TLJ News from September 21-25, 2005

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Pascal Lamy9/25. Pascal Lamy (at right), Director General of the World Trade Organization (WTO), gave a speech in Washington DC regarding the upcoming sixth ministerial meeting in Hong Kong on December 13-18, 2005. He said that "this is probably our last and best chance to move the Doha Round towards a successful conclusion at the end of 2006".

FCC Releases Policy Statement Regarding Internet Regulation

9/23. The Federal Communications Commission (FCC) released the text [3 pages in PDF] of the policy statement that it announced at its August 5, 2005. This statement deals with the FCC's assertion of authority to regulate internet communications and services, and use of the internet, in the context of network neutrality, and for other purposes.

See also, story titled "FCC Adopts a Policy Statement Regarding Network Neutrality" in TLJ Daily E-Mail Alert No. 1,190, August 8, 2005.

The FCC announces in this statement that it is the FCC's policy to guarantee consumers certain things, which are sometimes referred to collectively as "network neutrality". However, the FCC's policy statement does not use the term "network neutrality", or former Chairman Michael Powell's preferred term, "network freedoms". It also contains a principle regarding competition that would not be accurately characterized as a component of "network neutrality" or "network freedom".

Principles Enumerated in the Policy Statement. This statement relates to guaranteeing for consumers the freedom to use their internet connections to access some of the content, use some of the applications, and attach some of the devices, that they choose.

While the FCC delayed almost two months in releasing this document, it is only three pages long. The just released text of the statement of policy substantially repeats the information contained in the FCC's release of August 5, 2005. However, it adds new material.

The August release contained one substantive paragraph. It included a 16 word statement of purpose: "to encourage broadband deployment and preserve and promote the open and interconnected nature of public Internet". It then followed this up with four principles: "(1) consumers are entitled to access the lawful Internet content of their choice; (2) consumers are entitled to run applications and services of their choice, subject to the needs of law enforcement; (3) consumers are entitled to connect their choice of legal devices that do not harm the network; and (4) consumers are entitled to competition among network providers, application and service providers, and content providers."

The just released text breaks this down into four separate paragraphs. Each begins with the same 17 word statement of purpose. (The August release had omitted the word "the" before the words "public Internet".)

The just released text then restates verbatim the four principles, with one change. The August release stated that "consumers are entitled to run applications and services". The just release text added the word "use", so that it reads "consumers are entitled to run applications and use services".

However, the FCC also added a significant qualification to all of these principles. The just released text adds the phrase, "The principles we adopt are subject to reasonable network management." It provides no guidance or insight as to what "reasonable network management" means.

Significance of a Policy Statement. The just released text does little to clarify what a "policy statement" is, or what consequences this policy statement might have. It does state that "we are not adopting rules with this policy statement". It also states that the FCC "will incorporate the above principles into its ongoing policymaking activities".

But, it gives no examples of implementation in ongoing policymaking activities. For example, it provides no hint as to whether or not the FCC would elaborate and impose any or all of these principles as conditions for its approval of license transfers associated with a merger, acquisition or other transaction. Nor does it state whether or not the FCC would apply these principles in response to a petition for a declaratory ruling.

Nor does it state whether or not the FCC contemplates promulgation of enforceable rules, or if it did, in what  proceeding that would be.

The FCC's August release did not identify the FCC proceeding title or proceeding number with which this policy statement is associated. The just released text does. It lists six proceedings, CC Docket No. 02-33 (wireline broadband), CS Docket No. 02-52 (cable broadband), CC Docket No. 01-337 (ILEC broadband), GN Docket No. 00-185, and CC Docket Nos. 95-20 and 98-10. (No. 95-20 is the FCC's long running further remand proceeding regarding Computer III and Bell Operating Companies' (BOC) provision of enhanced services. No. 98-10 is a companion proceeding regarding the same subject.)

Relation to CALEA Proceeding. This policy statement does not reference ET Docket No. 04-295 and RM-10865, which are the numbers for the FCC's open CALEA proceeding.

The FCC also released on September 23, 2005 the text [PDF] of the First Report and Order and Further Notice of Proposed Rule Making regarding the CALEA, which it announced but did not release on August 5, 2005. See also, story titled "FCC Amends CALEA Statute"  in TLJ Daily E-Mail Alert No. 1,191, August 9, 2005.

The policy statement and the CALEA order and NPRM are related. In both items the FCC asserts regulatory authority to regulate for the purpose of fulfilling the "needs of law enforcement". The CALEA statute provides that telecommunications carriers, but not but not information services providers, must design their equipment and networks to facilitate lawfully conducted wiretaps and other intercepts. In the just released order the FCC by administrative fiat reconstructs the meaning of terms in the CALEA and the Communications Act in order to reach the conclusion that facilities based broadband service providers and interconnected VOIP providers are subject to requirements of the CALEA. However, this broad assertion still leaves only carriers and service providers such to FCC CALEA regulation.

There remains the matter of what equipment and devices individual consumers attach to the internet, and what software and services they use. The FCC has not, yet, asserted that individuals are carriers, or are otherwise subject to the CALEA.

Rather, the FCC uses the just released policy statement to assert regulatory authority to limit what devices consumers can attach, and what services they can use. The policy statement states that "consumers are entitled to run applications and services of their choice, subject to the needs of law enforcement".

The policy statement gives no guidance or insight as to how it will implement the principal of "the needs of law enforcement".

Statutory Authority. Finally, the just released policy statement contains the FCC's arguments regarding its statutory authority for this policy statement and the principles stated therein.

The policy statement does not reference the CALEA. Nor, does it reference any statutory section that contains an express grant of regulatory authority to the FCC. Rather, it cites, with great selectivity, statements of Congressional findings and policy. This underscores the apparent lack of legislative authority for the FCC to regulate in the manner outlined in the policy statement. It also suggests a rationale for adopting a policy statement, which is not subject to judicial review, as opposed to a rule, which is.

The policy statement sites two subsections of 47 U.S.C. § 230(a), which merely state, for the Telecommunications Act of 1996, the Congress's findings regarding the nature of the internet. The policy statement omits any reference to 47 U.S.C. § 230(a)(4), which contradicts the argument underlying the policy statement. This subsection provides that "The Internet and other interactive computer services have flourished, to the benefit of all Americans, with a minimum of government regulation".

The policy statement goes on to cite and quote from 47 U.S.C. § 230(b)(1) and (2), which provide that "It is the policy of the United States -- (1) to promote the continued development of the Internet and other interactive computer services and other interactive media; (2) to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation". The policy statement omits the phrase "unfettered by Federal or State regulation". Again, the present policy statement is contrary to this clause.

It is also notable that the Congress incorporated into 47 U.S.C. § 230(b) a statement regarding limiting use of the internet for law enforcement purposes. Subsection (b)(5) provides that "It is the policy of the United States -- (5) to to ensure vigorous enforcement of Federal criminal laws deter and punish trafficking in obscenity, stalking, and harassment by means of computer. That is, it enumerates only enforcement of criminal statutes pertaining to obscenity, stalking and harassment. Contrary to this statement of policy, the FCC now seeks to expand the federal policy to encompass the FBI's goal of preventing the widespread use of secure and private communications by law abiding people, on the basis that it frustrates the FBI's ability to engage in easy and universal surveillance.

Finally, the FCC's policy statement cites Section 706 of the Telecommunications Act of 1996. This is not codified in any section of the U.S. Code. It is a note to 47 U.S.C. § 147. This provision directs the FCC to write annual reports on "the availability of advanced telecommunications capability".

It also contains the following language "The Commission and each State commission with regulatory jurisdiction over telecommunications services shall encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans (including, in particular, elementary and secondary schools and classrooms) by utilizing, in a manner consistent with the public interest, convenience, and necessity, price cap regulation, regulatory forbearance, measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment."

The FCC's policy statement quotes the language regarding "encourage the deployment", but does not quote the language that enumerates the permissible means. Many of the principles contained in the policy statement arguably does not fit within any of the enumerated means.

The policy statement also concludes that the FCC "has a duty to preserve and promote the vibrant and open character of the Internet". There is no citation or footnote that identities what statutory section or court opinion creates this asserted duty, or assigns it to the FCC.

More FCC News

9/23. The Federal Communications Commission (FCC) released the text [59 pages in PDF] of the First Report and Order and Further Notice of Proposed Rule Making regarding the CALEA, which it announced but did not release on August 5, 2005. See also, story titled "FCC Amends CALEA Statute" in TLJ Daily E-Mail Alert No. 1,191, August 9, 2005. This item is FCC 04-187 in ET Docket No. 04-295 and RM-10865.

9/23. The Federal Communications Commission (FCC) released the text [133 pages in PDF] of its Report and Order and Notice of Proposed Rulemaking that classifies wireline broadband internet access services as information services. The FCC adopted and announced this item on August 5, 2005. See also, story titled "FCC Classifies DSL as Information Service" and story titled "Reaction to the FCC's Classification of DSL" in TLJ Daily E-Mail Alert No. 1,190, August 8, 2005. This item is FCC 05-150 in CC Docket Nos. 02-33, 01-337, 95-20, 98-10, and WC Docket Nos. 04-242 and 05-271.

House Committee Holds Hearing on Regulation of Internet Speech

9/22. The House Administration Committee held a hearing titled "Political Speech on the Internet: Should it be Regulated?".

Opponents of government regulation of Constitutionally protected free speech, including former Federal Election Commission (FEC) Commissioner Brad Smith, warned the Committee about the FEC's open rulemaking proceeding regarding regulation of speech under the rubric of the Federal Election Campaign Act (FECA), as amended by the Bipartisan Campaign Reform Act of 2002 (BCRA). Others advocated the necessity of such regulation.

See, full story.

House Subcommittee to Hold Hearing on Goodlatte Boucher BAT Bill

9/22. The House Judiciary Committee's (HJC) Subcommittee on Commercial and Administrative Law will hold a hearing on HR 1956, the "Business Activity Tax Simplification Act of 2005" on Tuesday, September 27.

This bill does not reference electronic commerce, or the internet. However, it would protect and promote businesses that engage in e-commerce by limiting the ability of states to impose business activity taxes (BATs) on out of state businesses without a presence in the state. BATs no not include sales taxes.

Rep. Bob Goodlatte (R-VA), Rep. Rick Boucher (D-VA), and others introduced HR 1956 on April 28, 2005.

Rep. Bob GoodlatteRep. Goodlatte (at right) and Rep. Boucher have been trying for years to enact legislation on this subject. HR 1956 (109th) is very similar to, but contains several changes from, HR 3220 (108th), titled the "Business Activity Tax Simplification Act of 2003". 31 Representatives sponsored the bill, but it was not approved by the House, or even at the subcommittee level.

See also, stories titled "Reps. Goodlatte and Boucher Introduce Bill to Limit Business Activity Taxes" in TLJ Daily E-Mail Alert No. 753, October 6, 2003, and "House Subcommittee Holds Hearing on Business Activity Taxes" in TLJ Daily E-Mail Alert No. 899, May 17, 2004.

They also co-sponsored another related bill, HR 2526 (107th), titled the "Internet Tax Fairness Act of 2001". See, stories titled "Goodlatte and Boucher Introduce Net Tax Moratorium Bill" in TLJ Daily E-Mail Alert No. 229, July 18, 2001, and "House Subcommittee Approves Bill to Limit Business Activity Taxes" in TLJ Daily E-Mail Alert No. 471, July 17, 2002.

HR 1956 (109th) provides, at Section 3, that "No taxing authority of a State shall have power to impose, assess, or collect a net income tax or other business activity tax on any person relating to such person's activities in interstate commerce unless such person has a physical presence in the State during the taxable period with respect to which the tax is imposed."

The bill sets out in detail minimal activities, such as attending training conferences, that do not constitute physical presence.

The bill also defines "net income tax", and "other business activity tax". The latter means "(i) a tax imposed on or measured by gross receipts, gross income, or gross profits; (ii) a business license tax; (iii) a business and occupation tax; (iv) a franchise tax; (v) a single business tax or a capital stock tax; or (vi) any other tax imposed by a State on a business for the right to do business in the State or measured by the amount of, or economic results of, business or related activity conducted in the State." BAT does not include a "transaction tax".

FTC Files Complaint Against Spyware Distributor

9/21. The Federal Trade Commission (FTC) filed a civil complaint [13 pages in PDF] in U.S. District Court (DNH) against Odysseus Marketing Inc. (OMI), and an officer of OMI, Walter Rines, alleging unfair and deceptive trade practices in violation of the Federal Trade Commission Act (FTCA) in connection with their distribution of spyware.

The Complaint alleges violation of Section 5(a) of the FTCA, which is codified at 15 U.S.C. § 45. It provides, in part, that "Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful." The Congress has not enacted any legislation giving the FTC specific authority to regulate spyware. However, there have been significant efforts in recent years to enact spyware legislation.

The FTC filed this action on September 21, 2005.

The complaint alleges that "Since at least September 2003, and continuing thereafter, OMI has developed, advertised, promoted, and distributed to the public various software products, including a purported ``computer file-sharing anonymizer´´ called Kazanon and other products that purportedly increase the speed of a computer in downloading information from the Internet and in browsing the Internet."

It continues that OMI operates various web sites "to distribute software products, collect information from computers, and send pop-up and other Internet advertisements."

It alleges that OMI and Rines "distribute to consumers' computers a software program, known as ``Clientman,`` that disseminates pop-up and other Internet advertisements and installs a number of third-party advertising and other programs without notice to consumers. Clientman and the additional programs that it installs interfere with consumers' normal use of the Internet and degrade their computers' performance. In some cases, Defendants induce consumers to download Clientman by including it with software products for which Defendants make false performance, efficacy, and benefits claims. Defendants fail to disclose the consequences of downloading these various software products and their included software, Clientman. After Clientman has been installed to computers, it cannot be uninstalled through reasonable means."

The complaint alleges three unfair or deceptive acts or practices violate the FTCA. First, it alleges that the defendants have falsely represented to consumers that "Kazanon makes users of P2P file-sharing programs anonymous, and that therefore no one will discover their identity, or their computers' IP address or location, when they download or trade music, movies, software, or any other data, sound, or video file through the Internet."

Second, the complaint alleges that the defendants "have represented, expressly or by implication, that consumers who download Kazanon will receive a file-sharing anonymizer." However, the complaint alleges, "installing Kazanon also causes the installation of additional software programs, some of which replace search results provided by search engine web sites, collect and transmit information from computers to third parties, send pop-up advertisements and other Internet ads, and download more software programs." The complaint alleges that failure to disclose this information constitutes a deceptive act or practice.

Third, the complaint alleges that consumers cannot locate the software installed by defendants on their computers and remove it through the use of reasonable efforts.

The complaint seeks injunctive relief, rescission of contracts and restitution, and the disgorgement of ill-gotten gains.

This case is FTC v. Odysseus Marketing Inc. and Walter Rines, U.S. District Court for the District of New Hampshire, D.C. No. 05-CV-330.

Computer security companies have published information about Odysseus Marketing and Clientman. Symantec states that "Spyware.ClientMan is a spyware application that sends Internet usage information to a server, including email and Instant Messenger information. It also sends confidential information, such as IP address, browser used, and user details to a remote server." See, summary.

Trend Micro states in its summary of Clientman that it is a "browser hijacker" that opens pop up ads, "attempts to read a user's name", "crashes IE randomly", and "hijack search engine results". F-Secure states in its summary of Clientman that it is "Malware" and an "Advertising parasite" that "opens popups, and redirects search engine results". See also, Computer Associates' (CA) Spyware Information Center's summary of Clientman.

This action follows related actions taken by the FTC.

FTC v. Seismic Entertainment, Inc. On October 6, 2004, the FTC filed a civil complaint [14 pages in PDF] in U.S. District Court (DNH) against several defendants alleging unfair and deceptive trade practices in violation of Section 5(a) of the FTC Act, in connection with fraudulent dissemination of spyware.

The defendants are Seismic Entertainment Productions, Inc.,, Inc., and Sanford Wallace.

The complaint alleges deceptive marketing by the defendants of purported anti-spyware software named "Spy Wiper" and "Spy Deleter", that is actually spyware.

The complaint alleges that "Defendants, in numerous instances, have exploited particular vulnerabilities in certain versions of the Microsoft Internet Explorer web browser (“IE web browser”) to reconfigure consumers’ computers by installing software code onto their computers without their knowledge or authorization. The software code, among other things, (a) changes the IE web browser’s home page; (b) modifies the IE web browser’s search engine; and (c) downloads and installs various advertising and other software programs ... ; and (d) causes an incessant stream of pop-up advertisements to be displayed."

See also, story titled "FTC Files Complaint Against Spyware Con Artists" in TLJ Daily E-Mail Alert No. 994, October 11, 2004.

In the Matter of On August 3, 2005, the FTC issued an administrative Complaint [3 pages in PDF] against and John Ferber alleging violation of Section 5 of the FTC Act in connection with their deceptive marketing and installation of adware on consumers' computers. The parties simultaneously entered into an Agreement Containing Consent Order [7 pages in PDF].

See also, story titled "FTC Takes Action Against Deceptive Marketing of Adware" in TLJ Daily E-Mail Alert No. 1,188, August 4, 2005. See also, FTC release.

People and Appointments

9/21. President Bush announced his intent to nominate Katherine Baicker to be a member of the President's Council of Economic Advisers. She is currently a professor in the Department of Public Policy at the University of California in Los Angeles (UCLA). See, White House release.

9/21. President Bush announced his intent to nominate Matthew Slaughter to be a member of the President's Council of Economic Advisers. He is a professor of business administration at the Tuck School of Business at Dartmouth College. He is also a Research Associate at the National Bureau of Economic Research. See, White House release.

More News

9/21. The House approved HR 250, the "Manufacturing Technology Competitiveness Act of 2005", by a vote of 394-24. See, Roll Call No. 485.

9/21. The European Commission (EC) released a statement regarding "state aid to innovation". It states that the EC "is launching consultations on improvements to EU state aid rules as regards projects encouraging innovation". It adds that "The proposals for innovation aid cover six broad areas: innovative start-ups; risk capital; the integration of innovation into existing rules on state aid for research and development (R&D); innovation intermediaries; training and mobility between university research personnel and SMEs; and poles of excellence for projects of common European interest."

9/21. The New York State Public Service Commission (NYPSC) announced that it "voted unanimously to approve the proposed merger of SBC Communications Inc. (SBC) and AT&T Corporation (AT&T) and its subsidiaries that are certified to provide telecommunications services in New York State". See, NYPSC release [PDF] and SBC release.

Go to News from September 16-20, 2005.