News from May 26-31, 2004

Directv Denies Plans to Scrap Use of Satellites for Broadband Access

5/28. The Wall Street Journal published a story titled "News Corp. Scraps Internet Satellites" in its May 28, 2004 issue, at page A3. This story states that "News Corp., which controls the country's largest satellite-to-home TV broadcaster, is scrapping plans to use advanced satellites for delivering Internet access across the U.S."

The satellite program involved is titled "SPACEWAY". This is a program of Directv. News Corp. acquired a 34% interest in Hughes Electronics Corporation in December of 2003. Previously, Directv was a unit of Hughes.

Chase Carey, P/CEO of The DIRECTV Group, Inc., promptly replied in a release. He stated that "The article in today's Wall Street Journal contained or implied a number of inaccurate statements from unnamed sources regarding Spaceway. First, as we have previously stated, our goal has been to utilize the satellites for both DIRECTV's video business and broadband purposes. This is not new news and was included in our FCC filing last year. Second, we have not scrapped plans to use the satellites for broadband access. In fact, the satellites are being designed specifically so they can be used for video or broadband. Finally, we are committed to launching two satellites in early 2005 with a third satellite as a ground spare."

Carey added that "While our plans are still in development and decisions will ultimately be made in the best interest of the overall DIRECTV Group, we consider both the video and broadband capabilities of the Spaceway satellites to be an important part of our future."

In April 2003, News. Corp. announced plans to acquire a controlling interest in Hughes. However, to complete the transaction, News Corp. first needed regulatory approvals. As part of the process of obtaining approval, News Corp. made representations to regulators, and to Members of Congress, regarding its intentions. It stated that it planned to provide broadband internet access via satellite, and that this would serve the public interest.

The Federal Communications Commission (FCC), whose approval was required for the transfer of licenses associated with the transaction, has a goal of attaining widespread broadband availability over multiple platforms.

In addition, some Members of Congress, especially those from rural districts, have a particular interest in seeing satellite companies provide internet access.

Murdoch's Congressional Testimony. Rupert Murdoch testified before the House Judiciary Committee on May 8, 2003 regarding the then pending proposed acquisition.

Murdoch stated in his prepared testimony that "News Corp. will work aggressively to build on the services already provided by Hughes to make broadband available throughout the U.S., particularly in rural areas. Broadband solutions for all Americans could come from partnering with other satellite broadband providers, DSL providers, or new potential broadband providers using broadband over power line systems, or from other emerging technologies. News Corp. believes it is critical that consumers have vibrant broadband choices that compete with cable’s video and broadband services on capability, quality and price." See also, story titled "Murdoch Defends News Corp.'s DirecTV Deal" in TLJ Daily E-Mail Alert No. 659, May 12, 2003.

News Corp.'s Application to the FCC. News Corp., General Motors, and Hughes filed a joint application in May 2003 with the FCC for authority to transfer control of licenses.

This application includes a section titled "The Proposed Transaction Will Yield Significant Public Interest Benefits". Specifically, it asserts that "News Corp. is dedicated to increasing ... broadband services Hughes provides to American customers." (See, page 20.)

The Wall Street Journal article states that Directv is scrapping plans to use Spaceway for broadband access. News Corp.'s Chase Carey responded that "our goal has been to utilize the satellites for both DIRECTV's video business and broadband purposes. This is not new news and was included in our FCC filing last year."

Actually, what News Corp. stated in its FCC filing last year is that "The focus of the SPACEWAY program, however, is the provision of broadband services ..." (See, joint application, at page 29.)

This filing is 794 pages, and is published in the FCC website in 32 separate files. The FCC proceeding on this application is MBDocket No. 03-124.

FCC Approval of the Transaction. The FCC's order approving the transaction discussed the public interest benefits of the transaction, including those pertaining to satellite broadband.

The FCC announced its approval of the transaction on December 19, 2003. On January 14, 2004, the FCC released its Memorandum Opinion and Order (MOO) [228 pages in PDF]. This proceeding is titled "In the Matter of General Motors Corporation and Hughes Electronics Corporation, Transferors, And The News Corporation Limited, Transferee, For Authority to Transfer Control". This proceeding is MB Docket No. 03-124. The MOO is FCC 03-330. See also, stories titled "FCC Approves News Corps.' Acquisition of DirecTV, With Conditions" in TLJ Daily E-Mail Alert No. 804, December 22, 2003"; and "FCC Releases MOO Approving News Corp.'s Acquisition of DirecTV" in TLJ Daily E-Mail Alert No. 816, January 15, 2004.

The FCC's MOO states, at paragraph 329, that "Applicants further assert that News Corp. will work aggressively to expand broadband options to better compete with cable's video and broadband offerings." It further states, at paragraph 331, that "Applicants acknowledge that Hughes already provides broadband and could engage in various partnering solutions, but maintain that, as a result of the proposed transaction, DirecTV will be able to increase these offerings, due to its improved capital structure."

The FCC's MOO also concludes, at paragraph 288, that "EchoStar's allegation that following the transaction DirecTV will abandon all forms of broadband access in favor of partnerships with providers of cable broadband services is wholly unsupported and defies the evidence contained in several recently announced partnerships with major providers of DSL broadband access."

In the end, the FCC imposed no conditions requiring News Corp. to expand or maintain its satellite broadband program.

See also, story titled "EchoStar DirecTV Merger and Broadband Internet Access" in TLJ Daily E-Mail Alert No. 321, December 5, 2001.

11th Circuit Holds Award of Liquidated Damages for Violation of ECPA is Discretionary

5/28. The U.S. Court of Appeals (11thCir) issued its opinion in DIRECTV v. Brown, holding that the award of liquidated damages, under 18 U.S.C. § 2520(c)(2), for a violation of the Electronic Communications Privacy Act (ECPA) of 1986, is discretionary. The ECPA violation in this case is satellite transmission piracy.

Directv is a direct broadcast satellite (DBS) service provider. It uses conditional access technology that encrypts its satellite transmissions; it then provides its paying customers with access cards that decrypt these satellite transmissions.

Michael Brown is a thief. He bought an illegal pirate access device that he used to view encrypted transmissions, without paying Directv.

Directv filed a complaint in U.S. District Court (MDFl) against Brown and others alleging violation of 47 U.S.C. § 605(a) and 18 U.S.C. § 2511(1)(a).

Brown did not appear. Directv obtained a judgment by default, in which it was awarded $3886.64 in actual damages for Brown's violation of 47 U.S.C. § 605(a), attorney's fees of $752.50, and costs of $195. The District Court refused to award Directv liquidated damages under § 2520(c)(2).

Directv appealed. The Appeals Court affirmed. It held that the award of liquidated damages under § 2520(c)(2) is discretionary, and that the District Court did not abuse its discretion in refusing to award liquidated damages.

47 U.S.C. § 605(a) provides, in part, that "no person receiving, assisting in receiving, transmitting, or assisting in transmitting, any interstate or foreign communication by wire or radio shall divulge or publish the existence, contents, substance, purport, effect, or meaning thereof, except through authorized channels of transmission or reception, ..."

18 U.S.C. § 2511(1)(a) pertains to "Interception and disclosure of wire, oral, or electronic communications prohibited". It creates a civil remedy for interception of certain communications, including satellite piracy. It provides, in part, that "any person who ... intentionally intercepts, endeavors to intercept, or procures any other person to intercept or endeavor to intercept, any wire, oral, or electronic communication ... shall be punished as provided in subsection (4) or shall be subject to suit as provided in subsection (5)."

18 U.S.C. § 2520 pertains to "Recovery of civil damages authorized". Subsection (a) provides that "... any person whose wire, oral, or electronic communication is intercepted, disclosed, or intentionally used in violation of this chapter may in a civil action recover from the person or entity, other than the United States, which engaged in that violation such relief as may be appropriate."

Subsection (c)(2) provides that "the court may assess as damages whichever is the greater of -- (A) the sum of the actual damages suffered by the plaintiff and any profits made by the violator as a result of the violation; or (B) statutory damages of whichever is the greater of $100 a day for each day of violation or $10,000."

The Appeals Court, noting that subsection (c)(2) uses the word "may", rather than "shall", held that the award of liquidated damages under this subsection lies within the discretion of the court.

Other federal circuits have addressed the issue. The 7th Circuit held that the award of liquidated damages here is mandatory. See, Rodgers v. Wood, 910 F.2d 444 (1990). In contrast, the 4th, 6th and 8th Circuits held, like the 11th, that the award of liquidated damages here is discretionary. See, Nalley v. Nalley, 53 F.3d 649 (4th Cir. 1995); Dorris v. Absher, 179 F.3d 420 (6th Cir. 1999); and Reynolds v. Sears, 93 F.3d 428 (8th Cir. 1996).

The present case is DirecTV, Inc. v. Michael Brown, U.S. Court of Appeals for the 11th Circuit, No. 03-16094, an appeal from the U.S. District Court for the Middle District of Florida, D.C. No. 03-00234-CV-ORL-22-KRS.

GAO Reports on Computer Control Weaknesses at FDIC

5/28. The General Accounting Office (GAO) released a report [25 pages in PDF] titled "Information Security: Information System Controls at the Federal Deposit Insurance Corporation". The report identifies "computer control weaknesses in FDIC's information systems".

The report states that the Federal Deposit Insurance Company (FDIC) "had not adequately limited the access granted to all authorized users or completely secured access to its network. The risk created by these access weaknesses was heightened because FDIC had not completed a program to fully monitor access activity to identify and investigate unusual or suspicious access patterns that could indicate unauthorized access. As a result, critical financial and sensitive personnel and bank examination information was at risk of unauthorized disclosure, disruption of operations, or loss of assets."

The report adds that "A key reason for FDIC’s continuing weaknesses in information system controls is that it had not yet fully established a comprehensive security management program to ensure that effective controls are established."

FCC Extends Deadline for Reply Comments in Broadband Over Powerline Proceeding

5/28. The Federal Communications Commission's (FCC) Office of Engineering and Technology (OET) extended the deadline for submitting reply comments in response to the notice of proposed rulemaking (NPRM) regarding broadband over powerline (BPL).

The original deadline for reply comments was June 1. It has been extended to June 22. See, Order Granting Extension of Time [3 pages in PDF].

The FCC adopted this NPRM on February 12, 2004. See, story titled "FCC Adopts Broadband Over Powerline NPRM" in TLJ Daily E-Mail Alert No. 836, February 13, 2004. The FCC released the text of this NPRM on February 23, 2004. This NPRM is FCC 04-29 in ET Docket Nos. 03-104 and 04-37. See, notice in the Federal Register, March 17, 2004, Vol. 69, No. 52, at Pages 12612-12618.

The FCC has already received over 1200 comments in this proceeding. The vast majority of these comments are very brief statements of amateur radio operators in opposition to BPL. However, there are also numerous substantial comments from a wide variety of interests, including BPL provider, electric utility, BPL equipment, consumer electronics, telephone, aircraft, aeronautical radio, law enforcement, ham radio, and others.

People and Appointments

5/28. Roscoe Howard, the U.S. Attorney for the District of Columbia, resigned. Kenneth Wainstein was named interim U.S. Attorney by Attorney General John Ashcroft. Wainstein was Chief of Staff to FBI Director Robert Mueller. Before that, he was a long time employee of the U.S. Attorneys Office for the District of Columbia. See, DOJ release.

More News

5/28. The Federal Communications Commission (FCC) announced a new contractor for FCC document search, retrieval and duplication. See, FCC release [PDF].

5/28. The Copyright Office published a notice in the Federal Register announcing alternative methods for the filing of claims to the cable and satellite royalty funds for the year 2003, and waiving its regulations governing the filing of cable and satellite claims. The notice states that this is because of continuing delays in the receipt of mail. The notice encourages the use of online filing. See, Federal Register, May 28, 2004, Vol. 69, No. 104, at Pages 30577 - 30580.

5/28. The U.S. and the E.U. signed an agreement that will allow U.S. Customs and Border Protection to collect airline passenger name record (PNR) information relating to flights between the U.S. and E.U.  See, DHS release.

5/28. The Department of Homeland Security (DHS) announced that the deadline for submitting applications for grants for homeland security related information technology demonstration projects is June 30, 2004. See, DHS release.

GAO Reports on Data Mining at Federal Agencies

5/27. The General Accounting Office (GAO) released a report [71 pages in PDF] titled "Data Mining: Federal Efforts Cover a Wide Range of Uses".

The report finds that "Driven by advances in computing and data storage capabilities and by growth in the volumes and availability of information collected by the public and private sectors, data mining enables government agencies to analyze massive volumes of data. Our survey shows that data mining is increasingly being used by government for a variety of purposes, ranging from improving service or performance to analyzing and detecting terrorist patterns and activities."

The report defines data mining as "the application of database technology and techniques -- such as statistical analysis and modeling -- to uncover hidden patterns and subtle relationships in data and to infer rules that allow for the prediction of future results". The GAO surveyed chief information officers at 128 federal departments and agencies regarding whether their entities had operational and planned data mining systems or activities.

The report finds that "52 agencies are using or are planning to use data mining. These departments and agencies reported 199 data mining efforts, of which 68 were planned and 131 were operational." It also found that "122 used personal information".

See, full story.

DOJ Files Criminal Complaint Against NEC Subsidiary Alleging E-Rate Fraud

5/27. The Department of Justice (DOJ) filed a criminal information [11 pages in PDF] in U.S. District Court (NDCal) against NEC-Business Network Solutions Inc., a subsidiary of NEC America Inc. alleging wire fraud, aiding and abetting, and criminal violation of the Sherman Antitrust Act.

The DOJ filed the information under seal on May 25. On May 26 the DOJ filed a motion with the Court requesting that the information be unsealed on May 27.

The e-rate program was created by the Federal Communication Commission (FCC) by its Order of May 8, 1997. It is a cross subsidy program. It provides subsidies to schools, libraries, and rural health clinics for various telecommunications services, internet access, and computer networking.

It is loosely based upon the Telecommunications Act of 1996. Section 254 of the Act codified the long standing practice of providing "universal service" support for telephone service in high cost and rural areas.  However, the Act also included a subsection that extended universal service support to any school, library and rural health clinic.

The first count alleges wire fraud and aiding and abetting in violation of 18 U.S.C. §§ 1343 and 2

The Information alleges that "From at least December 1999 through March 2001 ... the defendant and others, devised and intended to devise a scheme to defraud the USAC and the San Francisco Unified School District ("SFUSD") and to obtain money by means of false and fraudulent pretenses, representations and promises by submitting false documents in support of a SFUSD E-Rate application."

The second count alleges collusion in violation of 15 U.S.C. § 1.

It alleges that defendant "and co-conspirators entered into and engaged in a combination and conspiracy to suppress and eliminate competition for E-Rate subsidized projects in Michigan, Wisconsin, Arkansas, and South Carolina by allocating contracts for equipment and services relating to telecommunications, Internet access, and/or internal connections." The Information further alleges that defendant and co-conspirators met, discussed prospective bids, and "submitted fraudulent non-competitive bids in accordance with the conspiratorial agreement". The Information does not identify the co-conspirators.

This case is numbered CR 04-0184. See also, DOJ release.

The House Commerce Committee's Subcommittee on Oversight and Investigations is also examining waste, fraud and abuse in the e-rate program. See, stories titled "Rep. Barton Plans to Examine E-Rate Subsidies" in TLJ Daily E-Mail Alert No. 850, March 5, 2004; Reps. Tauzin & Greenwood Request GAO Report on E-Rate Waste, Fraud & Abuse As Prelude to Oversight Hearing" in TLJ Daily E-Mail Alert No. 791, December 3, 2003; House Commerce Committee Requests Information from IBM in E-Rate Fraud Investigation" in TLJ Daily E-Mail Alert No. 698, July 15, 2003; "FCC Inspector General Reports on E-Rate Fraud" in TLJ Daily E-Mail Alert No. 449, June 12, 2002; "Reps. Tauzin & Greenwood Write Powell Re Waste Fraud & Abuse In E-Rate Program" in TLJ Daily E-Mail Alert No. 624, March 17, 2003; and "FCC Announces Order and NPRM Regarding E-Rate Subsidies" in TLJ Daily E-Mail Alert No. 648, April 24, 2003.

People and Appointments

5/27. Ira Hobbs was named Chief Information Officer of the Treasury Department effective June 13, 2004. He has been Deputy Chief Information Officer of the Department of Agriculture (USDA) for seven years.

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5/27. President Bush gave a speech at Vanderbilt University Medical Center in Nashville, Tennessee in which he discussed electronic health care records. He said that "Part of making sure health care is available is for medicine to use information technology". He also said that "within 10 years, we want most Americans to have electronic health care records".

Phil Bond Addresses the Politics of Nanotechnology

5/26. Phil Bond, the Under Secretary of Commerce for Technology, gave a speech titled "Nanotechnology: Evolution and Revolution" at an event in Philadelphia, Pennsylvania titled "Pennsylvania Nanotechnology Conference 2004".

He said that "As a policymaker, I hope to ensure that venture capitalists don't write off all nanotechnology because some of it's potential will be realized by my daughters' generation, or perhaps my grandchildren's generation. And to ensure that legislators, policymakers, regulators, judges and other non-technical stakeholders don't seek to preemptively impede the development paths of nanotechnology because they have read Michael Crichton's Prey on the big screen, or because a few outliers seek to fan the flames of public fear."

Phil BondBond (at right) continued that "Throughout history, promising technological advances have run into strong social resistance. From the advances of the Industrial Revolution, to alternating current, aircraft and automobiles -- there have been those who have found such technological achievements to be threatening to their livelihood or their perspectives. And you are involved in the ultimate disruptive technology. Disruptive on a scale with mass production and digital technology ... and that's saying something."

"Societal resistance can create substantial barriers to technology adoption and diffusion. It can deter or delay the entry of new technology, deter or delay its economic and social benefits, and its return on investment. In recent years we have seen such concerns play out with respect to nuclear power, genetically modified organisms (GMOs), and others", said Bond.

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

Hence, he encouraged his audience "to be involved, helping educate elected officials and opinion leaders about the true benefits and promise of nanotechnology."

People and Appointments

5/26. Comcast announced in a release "preliminary results from the company's 2004 annual meeting of shareholders in which all board members were re-elected overwhelmingly, each receiving more than 92% of the vote; all company-sponsored proposals were adopted overwhelmingly, with more than 96% of the vote; and all shareholder proposals were defeated". Comcast also announced that P/CEO Brian Roberts "has become chairman of the company's board of directors, following C. Michael Armstrong's election to retire as non-executive chairman".

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5/26. The Financial and Banking Information Infrastructure Committee (FBIIC) and the Financial Services Sector Coordinating Council (FSSCC) released a report [8 pages in PDF] on the fraudulent practice of phishing. The phishing perpetrator sends fraudulent e-mail to consumers that falsely states that is from a legitimate company, financial institution or government agency, and directs consumers to visit a spoofed website, which in turn, requests consumers to enter personal information, which is then used for identity theft. See, Treasury Department release.

5/26. The Federal Communications Commission (FCC) published a notice in the Federal Register that describes, and sets comment deadlines for, its notice of proposed rulemaking (NPRM) regarding presubscribed interexchange carrier (PIC) change charge policies. The deadline for comments is June 15, 2004. The deadline for reply comments is June 25, 2004. This NPRM is FCC 04-96 in CC Docket No. 02-53. See, Federal Register, May 26, 2004, Vol. 69, No. 102, at Pages 29913 - 29917.

5/26. The Department of Commerce's (DOC) Technology Administration (TA) announced that August 2, 2004 is the deadline to submit applications to join the TA's business development mission to Northern Ireland and the Republic of Ireland. This delegation will include U.S. based senior executives representing the information and communications technology sector. See, notice in the Federal Register, May 26, 2004, Vol. 69, No. 102, at Pages 29928 - 29930.

Go to News from May 21-25, 2004.