably over the final three quarters of 2003, reflecting a pickup in expenditures for equipment and software. Outlays for high-tech equipment showed particular vigor last year. Even spending on communications equipment, which had been quite soft in the previous two years, accelerated." See, prepared testimony.

The Monetary Policy Report (MPR) elaborates that "Outlays for high-technology items -- computers and peripherals, software, and communications equipment -- which had risen a moderate 4-1/2 percent in 2002, posted a significantly more robust increase of more than 20 percent in 2003. That gain contributed importantly to the pickup in overall business outlays for equipment and software and pushed the level of real high-tech outlays above the previous peak at the end of 2000. The increase in spending last year on computing equipment marked the sharpest gain since 1998, and investment in communications equipment, which had continued to contract in 2002 after having plummeted a year earlier, turned up markedly."

Technology Based Productivity Gains. Greenspan said that "The productivity performance of the past few years has been particularly striking in that these increases occurred in a period of relatively sluggish output growth. The vigorous advance in efficiency represents a notable extension of the pickup that started around the mid-1990s. Apparently, businesses are still reaping the benefits of the marked acceleration in technology."

The MPR adds that "Prospects for sustained high rates of increase in productivity are quite favorable. Businesses are likely to retain their focus on controlling costs and boosting efficiency by making organizational improvements and exploiting investments in new equipment."

Tech Stocks. Greenspan also referenced the performance of tech stocks. "Broad measures of equity prices rose 25 percent in 2003, and technology stocks increased twice as quickly. The rally has extended into this year."

The MPR states that "For the year as a whole, the Russell 2000 index of small-cap stocks and the technology-laden Nasdaq composite index, which rose 45 percent and 50 percent, respectively, noticeably outpaced broader indexes. To date in 2004, equity markets have continued to rally."

Trade. The MPR states that "Exports of goods rose about 6-3/4 percent over the course of the year -- considerably faster than in 2002. Exports increased in all major end-use categories of trade, with particularly strong gains in capital goods and consumer goods. Reflecting the global recovery in the high-tech sector, exports of computers and semiconductors picked up markedly in 2003, particularly in the second half."

House Science Committee Holds Hearing on R&D Funding

2/11. The House Science Committee held a hearing on President Bush's budget proposals for fiscal year 2005 pertaining to funding of federal research and development. The Committee is the authorizing committee for the National Science Foundation (NSF), the Department of Commerce's (DOC) National Institute of Standards and Technology (NIST), the Department of Energy's (DOE) Office of Science, and other agencies.

The Science Committee members tend to favor larger R&D budgets than either the Presidents who propose the budgets, or the House Appropriations Committee members, who write the actual appropriations.

On February 2, Rep. Sherwood Boehlert (R-NY), the Chairman of the Committee, stated that "I am very disappointed in the proposed science budget". See, release.

For the February 11 hearing Rep. Boehlert wrote in his opening statement that "I think my views on the proposed R&D budget for fiscal 2005 are already pretty well known. On the one hand, I understand that the Administration's goal was to protect science in a very austere budget environment, and I appreciate that. On the other hand, it's impossible to seriously view this as a good budget for science. Now, I say that this is not a good budget for science, but we still don't know whether it's the best budget we can get. That's going to depend much more on the overall ``macro´´ decisions the Congress makes on the budget than on anything else. It's far too early to tell how things will work out. All I know is that I will be doing everything I can to see that science prospers."

Rep. Vernon Ehlers (R-MI), the Chairman of the Subcommittee on Environment, Technology and Standards, wrote in his prepared testimony that "Scientific research and development forms the foundation of increased innovation, economic vitality and national security. Scientific research is an investment that promises, and has historically delivered, significant returns on that investment."

He lamented that "For the past several years, research and development funding for defense, weapons development, biomedical sciences, and national security has increased while other areas of federal research and development, especially basic research in the physical sciences, has remained flat or declined. The President's FY 2005 request of $132 billion for research and development continues this trend."

John MarburgerIn contrast, John Marburger (at right), the Director of the President's Office of Science and Technology Policy, wrote in his prepared testimony that the "budget request commits 13.5% of total discretionary outlays to R&D, the highest level in 37 years. Not since 1968 during the Apollo program have we seen an investment in research and development of this magnitude. Of this amount, the budget commits 5.7% of total discretionary outlays to non-defense R&D, the third highest level in 25 years."

Rita Colwell, Director of the NSF, wrote in her prepared testimony that the NSF "is requesting $5.745 billion dollars. That's an increase of $167 million, or 3 percent more than in the FY 2004 enacted level."

She also addressed nanotech research. "NSF's investment in Nanoscale Science and Engineering targets the fundamental research that underlies nanotechnology -- which very likely will be the next ``transformational´´ technology", wrote Colwell. "Investments in this priority area will emphasize research on nanoscale structures and phenomena, and quantum control. NSF is the lead agency for the government-wide National Nanotechnology Initiative (NNI). NSF is requesting $305 million, an increase of nearly $52 million or 20 percent. This is by far NSF's largest priority area investment."

See also, prepared testimony of Charles McQueary (Under Secretary for Science and Technology, Department of Homeland Security), prepared testimony of Phillip Bond (Under Secretary of Commerce for Technology, Department of Commerce), and prepared testimony [PDF] of Raymond Orbach (Director, Office of Science, Department of Energy).

Microsoft also released statement on both government and corporate R&D. It states that "One of the most important priorities, essential to ensuring America’s future economic vitality, is sustaining the nation’s commitment to research and development in science and technology. Federal support for R&D drives a cycle of innovation that fuels the economy."

It also states that "Especially vital is the National Science Foundation, which sponsors discoveries across the frontiers of science, nurtures a technologically savvy workforce and helps build state-of-the-art facilities for pioneering science and engineering. Given many other needs, the Bush administration should be commended for its proposed increase in the NSF budget, and we hope Congress will continue to support the NSF and other government research programs."

Microsoft's statement adds that "Proposed increases in R&D to protect the nation’s critical information infrastructure from cyberattacks are also important." Finally, the it argues that "Policymakers can help promote innovation and economic growth by encouraging private R&D investment. One way is for Congress to extend the current research tax credit, which is set to expire in June."

Senate Commerce Committee Holds Hearing on Violent and Indecent Programming

2/11. The Senate Commerce Committee held a hearing titled "Protecting Children from Violent and Indecent Programming".

Sen. John McCain (R-AZ), the Chairman of the Committee, wrote in his opening statement that "This discussion should remind us that broadcasters have been given spectrum -- for free. As Americans who own that spectrum, we have every right to expect something in return. We call it the public interest. We expect broadcasters to make the best use of that spectrum by providing news and information about our society and political campaigns, children’s programming, and even, entertainment."

Sen. McCain also raised the subject of indecent content on cable and direct broadcast satellite television. He noted that if Congress were to require cable and DBS operators to offer a la carte programming, parents would be better able to protect their children from programming that they find offensive.

See also, prepared testimony [PDF] of Federal Communications Commission (FCC) Chairman Michael Powell, prepared testimony of FCC Commissioner Kathleen Abernathy, prepared testimony of FCC Commissioner Jonathan Adelstein, and prepared testimony of FCC Commissioner Kevin Martin.

House Subcommittee Approves Broadcast Decency Enforcement Act

2/11. The House Commerce Committee's Subcommittee on Telecommunications and the Internet held a hearing on HR 3717, the "Broadcast Decency Enforcement Act of 2004", on Wednesday, February 11.

See, prepared testimony of Mel Karmazin (P/COO of Viacom), prepared testimony of Paul Tagliabue (Commissioner of the National Football League), prepared testimony of Michael Powell (FCC Chairman), prepared testimony of Kathleen Abernathy (FCC Commissioner), prepared testimony of Jonathan Adelstein (FCC Commissioner), prepared testimony of Michael Copps (FCC Commissioner), and prepared testimony of Kevin Martin (FCC Commissioner).

Rep. John Dingell (D-MI), the ranking Democrat on the full Committee, suggested in his prepared statement that "Perhaps the penalties in this legislation need to be more closely tied to the advertising revenues that the indecent broadcast generates. As long as the revenues from such broadcasts far exceed the penalties, this behavior will continue."

On Thursday, February 12, the subcommittee forwarded the bill to the full committee by voice vote.

Also on February 12, Federal Communications Commission (FCC) Chairman Michael Powell wrote letters to the heads of the National Cable Telecommunications Association (NCTA), the National Association of Broadcasters (NAB), ABC, CBS, NBS, and Fox regarding regarding obscene and indecent programming. See, FCC web page with hyperlinks to each letter in PDF.

And, on February 11, the National Association of Broadcasters (NAB) announced that it will hold an "All-Industry Summit to address topics related to responsible programming". See, release.

The NCTA also released a document [20 pages in PDF] titled "Cable Industry Efforts to Empower Consumers: Choice, Control and Education".

Comcast Makes Bid for Disney

2/11. Comcast Corporation announced a hostile bid for The Walt Disney Company. Comcast is primarily a cable company. Disney is an entertainment content company; its assets include ESPN, Disney Channel, theme parks, and ABC. Hence, this would be a vertical merger.

Comcast P/CEO Brian Roberts wrote in a February 11 letter to Disney CEO Michael Eisner that "We have a wonderful opportunity to create a company that combines distribution and content in a way that is far stronger and more valuable than either Disney or Comcast can be standing alone. To this end, we are proposing a tax-free stock for stock merger in which Comcast would issue 0.78 of a share of its Class A voting common stock for each share of Disney. This represents a premium of over $5 billion for your shareholders, based on yesterday’s closing prices. Under our proposal, your shareholders would own approximately 42% of the combined company."

The proposed merger will require regulatory approvals. Roberts also wrote that "We have analyzed the issues associated with regulatory approval and are confident that all necessary approvals can be obtained in a timely fashion. Given the landscape that has evolved in our industry over the past few years, the creation of integrated content and distribution companies is essential to increasing the level of competition. The FCC’s existing program access and program carriage rules ensure that the combined company will continue to make all of its satellite-delivered national and regional cable networks available on a non-exclusive, non-discriminatory basis and that there will be no discrimination against unaffiliated programming services, all consistent with the undertakings made by News Corp. in its recent acquisition of DirecTV."

Comcast also issued a release which states that "The superior track record of Comcast's management is shown by its success in the acquisition of AT&T Broadband, which was twice the size of Comcast when acquired fifteen months ago. Performance of the merged company has far exceeded initial margin improvement expectations."

CEO Roberts states in this release that "Our management team has a proven track record of successful integration of our merger partners". This management team includes Stephen Burke, President of Comcast Cable, who previously worked for Eisner at Disney. Said Burke, "I know Disney's businesses very well".

Disney issued a release on February 11 that states, in full, "The Walt Disney Company Board of Directors has received and will carefully evaluate the unsolicited proposal from Comcast Corp. In the meantime, there is no action for shareholders to take. Today and tomorrow, the company will present to Institutional Investors and Analysts at a previously scheduled conference its broad array of unique and valuable businesses, as well as the strategies being deployed to fully realize the tremendous long-term value of those assets."

Comcast also announced that it is being advised by Morgan Stanley, JPMorgan, Quadrangle Group and Rohatyn Associates, and that the law firm of Davis Polk & Wardwell is its legal advisor.

Many of the Washington DC based interest groups that often express opposition to media and communications mergers and acquisitions have already expressed opposition to this proposed acquisition.

For example, Jeff Chester of the Center for Digital Democracy wrote in a release that "such heightened media consolidation in cable, broadcast, and online distribution and content is a threat to American democracy".

He charged that "This deal is the direct legacy of Michael Powell and the Bush FCC. Powell has supported further consolidation, signaling to Comcast that such a deal is possible. Powell could have sought to restore the broadcast-cable cross-ownership rule (something his fellow Commissioner Michael Copps urged). Finally, it should come as no surprise that Comcast's Roberts is backing Pres. Bush for re-election and that the company's president, Stephen Burke, is a $100,000-plus ``Pioneer´´ for Bush-Cheney." (Parentheses in original.)

Chester added this: "Given Microsoft's investment in Comcast and its new relation with Disney, there are also implications for every desktop and set-top.   Comcast has opposed any federal policy that would ensure that the broadband Internet operates on an open and nondiscriminatory basis."

On February 9, Microsoft and Disney announced an agreement regarding digital media initiatives and digital rights management technologies. See, Microsoft release.

Similarly, Gene Kimmelman of the Consumers Union (CU) stated in a release that "If this deal goes through it tightens the ownership grip over some of the most important sources of news, information and entertainment in our country ... Disney has an enormous package of extremely popular, marquee programming and a national network that would now be owned by the largest cable distributor in the country which has little to no competition in most communities. The potential impact is enormous."

Kimmelman added that the FCC "has been on a path to aggressively de-regulate the media and telecommunications industry ... Hopefully, the Third Circuit Court of Appeals will overturn the FCC's lax media ownership rules and send the Commission back to the drawing board to prevent more massive media consolidation."

The U.S. Court of Appeals (3rdCir) heard oral argument in Prometheus Radio Project v. FCC on February 11. This case consolidates the various petitions for review of the media ownership rules changes that the FCC announced at its June 2, 2003 meeting.

On June 2, 2003, the FCC announced its Report and Order and Notice of Proposed Rulemaking [257 pages in PDF] amending its media ownership rules. This item is FCC 03-127. See, story titled "FCC Announces Revisions to Media Ownership Rules" in TLJ Daily E-Mail Alert No. 672, June 3, 2003. The FCC released the text of the order on July 2, 2003. See, story titled "FCC Releases Media Ownership Order and NPRM" in TLJ Daily E-Mail Alert No. 692, July 7, 2003.

4th Circuit Rules USPTO Ad Campaign Was Not A Reviewable Final Agency Action

2/11. The U.S. Court of Appeals (4thCir) issued its opinion [PDF] in Invention Submission Corporation v. Rogan, regarding what constitutes a final agency action, so as to be reviewable by a court. The Appeals Court held that an agency advertising campaign that is facially neutral, and does not identify any party, is not a final agency action.

Invention Submission Corporation (ISC) filed a complaint in U.S. District Court (EDVa) against James Rogan, the former Director of the U.S. Patent and Trademark Office (USPTO), in his official capacity, alleging violation of the Administrative Procedure Act (APA). ISC alleged that the USPTO's advertising campaign in 2002 to alert the public about invention promotion scams was aimed at ISC and harmed ISC. ISC alleged that this ad campaign was an illegal final agency action that was arbitrary and capricious, and that exceeded the statutory authority of the USPTO.

The District Court dismissed the complaint, pursuant to Rule 12(b)(6), for failure to state a claim upon which relief can be granted.

The Court of Appeals vacated and remanded with instructions that the District Court dismiss pursuant to Rule 12(b)(1), for lack of subject matter jurisdiction, on the grounds that the ad campaign was not a final agency action.

The Appeals Court wrote that "the issue presented is whether the PTO's advertising campaign, allegedly aimed at Invention Submission to penalize it, constituted final agency action under the APA so as to be reviewable in court."

The Court reviewed the relevant provisions of the APA, and applicable precedent.

5 U.S.C. § 704 provides that "final agency action for which there is no other adequate remedy in a court" is "subject to judicial review."

5 U.S.C. § 551 provides that ''``agency action´´ includes the whole or a part of an agency rule, order, license, sanction, relief, or the equivalent or denial thereof, or failure to act".

The Court, quoting from Bennett v. Spear, 520 U.S. 154 (1997), wrote that "at bottom, a final agency action as used in § 704 must be the ``consummation of the agency's decisionmaking process . . . [and] must be [an action] by which rights or obligations have been determined, or from which legal consequences will flow.´´"

The Court then applied the facts of this case to the law. It first noted that "In this case, the advertising material published by the PTO under the Inventors' Rights Act did not name or single out Invention Submission or any other invention promoter. The advertisements were facially neutral, aimed at all invention promotion scams -- scams that the advertisements asserted were causing the public to lose $200 million each year."

The Court concluded that the APA "does not provide judicial review for everything done by an administrative agency", and that the USPTO's ad campaign "is not the type of conduct that constitutes agency action that is reviewable in court under the APA".

The Court added that "Other than the administrative decision to conduct an advertising campaign at all -- a decision that Invention Submission has not challenged -- the content of the campaign was not the consummation of any decision-making process that determined rights or obligations or from which legal consequences flowed."

Whether ISC engaged in invention promotion scams was not at issue in this appeal. However, the Federal Trade Commission (FTC) sued ISC in 1993 for misrepresenting the nature, quality, and success rate of the invention promotion services. ISC settled that case for $1.2 Million in consumer redress. See, FTC release.

This case is Invention Submission Corporation v. James Rogan, U.S. Court of Appeals for the 4th Circuit, No. 02-2461, an appeal from the U.S. District Court for the Eastern District of Virginia, D.C. No. CA-02-1038-A, Judge Leonie Brinkema.

More News

2/11. MCI (WorldCom) announced in a release that "it has filed in U.S. Bankruptcy Court for a 60-day extension, from the current February 28, 2004 deadline, to formally emerge from Chapter 11. The extension would give the company sufficient time to complete its filings with the Securities and Exchange Commission (SEC), the last significant task to be completed before the company emerges. It would expand the time period for MCI to satisfy all conditions necessary to emerge from 120 days to 180 days, which is a common timeframe for large Chapter 11 cases. MCI would be able to file and emerge at any time during the 60-day extension period."

2/11. Robert Zoellick, the U.S. Trade Representative (USTR), held a press conference in Tokyo, Japan. See, transcript [7 pages in PDF]. He was asked about reducing the trade deficits. He stated that "China had a huge task to undertake with the WTO accession. As various reports from my office and others have shown, they undertook a large number of steps in terms of reducing tariffs and other things that were quite important. But because of the fact that we're running a deficit of about 125 billion dollars, it's even more important for them to make sure that they follow through on things like intellectual property rights protection, or not devising tax policies in a way that support industrial policy. For example, we've been having a dispute about the use of their value-added tax related to semiconductors." (Emphasis added.)

Go to News from February 6-10, 2004.