|TLJ News from October 26-31, 2005|
FCC Announces Its Approval of SBC/AT&T Verizon/MCI Mergers With Enforceable Conditions
10/31. The Federal Communications Commission (FCC) adopted, but did not release, two orders that give the FCC's approval to the mergers of SBC and AT&T and Verizon and MCI, with numerous temporary conditions imposed.
The FCC issued a short press release [4 pages in PDF] that describes these orders, and the four Commissioners each released statements. The FCC release states that the FCC conducted an "analysis of the competitive effects of the mergers", and now imposes numerous conditions on the merging entities. However, most of these are effective for only one to three years.
FCC Chairman Kevin Martin (at right) wrote in a separate statement [PDF] that "I do not believe that all of the conditions imposed today are necessary. I believe that the affected markets would remain vibrantly competitive absent these conditions."
FCC Commissioner Kathleen Abernathy wrote a statement [3 pages in PDF] devoted mostly to criticizing the conditions imposed in these orders as at best unnecessary, and perhaps harmful. She wrote that "today we focus too much on micromanaging the growth and pace of change". She added that "some of the conditions in the Orders reflect a failure to appreciate the degree to which the market has changed and how that constrains market behavior by the applicants."
She continued that "In my judgment, the conditions included in the Orders before us require the merged companies to provide offerings that the market might not demand, to sacrifice synergies by needlessly treating their affiliates at arms’ length, and to maintain business relationships based on current assumptions even if those assumptions cease to reflect economic reality. Moreover, the companies will have to abide by these conditions while their most aggressive competitors -- whether they use wireline, wireless, cable, or other, next-generation facilities -- remain exempt."
In contrast, FCC Commissioner Michael Copps wrote in a separate statement [PDF] that these orders do not go far enough in regulating the conduct of the merging companies. "These conditions provide only a bare minimum."
Similarly, FCC Commissioner Jonathan Adelstein wrote in a separate statement [PDF] that "I would have preferred additional and more rigorous safeguards beyond those set forth in these Orders."
The Department of Justice's Antitrust Division, which has statutory authority to conduct antitrust merger reviews, announced its approval of the two mergers on October 27, 2005, subject to divestiture of some local fiber optic network facilities. See, DOJ release. See also, stories titled "DOJ Approves Verizon MCI and SBC AT&T Mergers Subject to Divestitures", "DOJ Initiates Clayton Act § 7 Proceeding Against SBC and AT&T", and "DOJ Initiates Clayton Act § 7 Proceeding Against Verizon and MCI" in TLJ Daily E-Mail Alert No. 1,242, October 28, 2005.
Interconnection of Internet Backbone Providers. The release states that for two years the parties must "post their peering policies on publicly accessible websites. During this two-year period, the applicants will post any revisions to their peering policies on a timely basis as they occur."
The release also requires the parties for three years to "maintain settlement-free peering arrangements with at least as many providers of Internet backbone services as they did in combination on the Merger Closing Dates."
The FCC has no statutory authority to regulate interconnection among internet backbone providers. Moreover, internet companies have successfully interconnected without any regulatory action.
Copps (at left) wrote that "We require the Applicants to continue peering with as many providers as they do today. This will help prevent the network outages that come from de-peering. It will also help ensure that the free flow of traffic continues -- and that new costs are not passed on to end-users."
Adelstein wrote that "By agreeing to publicly release their peering policies and by committing to maintain settlement-free peering with at least as many backbone providers as they peered with pre-merger, we give competitors important tools to assess and monitor the accuracy of these claims."
Chairman Martin wrote in his statement that "Concerns have also been raised about the impact of this merger on the Internet backbone market. We have found this market, which has never been regulated, to be sufficiently competitive. It is the Commission’s prediction that these mergers will in no way alter this dynamic. In any event, the Applicants have committed to publicly post their peering criteria and to continue settlements-free peering arrangements with the same number of providers post-merger as they did, in combination, pre-merger."
FCC's August 5 Policy Statement. The release states that for two years the parties shall "conduct business in a way that comports with the Commission’s Internet policy statement issued in September."
This incorporates by reference the many items contained in the FCC's Policy Statement [3 pages in PDF], adopted on August 5, 2005, and released on September 23, 2005.
It relates to guaranteeing for consumers the freedom to use their internet connections to access any content, use any applications, and attach any devices, that they choose. It also relates to limitations upon these freedoms, imposed by their service providers, or by the government. It also contains language regarding competition in a variety of industry sectors.
See, stories titled "FCC Adopts a Policy Statement Regarding Network Neutrality" in TLJ Daily E-Mail Alert No. 1,190, August 8, 2005; and "FCC Releases Policy Statement Regarding Internet Regulation" in TLJ Daily E-Mail Alert No. 1,221, September 26, 2005.
Copps wrote that "Today, we make these principles enforceable. As a result, consumers will have an enforceable right to use their bandwidth as they see fit, going where they choose and running the applications they want on the Internet."
Adelstein (at right) addressed this at more length. He wrote that "Commenters have voiced concern that the horizontal and vertical integration of the Applicants’ Internet backbone networks, particularly considering the two mergers together, may create an incentive and ability to discriminate against other providers in what has heretofore been a competitive market. Maintaining an open and robust Internet is absolutely critical. Just two months ago, the Commission set out in this Policy Statement a basic set of consumer expectations for broadband providers and the Internet. With this Statement, we sought to ensure that consumers are entitled to access the lawful Internet content of their choice, to run applications and use services of their choice, subject to the needs of law enforcement, and to connect their choice of legal devices that do not harm the network. ... I must admit a deep foreboding that this commitment is only for two years."
Stand Alone DSL. The FCC release states that the parties, within 12 months of the closing dates of the mergers, shall provide "DSL service to in-region customers without requiring them to also purchase circuit-switched voice telephone service. The companies will make the offering for two years from the time it is made available in a particular state."
Commissioner Copps praised this item. He wrote that "We require the Applicants to make available stand-alone, or ``naked´´ DSL. This means consumers can buy DSL without being forced to also purchase voice service. This is good news. If savvy consumers have cut the cord and use only a wireless phone, why should they have to pay for wireline voice service they don't even want? Looking forward, this condition is important for the development of VoIP."
Adelstein (at right) also praised this mandate, but argued that it should have gone further. He wrote that "Especially vexing is that the stand-alone DSL offering outlined in this Order could also have been more robust. For example, we could have done more to enable consumers to purchase DSL services free from any voice service, rather than just traditional circuit-switched voice services."
Unbundled Network Elements. The release states that the parties shall "not to seek an increase in state-approved rates for unbundled network elements (UNEs) for two years (except for rates that are subject to current appeals in specific states)." (Parentheses in original.)
Martin commented that "UNE rates are effectively capped for two years and special access prices are essentially frozen for 30 months from the merger closing date."
Copps stated that "To keep competition growing from competitive carriers, we require the Applicants to update the wire center test from the Triennial Review Remand. We also provide stability by capping UNE input rates for two years."
The release also mandates "a one-time recalculation to exclude fiber-based collocation arrangements established by AT&T in SBC’s region and MCI in Verizon’s region in identifying wire centers in which SBC or Verizon claims there is no impairment pursuant to the UNE triggers in the Triennial Review Remand Order so that dedicated transport and/or high-capacity loops need not be unbundled."
Special Access. The FCC release states that for 30 months the parties shall not "provide special access services to themselves, their interexchange affiliates, or each other or their affiliates, that are not generally available to other similarly situated customers."
The release states that for 30 months before the parties "provide new or modified contract tariffed service to their own section 272(a) affiliate(s), they will certify to the Commission that they provide service pursuant to those contract tariffs to unaffiliated customers other than each other or their wireline affiliates."
The release states that the FCC requires the parties, for 30 months, "not to increase rates set forth in SBC’s and Verizon’s interstate tariffs for special access services, including contract tariffs, that they provide in their in-region territory that are on file with the Commission on the Merger Closing Dates."
Also, the release states that the parties must "implement a ``Service Quality Measurement Plan,´´ which will provide the Commission with quarterly performance results for interstate special access services." This requirement "will terminate the earlier of 30 months and 45 days after the beginning of the first full quarter following the closing of the mergers, or the effective date of a Commission order adopting general special access performance measurement requirements."
Copps stated that "We provide a measure of stability for businesses and carriers that use special access services --the high capacity facilities that so much of our communications rely on. We freeze rates and provide some protection against discriminatory practices. Let me note, however, that the Commission still has a longstanding and more comprehensive proceeding on special access to complete. It is vitally important that we do so without further delay."
More Mandates. The release also states that for 30 months the parties shall not "increase the rates paid by existing in-region customers of AT&T in SBC’s region or MCI in Verizon’s region for wholesale DS1 and DS3 local private line services."
The release also states that there are some mandates that only apply to SBC/AT&T in the sparsely populated state of Alaska, which is represented by Sen. Ted Stevens (R-AK), the Chairman of Senate Commerce Committee.
The release also states that the parties must "file annual certifications that they are complying with these enforceable commitments."
The FCC's yet to be released Memorandum Opinion and Order in the SBC/AT&T proceeding is numbered FCC 05-183 in Docket No. 05-65. The FCC's yet to be released Memorandum Opinion and Order in the Verizon/MCI proceeding is numbered FCC 05-184 in Docket No. 05-75.
Bush Picks Sam Alito for Supreme Court
10/31. President Bush announced his intent to nominate Judge Sam Alito to be an Associate Justice of the Supreme Court. Bush stated at a White House event that "He has a deep understanding of the proper role of judges in our society. He understands that judges are to interpret the laws, not to impose their preferences or priorities on the people.". See, transcript.
His experience is different from that of Harriet Miers, Bush's previous nominee, who last week withdrew from further consideration. Alito (at right) went to posh schools, worked in many capacities for the federal government, and since 1990, has been a Judge of the U.S. Court of Appeals for the 3rd Circuit.
Praise for Alito. Attorney General Alberto Gonzales stated in a release that "Judge Alito is one of our Nation's most distinguished judges, and in his nearly 30 years of public service -- nearly half of that at the Department of Justice -- he has earned a reputation for excellence that few can equal. He served with distinction in the Department's Office of the Solicitor General and the Office of Legal Counsel, and he was recognized as one of the best in his profession as a United States Attorney."
Rep. James Sensenbrenner (R-WI), the Chairman of the House Judiciary Committee, stated in a release that Judge Alito is "an outstanding and accomplished jurist". He continued that "Judge Alito has earned widespread respect for his judicial intellect and for his respect and dedication to the law. Prior to his fifteen years of distinguished service on the Third Circuit Court of Appeals, Judge Alito served in numerous high-level positions at the Justice Department, including arguing a dozen cases before the Supreme Court. Judge Alito's qualifications and characteristics led to his unanimous confirmation vote by the Senate to the Third Circuit Court of Appeals, where he has been recognized as a fair-minded and top-notch judicial scholar."
Criticism of Alito. Sen. Harry Reid (D-NV) (at left), the Senate Minority Leader, stated in a release that "I am disappointed in this choice for several reasons. First, unlike previous nominations, this one was not the product of consultation with Senate Democrats. ... Second, this appointment ignores the value of diverse backgrounds and perspectives on the Supreme Court. ... President Bush would leave the Supreme Court looking less like America and more like an old boys club."
Sen. Patrick Leahy (D-VT), the ranking Democrat on the Senate Judiciary Committee, criticized President Bush in the Senate. He said that "This is a needlessly provocative nomination."
"Just last week, the President succumbed to partisan pressure from the extreme right wing of the Republican Party to withdraw his nomination of Harriet Miers. The President abdicated his own role in the Constitution’s process of selecting Supreme Court Justices, and allowed his own choice to be vetoed by extremists within his party", said Sen. Leahy. "It is a pity that the President felt his position was so weak that he had to bend to a narrow but strident faction of his political base."
Sen. Leahy also asserted, "I have not formed a final judgment as to the merits of this nomination, although an initial review of Judge Alito’s record suggests areas of significant concern. Judge Alito’s opinions from the federal bench demonstrate that he would go to great lengths to restrict the authority of Congress to enact protective legislation to protect in the areas of civil rights, consumer protection, and the rights of workers, consumers and women. Judge Alito has also set unreasonably high standards for ordinary Americans who are victims of discrimination to meet before being allowed to proceed with their cases."
People for the American Way (PFAW), a Washington DC based interest group that devotes considerable resources to defeating conservative judicial nominees of Republican Presidents, stated in a release that it will "wage a massive national effort to defeat Alito's nomination".
PFAW President Ralph Neas stated that "Right-wing leaders vetoed Miers because she failed their ideological litmus test. With Judge Alito, President Bush has obediently picked a nominee who passes that test with flying colors."
PFAW also released a report [24 pages in PDF] titled "The Record of Samuel Alito: A Preliminary Review". However, it only addresses his opinions in non-technology related cases, such as those involving abortion, religion, gender, and race.
Neither Sen. Reid nor Sen. Leahy (nor President Bush, AG Gonzales or Rep. Sensenbrenner) had anything to say about Judge Alito's record on technology related legal issues.
Commentary: Alito's Opinions in Select Tech Related Cases
10/31. President Bush announced his nomination of Judge Sam Alito to be an Associate Justice of the Supreme Court. Since he has been a Judge of the U.S. Court of Appeals for the 3rd Circuit since 1990, he has written hundreds of legal opinions. Some of these pertain to technology related subjects. This article reviews a few of these opinions.
Nextel v. Kingston Township (Cell Towers). Judge Alito wrote the opinion of the Court of Appeals in Nextel Partners Inc. v. Kingston Township
This case concerns the construction of wireless communications towers, and the provision of the Communications Act, 47 U.S.C. § 332, that limits the authority of state and local governments to regulate the location, construction, and modification of wireless communications facilities, including cell towers.
In this case Judge Alito held that there is no violation of 42 U.S.C. § 1983 when a state violates § 332(c)(7).
42 U.S.C. § 1983 provides, in part, that "Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory ... subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress."
Judge Alito's opinion in this case may give local governments reason to praise him, and telecommunications carriers and other companies that depend on local permitting or franchising authorities reason to regret his nomination.
The Supreme Court later held in its March 22, 2005, opinion [22 pages in PDF] in Rancho Palos Verdes v. Abrams that there is no § 1983 remedy for violation of § 332(c)(7). See, story titled "Supreme Court Holds That Individuals Who Sue Under §332 Cannot Also Recover Damages Under §1983" in TLJ Daily E-Mail Alert No. 1,101, March 23, 2005. However, before then, there was a circuit split.
One might attribute Judge Alito's holding to straight statutory construction. He relied on the language of the statutes, and judicial precedent. Yet, the 9th Circuit and the 6th Circuit, reviewing the same statutes and precedent, reached the opposite conclusion.
If the Judges in these cases allowed policy considerations to affect their holdings, they did not express it in their opinions. Nor is it apparent what those policy consideration would have be. On the one hand, Judge Alito, hypothetically, could have considered, as many conservatives do, that there is too much frivolous § 1983 litigation, and that it should be limited. However, much of this concern arises in the law enforcement context, not telecommunications. On the other hand, Judge Alito, hypothetically, could have considered that § 1983 actions unduly infringe on state rights generally, or perhaps state authority to regulate telecommunications.
U.S. v. Zimmerman (Suppression of Electronic Evidence). Judge Alito wrote a dissent in U.S. v. Zimmerman, a criminal case in which the Court of Appeals reversed a conviction that was based upon evidence found on a computer. See, January 4, 2002, split opinion.
See also, story titled "Third Circuit Holds Evidence Obtained in Computer Search Inadmissable" in TLJ Daily E-Mail Alert No. 340, January 7, 2002.
Police searched Zimmerman's computer, pursuant to a warrant. They found child pormography. He was charged with possession of child pormography in violation of 18 U.S.C. § 2252A(a)(5)(B). He moved to suppress this evidence. The District Court denied his motion. The Appeals Court reversed, with Judge Alito dissenting. Basically, the majority held that the police had probable cause to search for evidence of other crimes, but not for the crime at issue in this case. Hence, the evidence must be suppressed under the exclusionary rule. Judge Alito argued that the good faith exception applies.
Perhaps it is significant that Judge Alito is a former prosecutor. Perhaps he shares the prosecutors' dislike for exclusion of evidence of crimes.
Lepage v. 3M (Antitrust). Judge Alito joined in the Court of Appeal's opinion in Lepage's v. 3M, an antitrust case. This was a 2-1 case in which the dissenter accused the majority of weakening Section 2 of the Sherman Act "to the point of impotence".
LePage filed a complaint in U.S. District Court (EDPenn) against 3M alleging violation of antitrust law. It alleged, among other things, that 3M used its monopoly over its Scotch tape brand to gain a competitive advantage in the private label tape portion of the transparent tape market in the U.S. through the use of 3M's multi-tiered bundled rebate structure, which offered higher rebates when customers purchased products in a number of 3M's different product lines.
The jury returned a verdict in favor of 3M on unlawful agreements in restraint of trade and exclusive dealing, and against 3M on monopolization and attempted monopolization claims under Section 2 of the Sherman Act. 3M filed motions for judgment as a matter of law (JMOL) and for a new trial. The District Court granted 3M's motion for JMOL on the attempted maintenance of monopoly power claim, but denied 3M's motion JMOL in all other respects, and denied the motion for a new trial. The District Court entered a judgment for trebled damages of $68,486,679. The present appeal followed.
The Appeals Court opinion, which Judge Alito joined, but did not write, affirmed the order granting the motion for JMOL of law with respect to the attempted maintenance of monopoly claim, but reversed the order denying the motion for JMOL in all other respects. Hence, the case was remanded to the District Court with instructions to enter judgment in favor of 3M.
Judge Dolores Sloviter dissented. She wrote that "the majority applies reasoning that would weaken § 2 of the Sherman Act to the point of impotence. While that may be a consummation greatly to be desired by the behemoths of industry, such as Microsoft or 3M, it would be an incalculable loss to business generally and to the consumer. Section 2, the provision of the antitrust laws designed to curb the excesses of monopolists and near monopolists, is the equivalent in our economic sphere of the guarantees of free and unhampered elections in the political sphere. Just as democracy can thrive only in a free political system unhindered by outside forces, so also can market capitalism survive only if those with market power are kept in check."
Southco v. Kanebridge (Copyright). Judge Alito wrote the majority opinion of the en banc panel of the Court of Appeals in Southco v. Kanebridge, a case regarding what is copyrightable subject matter.
On December 3, 2004, the Court of Appeals issued its divided en banc opinion [40 pages in PDF]. Judge Alito wrote the majority opinion. The issue was what constitutes sufficient creativity and originality to be protected by copyright. Southco claimed copyright in the serial numbers that it assigns to the parts that it manufacturers. Southco used four part numbers that not only identify the product, but also convey information about the product. Kanebridge copied Southco's numbering system and numbers.
This case goes to what rules or mechanical based expression satisfies the originality requirement of the Copyright Act. Ideas, no matter how creative, cannot be protected by copyright. Expression can be protected by copyright. In this case, Judge Alito and the majority of the 3rd Circuit's en banc panel took the position that all of the creativity came in the creation of the rules (an idea) for assigning numbers. The numbers themselves (expression) are entirely dictated by the rules, and hence involve no creativity, or originality. Thus, these numbers are not entitled to protection under copyright law.
Judge Roth wrote a dissent arguing that the majority unreasonably pushes all of the creativity and originality to the ideas side of the idea expression dichotomy, and threatens to remove the incentive to create rules based expression. Also, former Judge Michael Chertoff joined in this dissent. He is now Secretary of Homeland Security.
However, Judge Alito not only pushed all of the creativity into the creation side of the dichotomy, he articulated a high threshold for what constitutes creativity. He wrote:
"Under Article I, section 8 of the Constitution, Congress has the power ``to secur[e] for limited Times to Authors ... the exclusive Right to their respective Writings.´´ As used in this provision, the terms ``Authors´´ and ``Writings´´ ``presuppose a degree of originality,´´ and therefore ``[o]riginality is a constitutional requirement.´´ Feist Publications, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 346 (1991). Accordingly, Congress has provided copyright protection for ``original works of authorship fixed in any tangible medium of expression.´´ 17 U.S.C. § 102(a) (emphasis added). In order to satisfy the ``original works´´ requirement, a work must be original in the sense that it was not copied from another's work and in the sense that it shows creativity (``the creativity requirement´´). Feist, 499 U.S. at 361-363. Although the creativity requirement is not ``stringent,´´ there is ``a narrow category of works in which the creative spark is utterly lacking or so trivial as to be virtually nonexistent.´´"
Then, Judge Alito engaged in a discussion of why, setting statute and precedent aside, under the reasoning of this case, a photograph should be copyrightable subject matter. That is, there is creativity in the invention of camera technology, and in selecting a camera, lens, film, camera settings, lighting, angles, and positions. But, none of these actions are copyrightable expression. The purported expression that the photographer copyrights is the photograph. However, once these creative actions are complete, it the interaction of a machine and the objective reality of nature that results in a pre-ordained object, the picture. Like Southco's product numbers, like the photograph, is the product of a post creativity mechanical system.
Judge Alito wrote that he sees no problem. However, in concluding that photographs should be copyrightable, he injected an additional principle, that photographs are "a work of art", while product numbers are not. He does not offer any black letter law regarding what constitutes art or beauty. Nor does he elaborate on whether courts should make a factual determinations as to whether expressions are "a work of art".
The status of photographs is now settled law. And, Southco's product numbers are not significant to most people. Yet, courts are likely to be called upon to answer questions that involve similar analysis as new information technologies are continually developed, and used in new ways.
Judge Alito would appear to endorse the principle that courts should impose a strict creativity requirement, certainly higher than what prevails in Europe. Many in the information technology sectors generally support such an approach. Telecommunications carriers and internet services companies have historically supported limiting the scope of copyright.
On the other hand, some creators, companies that own creations, and investors in these companies, sometimes support lesser thresholds.
Some information products, that are computer aggregated and manipulated, software defined, and mechanically produced, may benefit consumers, but are expensive to produce, yet may not be produced because of the risk that they will not receive copyright protection because the effort and creativity came in establishing the system, not in expressing the work.
It is less clear that Judge Alito, or the other Judges of the 3rd Circuit, have developed a unified methodology for determining just when and where there is creativity in the output of rules and machine based systems.
See also, story titled "3rd Circuit Opines on Copyright Originality Requirement and Rules Based Expression" in TLJ Daily E-Mail Alert No. 1,042, December 22, 2004.
The Supreme Court denied certiorari in this case on October 3, 2005. See, story titled "Supreme Court Lets Stand Holding That Product Numbers Are Not Copyrightable" in TLJ Daily E-Mail Alert No. 1,228, October 6, 2005.
Pitt News v. Pappert (Free Speech). Judge Alito wrote the July 29, 2004 opinion [17 pages in PDF] in The Pitt News v. Pappert, a First Amendment challenge brought by a student newspaper to a state statute that restrained certain speech -- paid advertising of alcoholic beverages in university affiliated media. The Court held that statute is unconstitutional, but on narrow grounds specific to this restraint.
Some free market advocates have praised Judge Alito for writing this opinion. One group, the Competitive Enterprise Institute, issued a release that singled out just two of his opinions, and Pitt News was one.
Judge Alito did find the restraint on free speech to be unconstitutional. Moreover, he did so after concluding that the restraint affected "commercial speech".
However, a closer reading of Judge Alito's opinion could also lead one to conclude that his enthusiasm for free speech and a free press is restrained and moderate.
For a detailed recitation of the facts of the case, see the Court's opinion, or the summary in the story titled "3rd Circuit Rules in First Amendment Case" in TLJ Daily E-Mail Alert No. 949, July 30, 2004.
There are two salient facts in this case. First, the state Pennsylvania's restraint attacked the Pitt News' advertising base; the state did not, for example, impose a prior restraint on publication. Second, the state restraint did not affect all media; it was targeted a just a subset of media.
Judge Alito concluded, without discussion, that this case involved "commercial speech". He therefore applied the four prong test created by the Supreme Court in Central Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n of New York, 447 U.S. 557 (1980). He found the state statute lacking, and therefore held it unconstitutional. But perhaps, his classification warrants some examination.
The Pitt News published on current events, politics, social commentary, and other categories of speech that the Courts do no relegate to the less protected status of commercial speech. Also, the Pitt News was dependent upon advertising revenue. Judge Alito separated the content of the publication from its business model. In his opinion, a restraint on the business model is "commercial", and subject to much less scrutiny.
But, regulating the business model may preclude publication of the content, which if directly regulated, would be entitled to strict scrutiny. Advertising and news content are part of the same indivisible operation. Judge Alito views them as entirely separable. The point is that limiting a newspaper's ability to derive revenue from one type of speech, can have the effect of limiting, or precluding, it from engaging in other, and more protected, types of speech. In this sense, Judge Alito's opinion is an invitation to government regulators, and those who have influence with government regulators, to attempt to restrict political, social, or religious speech by regulating the revenue source of the publisher of that speech.
Second, the state restraint did not affect all media; it was targeted a just a subset. Judge Alito also overturned the state statute because it targeted a narrow segment of the media, as opposed to all media equally. However, while he wrote that "courts must be wary", he at no point articulated any black letter law or principles.
He carefully avoided writing anything that might be applied to other situations where some media segments are treated different by government regulators than other media segments. For example, the Communications Act is predicated on the principle that certain communications media (such as radio, television, cable, and satellite) should be subject to regulatory regimes that are not applied to certain other communications media (such as books, magazines, newspapers, pulpits, and lecterns). Moreover, different Federal Communications Commission (FCC) regulated media are treated differently. Broadcast television and cable television are subject to different indecency standards. Sometimes competitors operate under different restraints, solely because one has gone through a recent merger review, and the other has not. One might wonder when do these targeted rules rise to the level of a constitutional issue? Judge Alito informs only that "courts must be wary".
Supreme Court Denies Certiorari in RF Radiation Cases
10/31. The Supreme Court denied certiorari in Nokia v. Naquin and Cellco Partnership v. Pinney, class action cases regarding radio frequency (RF) radiation of wireless telephones. See, Order List [16 pages in PDF] at page 15. This is a setback for cell phone makers and cellular service providers, and a victory for class action lawyers.
The Supreme Court wrote that "The petitions for writs of certiorari are denied. The Chief Justice, Justice O'Connor, and Justice Breyer took no part in the consideration or decision of these petitions."
These are petitions for writ of certiorari to the U.S. Court of Appeals (4thCir), which issued its opinion [42 pages in PDF] on March 16, 2005. See, story titled "4th Circuit Reverses in Pinney v. Nokia" in TLJ Daily E-Mail Alert No. 1,098, March 18, 2005.
The decision of the Court of Appeals pertains to the procedural battles over whether these class action cases should be heard in federal court, which is Nokia's choice, or in various state courts, which is the choice of the class action lawyers, and whether the claims are preempted by the federal Communications Act.
The District Court held that the plaintiffs' claims in four actions arise under federal federal law, and hence, that the U.S. District Court has subject matter jurisdiction. The District Court further held that the claims in all five of these cases are preempted by federal law, and hence, must dismissed. The Court of Appeals reversed in a divided opinion.
The denial of certiorari by the Supreme Court lets stand the judgment of the Court of Appeals. Hence, equipment makers may now be held liable by state courts, under state law, for selling equipment that satisfies the Federal Communications Commission's (FCC) radiation standards.
There are two cases consolidated by the Supreme Court. First, there is Nokia, Inc., et al. v. Garrett Naquin, et al., Sup. Ct. No. 05-198, a petition for writ of certiorari to the U.S. Court of Appeals for the 4th Circuit, App. Ct. No. 03-1433. See, Supreme Court docket. The second case is Cellco Partnership, et al. v. J. Douglas Pinney, et al., Sup. Ct. No. 05-207, a petition for writ of certiorari to the U.S. Court of Appeals for the 4th Circuit, App. Ct. No. 03-1433. See, Supreme Court docket.
Nokia is represented by Andrew McBride of the law firm of Wiley Rein & Fielding. See also, Nokia's petition [296 pages in PDF]. Cellco is represented by John Beisner of the Washington DC office of the law firm of O'Melveny & Myers. The Cellular Telecommunications Industry Association (CTIA), which filed an amicus brief, is represented by John Rogovin of the Washington DC office of the law firm of Wilmer Cutler Pickering Hale Door.
Supreme Court Grants Certiorari in LabCorp v. Metabolite
10/31. The Supreme Court granted certiorari in Laboratory Corp. of America v. Metabolite Laboratories, a patent infringement case that the Supreme Court might use to revise the law of patentable subject matter. See, Order List [16 pages in PDF] at page 2.
Metabolite Laboratories is the holder of U.S. Patent No. 4,940,658, titled "Assay for sulfhydryl amino acids and methods for detecting and distinguishing cobalamin and folic acid deficency".
The abstract states: "Method for determining levels of sulfhydryl amino acids, particularly total homocysteine levels in samples of body tissue from warm-blooded animals, methods of detecting cobalamin and folic acid deficiency using an assay for total homocysteine levels, and methods for distinguishing cobalamin from folic acid deficiency using an assay for total homocysteine levels in conjunction with an assay for methylmalonic acid."
At issue before the Court of Appeals, and now, before the Supreme Court, is Claim 13 of the patent, which states:
"13. A method for detecting a deficiency of cobalamin or folate in
warm-blooded animals comprising the steps of:
assaying a body fluid for an elevated level of total homocysteine; and
correlating an elevated level of total homocysteine in said body fluid with a deficiency of cobalamin or folate."
Metabolite filed a complaint in U.S. District Court (DColo) against Laboratory Corporation (LabCorp) alleging infringement of its patent. Metabolite prevailed in the District Court.
LabCorp appealed. The Court of Appeals (FedCir) issued its opinion [PDF] on June 8, 2004 affirming the District Court. Judge Rader wrote the opinion of the Court in which Judge Friedman joined. Judge Schall dissented in part.
The Supreme Court wrote in its Order List that "The petition for a writ of certiorari is granted limited to Question 3 presented by the petition." This is "Whether a method patent setting forth an indefinite, undescribed, and non-enabling step directing a party simply to ``correlat[e]´´ test results can validly claim a monopoly over a basic scientific relationship used in medical treatment such that any doctor necessarily infringes the patent merely by thinking about the relationship after looking at a test result."
On August 26, 2005, the Office of the Solicitor General (OSG), at the request of the Court, submitted an amicus curiae brief. It wrote that "The petition for a writ of certiorari should be denied." However, the OSG's objection is that the relevant facts were not well developed in the record. Aside from this, the OSG questioned whether the claim at issue is patentable subject matter.
The Supreme Court has released nothing in this case except a few very brief orders. However, one might speculate that some of the Justices may be considering this case as the vehicle for reviewing and clarifying and revising the law regarding the scope of patentable subject matter.
The petitioner, LabCorp, is represented by Jonathan Saul Franklin of the Washington DC office of the law firm of Hogan & Hartson. He was, until recently, a partner of the new Chief Justice, John Roberts.
The Court of Appeals number is 03-1120. The Supreme Court number is 04-607. See also, Supreme Court docket.
Supreme Court Denies Cert in Challenge to State Income Tax on Out of State Teleworkers
10/31. The Supreme Court denied certiorari in Huckaby v. New York State Division of Tax Appeals, a case involving the state of New York's collection of income tax, on the entire income, of out of state teleworkers who work for a New York company.
This is a petition for writ of certiorari to the Court of Appeals of New York, which is the highest court of the state of New York. The state court issued its divided opinion [33 pages in PDF] on March 29, 2005.
The petitioner, Thomas Huckaby, is a computer programmer who lives in the state of Tennessee. He worked for the National Organization of Industrial Trade Unions (NOITU), an organization based in Jamaica, New York. Huckaby worked out of a home office in Tennessee, with a computer terminal and data connection, then with a personal computer. He traveled to New York for some purposes. The New York Court wrote that "In 1994, petitioner split his time between NOITU's New York office, where he worked 56 days, and his Tennessee home office, where he worked 187 days."
The New York Court added that Huckaby "timely filed 1994 and 1995 nonresident income tax returns with New York. He allocated his income between New York and Tennessee based on the number of days he worked in each state relative to the total number of days he worked in each tax year."
But, the New York State Department of Taxation and Finance asserted that he must allocate 100% of his income to the state of New York, and pay New York's income tax on the entirety of his income.
The relevant New York statute, Tax Law § 601(e), imposes a tax on "income which is derived from sources in this state of every nonresident".
Also, New York's Commissioner of Taxation and Finance wrote a rule that provides a "convenience of the employer test" for taxing income of non-resident workers. It provides that the state can tax out of state work, unless it is done out of state for the "convenience of the employer". The Court wrote that Huckaby worked out of his home for his convenience.
The New York court held that "the statute facially evidences the Legislature's intent to tax nonresidents on all New York source income, and to task the Commissioner to develop a workable rule for apportioning and allocating the taxable income of nonresidents who work both within and without the State. The Commissioner has carried out his statutory responsibility by adopting the convenience of the employer test."
The New York Court's holding on this issue is a state court's interpretation of state law, and hence, is not reviewable by the U.S. Supreme Court.
However, Huckaby also challenged the constitutionality of the New York tax. The New York court held that it violates neither the due process clause, nor the dormant commerce clause.
This holding, regarding the U.S. Constitution, is subject to judicial review by the U.S. Supreme Court. But, the Supreme Court declined to take the case.
Finally, Huckaby argued before the New York court that the New York tax regime discourages telecommuting. The Court wrote, "Maybe so", but that the legislature, not the court, makes policy.
The New York Court split 4-3. The minority would have held for Huckaby, both on statutory construction, and on the grounds that the tax violates the due process clause of the U.S. Constitution.
Huckaby has exhausted his appellate remedies. His recourse, and that of other teleworkers, is not to accept employment from companies in the state of New York, or other states that impose predatory taxes on distant information workers.
This case also provides a lesson for companies that hire teleworkers, and companies that locate offices in multiple states. If a company locates facilities in the state of New York, it may subject its employees elsewhere to multiple taxes, and multiple tax filings. And this, in turn, puts the company at a competitive disadvantage with companies that do not locate facilities in New York.
Huckaby is represented by Peter Faber of the New York office of the law firm of McDermott Will & Emery. The Supreme Court number is 04-1734. See also, Supreme Court docket.
Connecticut Legislators Seek End to New York's Taxation of Out of State Workers
10/31. The aggressive income tax regime that was the subject of the petition to the Supreme Court in Huckaby v. New York State Division of Tax Appeals, has also attracted the attention of some members of Congress, particularly those from the adjacent state of Connecticut.
Sen. Chris Dodd (D-CT) and Sen. Joe Lieberman (D-CT) introduced S 2785, the "Telecommuter Tax Fairness Act of 2004", in the 108th Congress. They introduced a related bill, S 1097, the "Telecommuter Tax Fairness Act of 2005", in the present Congress. These bills would add a new section to Title 4 to the U.S. Code. These bills would limit the ability of states to impose state income taxes upon individuals who are not present in their states.
There is also a companion bill in the House, HR 2558, sponsored by Rep. Chris Shays (R-CT). Neither Sen. Hillary Clinton (D-NY) nor Sen. Chuck Schumer (D-NY) have cosponsored any of these bills.
That is, residents of Connecticut, which is close to New York City, often live in Connecticut, and maintain home offices in Connecticut, but work, via the internet, and other new technologies, for companies based in New York City. They are subjected to income taxes in the state of New York. Yet, they do not send their children to New York schools, rely upon New York fire departments to protect their homes, or otherwise avail themselves of the range of benefits enjoyed by residents of New York. In turn, these are tax revenues that are not going to support Connecticut schools, and fire departments.
Sen. Dodd (at left) is not pleased with the current state of affairs. He has also argued that there are other policy benefits of promoting telecommuting. He stated on May 23, 2005, when he introduced the latest version of his bill, that "Telecommuting provides enormous benefits for businesses, families, and communities. It helps businesses lower costs and raise worker productivity. It reduces congestion on our roads and rails, and in so doing it lowers pollution. It helps workers better manage the demands of work and family. And last but not least, it can mean lower income taxes for working men and women."
"Yet, the many benefits to workers of telecommuting are today placed in jeopardy because of current law in New York and a few other States. Today, New York State requires that workers pay income tax on income even if it is not earned in the State through their ``convenience of the employer´´ rule. While there are several States that have the ``convenience of the employer´´ rule, no other State applies it with the same rigor as New York", said Dodd.
See also, story titled "Dodd and Lieberman Introduce Bill to End Double State Taxation of Teleworkers" in TLJ Daily E-Mail Alert No. 976, September 14, 2004.
Supreme Court Seeks Views of SG in FTC v. Schering-Plough
10/31. The Supreme Court issued an order in FTC v. Schering-Plough Corp., a petition for writ of certiorari to the U.S. Court of Appeals (11thCir) in a case involving antitrust law and the Hatch Waxman Act.
The Supreme Court wrote in its October 31, 2005, Order List [16 pages in PDF], at page 2, that "The Solicitor General is invited to file a brief in this case expressing the views of the United States. Justice Breyer took no part in the consideration or decision of this petition."
The Federal Trade Commission (FTC) wrote in its petition [PDF] that the issue is "Whether an agreement between a pharmaceutical patent holder and a would-be generic competitor, in which the patent holder makes a substantial payment to the challenger for the purpose of delaying the challenger’s entry into the market, is an unreasonable restraint of trade."
The FTC elaborated that "The present case involves a stratagem that a number of pharmaceutical companies have used to frustrate Congress’s resolve to subject drug patents to scrutiny, by entering into agreements that allow them to delay the entry of generic drugs and share the profits derived from maintaining high drug prices. In the two agreements at issue here, the generic manufacturers agreed to delay sale of their products until specified future dates in exchange for cash payments from the patentee. Because the parties anticipated that the patentee’s enhanced profits from delayed generic competition would far exceed the generic competitors’ lost profits, the parties could share a windfall, at the expense of consumers."
The Court of Appeals issued its opinion [43 pages in PDF] on March 8, 2005, setting aside the decision of the FTC, and vacating its cease and desist order. The Court of Appeals number is 04-10688.
The Supreme Court has not yet decided whether or not to grant certiorari. Although, it has received numerous amicus curiae briefs. See, Supreme Court docket. This case is Sup. Ct. No. 05-273.
Supreme Court Denies Certiorari in Microsoft v. Eolas
10/31. The Supreme Court denied certiorari in Microsoft v. Eolas Technologies. See, Order List [16 pages in PDF] at page 15. This is Sup. Ct. No. 05-288
Eolas is the licensee of U.S. Patent No. 5,838,906, titled "Distributed hypermedia method for automatically invoking external application providing interaction and display of embedded objects within a hypermedia document". Eolas has asserted, successfully, that Microsoft's web browser, Microsoft Internet Explorer (MSIE), incorporates the invention disclosed in this patent.
The University of California (UC) filed the patent application on October 17, 1994. The U.S. Patent and Trademark Office (USPTO) issued the patent on November 17, 1998. The UC granted an exclusive license to Eolas.
On February 2, 1999 Eolas filed a complaint in U.S. District Court (NDIll) against Microsoft alleging patent infringement.
On August 11, 2003, a trial jury of the District Court returned its verdict that MSIE infringed this patent. The jury also awarded damages of $521 Million. See, story titled "Jury Returns Verdict of Infringement Against Microsoft in Eolas Browser Patent Case" in TLJ Daily E-Mail Alert No. 716, August 12, 2003. Microsoft appealed.
Also, on October 30, 2003, the U.S. Patent and Trademark Office (USPTO) issued a "Director Initiated Order for Reexamination" of this patent. See, story titled "USPTO Orders Reexamination of Eolas Patent" in TLJ Daily E-Mail Alert No. 778, November 13, 2003. This is Control No. 90/006,831.
On March 2, 2005, the U.S. Court of Appeals (FedCir) issued its opinion [29 pages in PDF] in, vacating in part, and affirming in part, the judgment of the District Court, and remanding. The Court of Appeals held that the District Court "improperly granted judgment as a matter of law (JMOL) in Eolas' favor on Microsoft's anticipation and obviousness defenses and improperly rejected Microsoft’s inequitable conduct defense, this court vacates the district court's decision and remands for a new trial on these issues."
However, the Court of Appeals affirmed the District Court on other issues. It affirmed the District Court's claim construction of "executable application". It also found the the District Court did not err in its jury instruction with regard to the claim limitation "utilized by said browser to identify and locate." And, it affirmed the District Court's holding that "components" under 35 U.S.C. § 271(f)(1) (regarding foreign sales) includes software code on golden master disks.
See, story titled "Federal Circuit Vacates in Eolas Patent Case" in TLJ Daily E-Mail Alert No. 1,087, March 3, 2005.
Microsoft is represented by Carter Phillips of the Washington DC office of the law firm of Sidley Austin Brown & Wood. Eolas is represented by Martin Lueck of the Minneapolis law firm of Robins Kaplan Miller & Ciresi.
The Court of Appeals number is 04-1234. The Supreme Court number is 05-288. See also, Supreme Court docket.
See also, Microsoft's Eolas web page.
People and Appointments
10/31. William Reynolds, who has been Communications Director for Sen. Arlen Specter (R-PA), was named both Chief of Staff and Communications Director. Blaine Rethmeier remains the media contact for the Senate Judiciary Committee, and Scott Hoeflich remains the media contact for Sen. Specter's personal office.
10/31. Office of the Director of National Intelligence (DNI) announced that Michael Wertheimer is the Assistant Deputy Director and Chief Technology Officer in the Office of the Deputy Director of National Intelligence for Analysis. See, DNI release.
10/31. The Federal Communications Commission (FCC) published in the Federal Register its Semiannual Regulatory Agenda. See, Federal Register, October 31, 2005, Vol. 70, No. 209, at Pages 65540 - 65601.
10/31. The Federal Trade Commission (FTC) published in the Federal Register is Semiannual Regulatory Agenda. See, Federal Register, October 31, 2005, Vol. 70, No. 209, at Pages 65638 - 65648.
10/31. The Department of Justice (DOJ) published in the Federal Register its Semiannual Regulatory Agenda. See, Federal Register, October 31, 2005, Vol. 70, No. 209, at Pages 64852 - 64893.
10/31. The Department of Commerce (DOC) published in the Federal Register its Semiannual Regulatory Agenda. See, Federal Register, October 31, 2005, Vol. 70, No. 209, at Pages 64394 - 64482.
District Court Issues Stay in Google v. Microsoft
10/28. The U.S. District Court (NDCal) issued an order [PDF] in Google v. Microsoft that stays Google's action in federal court in the state of California until the completion of Microsoft's action against Google in state court in Washington.
On July 19, 2005, Microsoft filed a complaint in Superior Court, King County, Washington, its home court, against Google and Kai-Fu Lee, alleging that Kai-Fu Lee, a former employee, breached his employee confidentiality and non-compete agreement with Microsoft, by going to work for Google on competing projects. On September 13, 2005, the court in Washington issued a Preliminary Injunction [13 pages in PDF] that provides that until trial, Kai-Fu Lee and Google are enjoined from engaging in certain activities.
See, stories titled "Microsoft Sues Former Employee Who Joined Google" in TLJ Daily E-Mail Alert No. 1,178, July 20, 2005, "Court Holds Hearing on Microsoft's Motion for Preliminary Injunction Against Google" in TLJ Daily E-Mail Alert No. 1,210, September 9, 2005, and "Trial Court Issues Preliminary Injunction in Microsoft v. Kai-Fu Lee and Google" in TLJ Daily E-Mail Alert No. 1,214, September 15, 2005
Google and Kai Fu Lee filed a complaint in U.S. District Court (NDCal), Google's home court. The District Court just issued its stay order in this action.
This case is Google, Inc. and Kai-Fu Lee v. Microsoft Corporation, U.S. District Court for the Northern District of California, San Jose Division, D.C. No. C-05-03095 RMW, Judge Ronald Whyte presiding.
Appeals Court Rejects Challenge to Settlement of Sprint WorldCom Class Action
10/28. The U.S. Court of Appeals (10thCir) issued its opinion in DeJulius v. Sprint, an appeal regarding the sufficiency of notice to class members of the settlement of a class action securities fraud case.
The underlying case arose out of the proposed, but not consummated, merger of Sprint and WorldCom (now MCI). The Department of Justice's Antitrust Division blocked the merger. See, June 26, 2000, complaint in U.S. v. WorldCom and Sprint.
The complaints in the present action alleged that Sprint made false and misleading statements in connection with the proposed WorldCom merger, in violation of Section 10(b) of the Securities and Exchange Act of 1934, which is codified at 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, which is codified at 17 C.F.R. § 240.10b-5. The complaints also alleged violation of Section 20(a) of the Act, 15 U.S.C. § 78t(a).
New England Health Care Employees Pension Fund was the lead class action plaintiff. The named plaintiffs were represented by the class action law firm of Lerach Coughlin Stoia Geller Rudman & Robbins.
Sprint and several of its officers and directors were the defendants in this class action. Sprint and New England reached a settlement. This settlement agreement provided that $50 Million would be placed in a common settlement fund for class members and would be distributed to class members after attorneys' fees and other expenses were deducted. The District Court approved the agreement.
Franklin DeJulius and others were unnamed class plaintiffs in the class action against Sprint. They were shareholders who held beneficial title to their shares while legal title was vested in their brokers' names. They moved to intervene, asserting that they received insufficient notice, in violation of the Federal Rules of Civil Procedure, and the due process clause of the Constitution, and that the fees for class counsel pursuant to the settlement were excessive.
The District Court denied the motion to intervene. DeJulius and others appealed. The Court of Appeals affirmed.
The appellants were represented by Nelson Law Firm of Kansas City, Kansas. Appellee Sprint was represented by Shughart Thompson & Kilroy, Stinson Morrison & Hecker, and Skadden Arps.
This case is Franklin DeJulius, et al. v. New England Health Care Employees Pension Fund, et al., and Sprint Corporation, et al., U.S. Court of Appeals for the 10th Circuit, App. Ct. No. 04-3091, an appeal from the U.S. District Court for the District of Kansas, D.C. No. 01-CV-04080-CM. Judge Ebel wrote the opinion of the Court of Appeals, in which Judges Holloway and Lucero joined.
FCC Postpones Announcement of Merger Orders
10/28. The Federal Communications Commission (FCC) released a notice [PDF] late on Friday, October 28, that states that the FCC's event titled "Open Meeting" will take place on Monday, October 31, at 11:00 AM.
The FCC had previously announced that this event would take place on Friday, October 28, at 9:30 AM. Moreover, the FCC issued several notices of short postponements of the meeting hour during the course of the day on October 28.
The FCC written notice states that "The prompt and orderly conduct of Commission business required this change and no earlier announcement was possible." The FCC offered no explanation for the series of postponements.
There are two significant items on the FCC's published agenda [PDF] for this event -- consideration of orders pertaining to the mergers of Verizon and MCI WorldCom, and SBC and AT&T.
On Thursday, October 27, 2005, the Department of Justice's (DOJ) Antitrust Division, which has statutory authority to conduct antitrust merger reviews, approved the two mergers, subject to divestiture of some local fiber optic network facilities. See, DOJ release and TLJ stories titled "DOJ Approves Verizon MCI and SBC AT&T Mergers Subject to Divestitures", "DOJ Initiates Clayton Act § 7 Proceeding Against SBC and AT&T", and "DOJ Initiates Clayton Act § 7 Proceeding Against Verizon and MCI" in TLJ Daily E-Mail Alert No. 1,242, October 28, 2005.
In substance, the five member Commission (which currently down to four members) does not conduct or dispose of agency business in meetings. The open meetings statute, which is codified at 5 U.S.C. § 552b, requires that federal agencies must hold their meetings in public. However, the FCC's Commissioners do not wish to conduct business in a public and transparent manner. Hence, they do not meet. The events titled "Open Meeting" consist largely of a ceremonial vote on each item, and a series of statements by Commissioners.
Moreover, since the the FCC rarely releases the text of items approved at these events until days or weeks (and sometimes many months) afterwards, the reporters', analysts' and public's knowledge of the content of the items is limited. This enables Commissioners to manipulate reporting of their actions.
The statute provides that "deliberations of at least the number of individual agency members required to take action on behalf of the agency" constitutes a meeting. It further provides that such meetings must be conducted in public and with notice "at least one week before the meeting, of the time, place, and subject matter of the meeting".
While the four Commissioners cannot by law meet in secret, nothing in the statute prohibits them from conducting deliberations through a series of communications relayed through their staff members. Current and past Commissioners and staff have referenced this awkward and time consuming process in public statements. This process degrades the capacity of the Commission members to act in a prompt and orderly manner. And, this is one of the causes of delay in Commission decision making.
The two significant items under consideration by the four Commissions are orders in the two major telecom mergers. It would be speculation to state that, based upon prior merger reviews, and prior speeches and statements, the two Republican Commissioners, Kevin Martin and Kathleen Abernathy, might lean towards approval of the two mergers, with the imposition of limited conditions, while the two Democratic Commissioners, Michael Copps and Jonathan Adelstein, might lean towards approval, but also perceive of merger reviews as an opportunity to obtain policy objectives through the imposition of conditions upon the merging companies that more intrusively regulate their businesses.
Were there a fifth Commissioner, the ability of the Commissioners to form a majority in support of an order approving the mergers would be simpler, although content of the order would vary depending the disposition of that fifth Commissioner. Someone such as former Chairman Michael Powell would likely join a coalition to approve the mergers with limited conditions. Someone such as former Chairman William Kennard would likely join in a coalition with Copps and Adelstein.
Thus, were there a third Commissioner to join with Martin and Abernathy, it might have been an easier matter to form a majority, and approve the mergers, at the designated time on Friday. But, without such a Commissioner, Martin and Abernathy must obtain the vote of either Copps or Adelstein.
In many proceedings, such as those pertaining to media ownership rules, Martin can wait for the appointment and confirmation of a fifth Commissioner. Mergers reviews are a different matter. For business reasons, time is of the essence to the merging companies. This strengthens the bargaining position of Copps and Adelstein. And, it may account for the series of delays.
On the other hand, there is a downside risk for Copps and Adelstein, and the FCC. If they hold out for too much, there remains the hypothetical possibility that SBC and/or Verizon would walk away from negotiations with the FCC, and seek judicial review in federal court. To the extent that this has never happened, it is unlikely.
This would put before the judiciary the question of whether the FCC does have statutory authority to conduct merger reviews, and impose conditions, based upon competition analysis. If such a challenge were brought, and the FCC were to loose, Copps and Adelstein would not only have failed in their attempts to impose their conditions in these two mergers, they would have provoked a judicial ruling that would preclude future antitrust merger reviews. These reviews are one of the major policy making tools that the FCC possesses. Many at the FCC will not want to loose it.
Officers, directors and shareholders of SBC hold no fond memories of the process to which SBC and Ameritech were subjected by the FCC around the time of their merger. Nor can SBC's people be pleased with the present delays, and the demands being made by groups such as Comptel.
Earl Comstock, P/CEO of Comptel, stated on October 27 in a release that "The Department of Justice, whose stated mission is to 'promote and protect the competitive process and the American economy,' today promotes and protects the Bell monopolies at the expense of American consumers. COMPTEL is disappointed to see the DOJ kowtow to the monopoly interests of SBC and Verizon and bless a merger that, pursuant to the Department's own merger guidelines, would have been quickly rejected had the government fulfilled its mandate to protect citizens from harm."
See also, Consumers Union release.
People and Appointments
10/28. Attorney General
Alberto Gonzales named ten persons to be members of the
Department of Justice's (DOJ) Task Force on
Intellectual Property. They are as follows:
Debra Yang (at right) (U.S. Attorney for the Central District of California, and Chair of the Attorney General's Advisory Subcommittee on Cyber Crime and Intellectual Property).
• Thomas Barnett (acting Assistant Attorney General for the DOJ's Antitrust Division).
• Michael Battle (Director of the Executive Office of United States Attorneys).
• Rachel Brand (AAG for the DOJ's Office of Legal Policy).
• Paul Clement (Solicitor General).
• Alice Fisher (AAG for the DOJ's Criminal Division).
• Neil Gorsuch (Principal Deputy Associate Attorney General).
• Peter Keisler (AAG for the DOJ's Civil Division).
• William Moschella (AAG for the DOJ's Office of Legislative Affairs).
• Louis Reigel (Assistant Director of the FBI's Cyber Division).
In addition, Kyle Sampson remains Chairman, and Arif Alikhan remains the Vice Chairman and Executive Director. See, DOJ release.
10/28. Lewis Libby resigned as Chief of Staff to Vice President Dick Cheney. Cheney released a statement, in which he did not name a replacement. On October 28 a grand jury of the U.S. District Court (DC) returned an indictment that charges Libby with crimes in connection with statements about Joseph Wilson and Valerie Plame. See also, statement by President Bush.
10/28. Microsoft named Bob Muglia SVP of Microsoft's server and tools business. He was previously head of Microsoft's Windows Server business. He replaces Eric Rudder, who now works directly for Bill Gates, Chairman and Chief Software Architect of Microsoft. See, Microsoft release.
Capitol Hill News
10/28. The House Commerce Committee's (HCC) Subcommittee on Commerce, Trade, and Consumer Protection is scheduled to mark up HR __, the "Data Accountability and Trust Act" at 10:00 AM on Thursday, November 3, 2005. Brad Smith, Microsoft SVP and General Counsel, will give a speech titled "Privacy Legislation and Consumer Protection Laws" on Capitol Hill on Thursday, November 3, 2005, in Room HC-5 of the Capitol Building. (To attend, RSVP to rsvp at netcaucus dot org or 202 638-4370.)
10/28. The Department of Commerce's
National Telecommunications and Information Administration's (NTIA) published a
notice in the Federal Register announcing the creation of a Spectrum
Management Advisory Committee (SMAC). The deadline to submit nominations to
the NTIA for membership on this SMAC is November 28, 2005. The notice states
that "The Secretary of Commerce intends to appoint representatives from a
balanced cross-section of stakeholder interests in spectrum management and policy reform, including non-federal government users, state, regional and local sectors, technology developers, and manufacturers, academia, consumer groups, and service providers with customers in both domestic and international markets." Members will will be appointed for two year terms, without compensation. See, Federal Register, October 28, 2005, Vol. 70, No. 208, at Pages 62099 - 62100.
10/28. The U.S. Court of Appeals (DCCir) set the date for oral argument in CTIA v. FCC. It will be at 9:30 AM on December 12, 2005. This is a petition for review of the final order of the Federal Communications Commission (FCC) that adopted the "Nationwide Programmatic Agreement Regarding the Section 106 National Historic Preservation Act Review Process", which regulates tower and antenna construction. This order is FCC 04-222 in WT Docket No. 03-128. The Court of Appeals number is 05-1008. At issue is whether the FCC has authority under Section 106 of the NHPA, which is codified at 16 U.S.C. § 470f, to write these rules. See, stories titled "FCC Announces NPRM Regarding Communications Facilities and the National Historic Preservation Act" in TLJ Daily E-Mail Alert No. 677, June 10, 2003, and "FCC Adopts Report and Order Re FCC Licensing and the National Historic Preservation Act" in TLJ Daily E-Mail Alert No. 975, September 13, 2004. See also, brief [PDF] of the FCC.
10/28. The U.S. Court of Appeals (DCCir) issued its opinion [13 pages in PDF] in ICO Global v. FCC, affirming Federal Communications Commission (FCC) orders that Constellation Communications Holdings, Inc., and Mobile Communications Holdings, Inc. did not satisfy the first of several milestone requirements on which their 2 GHz band mobile satellite services licenses had been conditioned. This case is ICO Global Communications (Holdings) Limited, Constellation Communications Holdings, Inc., and Mobile Communications Holdings, Inc. v. FCC, U.S. Court of Appeals for the District of Columbia, App. Ct. No. 04-1248, an appeal from final orders of the FCC.
DOJ Approves Verizon MCI and SBC AT&T Mergers Subject to Divestitures
10/27. The Department of Justice's (DOJ) Antitrust Division approved the two mergers of Verizon and MCI WorldCom and SBC and AT&T, subject to divestiture of some local fiber optic network facilities. See, DOJ release.
Thomas Barnett, the acting Assistant Attorney General in charge of the Antitrust Division, stated in the DOJ release that "Today's action by the Department ensures that business customers that provide or buy telecommunications services to locations in Verizon's and SBC's territories will continue to benefit from competition".
Barnett (at left) continued that "The Division thoroughly investigated not just the local private line issues covered by today's settlement but all areas in which the merging firms compete, including residential local and long distance service, Internet backbone services and a variety of telecommunications services provided to business customers. With the exception of the cities covered by today's action, in which the merging firms control the only wireline access to numerous buildings, the Division concluded that the transactions will not harm competition and will likely benefit consumers, due to existing competition, emerging technologies, the changing regulatory environment, and exceptionally large merger-specific efficiencies."
To put into effect these divestitures, the DOJ filed two civil complaints in U.S. District Court against the merging companies. The complaints plead violation of federal antitrust law, and seek to block the mergers. However, the DOJ and the merging companies simultaneously filed proposed settlements that allow the mergers to proceed, subject to divestitures.
These mergers are also subject to redundant merger reviews by the Federal Communications Commission (FCC). The FCC is scheduled to hold a meeting on Friday, October 28, 2005, at which it will consider two orders pertaining to these mergers. See, FCC agenda [PDF].
The FCC will consider a Memorandum Opinion and Order (MOO) regarding the application to transfer licenses associated with the merger of MCI WorldCom and Verizon. This proceeding is WC Docket No. 05-75.
The FCC will consider another MOO regarding the application to transfer licenses associated with the merger of SBC Communications and AT&T. This proceeding is WC Docket No. 05-65.
Verizon and MCI WorldCom stated in a release that "Final closure of the transaction, which the companies anticipate will occur later this year or early in 2006, is subject to approval by the Federal Communications Commission. International approvals are already complete, as are the majority of necessary state-level regulatory reviews."
SBC stated in a release that "approvals have been received from 33 of 36 states with clearance processes and from the District of Columbia. Reviews are pending with the Federal Communications Commission and in Arizona, California and Ohio. The companies expect that the approval process will be completed this fall and that the merger will close later this year."
DOJ Initiates Clayton Act § 7 Proceeding Against SBC and AT&T
10/27. The Department of Justice's (DOJ) Antitrust Division filed a complaint [12 pages in PDF] in U.S. District Court (DC) against SBC and AT&T alleging violation of Section 7 of the Clayton Act, which is codified at 15 U.S.C. § 18.
The complaint states that "For hundreds of commercial buildings in the metropolitan areas of Chicago, Illinois; Dallas-Fort Worth, Texas; Detroit, Michigan; Hartford-New Haven, Connecticut; Indianapolis, Indiana; Kansas City, Missouri; Los Angeles, California; Milwaukee, Wisconsin; San Diego, California; San Francisco-San Jose, California; and St. Louis, Missouri, SBC and AT&T are the only two firms that own or control a direct wireline connection to the building. These building connections are used to supply voice and data telecommunications services to business customers."
The complaint alleges that "The effect of the proposed acquisition of AT&T and SBC would be to lessen competition substantially in interstate trade and commerce in numerous geographic markets for (a) Local Private Lines and (b) voice and data telecommunications services that rely on Local Private Lines, in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18."
The complaint requests a declaration of violation of Section 7 of the Clayton Act, and an injunction.
However, DOJ, SBC and AT&T simultaneously filed with the District Court a Stipulation [7 pages in PDF] and proposed Final Judgment [26 pages in PDF] that provide for District Court approval of the merger with divestitures.
See also, DOJ's explanation [2 pages in PDF] of consent decree procedure. This settlement is subject to the requirements of the Tunney Act. This proposed settlement and the DOJ's competitive impact statement will be published in the Federal Register, and any person will be allowed 60 days to submit comments before final Court approval.
SBC stated in a release that "SBC and AT&T have agreed to provide access to certain buildings in SBC's operating territory where AT&T has fiber and the two companies are the only providers with facilities serving those buildings. The Department of Justice found no other competitive concerns that would warrant seeking to preclude the merger from being completed."
This case is U.S.A. v. SBC Communications, Inc. and AT&T Corp., U.S. District Court for the District of Columbia, D.C. No. 1:05CV02102, Judge Emmet Sullivan presiding.
SBC also announced in a release that "it will adopt AT&T, Inc. as its name following completion of its acquisition of AT&T".
DOJ Initiates Clayton Act § 7 Proceeding Against Verizon and MCI
10/27. The Department of Justice's (DOJ) Antitrust Division filed a complaint [12 pages in PDF] in U.S. District Court (DC) against Verizon and MCI WorldCom alleging violation of Section 7 of the Clayton Act, which is codified at 15 U.S.C. § 18.
This complaint mirrors the complaint against SBC and AT&T. It states that "For hundreds of commercial buildings in the metropolitan areas of Washington, D.C.; Boston, Massachusetts; New York, New York; Richmond, Virginia; Providence, Rhode Island; Tampa, Florida; Philadelphia, Pennsylvania; and Portland, Maine, Verizon and MCI are the only two firms that own or control a direct wireline connection to the building. These building connections are used to supply voice and data telecommunications services to business customers."
The complaint alleges that the proposed merger would lessen competition in these geographic markets for Local Private Lines and voice and data telecommunications services that rely on Local Private Lines, in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18. It requests a declaration of violation of Section 7 of the Clayton Act, and an injunction.
Also, the DOJ, Verizon and MCI simultaneously filed with the District Court a Stipulation [6 pages in PDF] and proposed Final Judgment [PDF] that provide for divestiture in the listed markets of local fiber optic network facilities.
This case is U.S.A. v. Verizon Communications, Inc. and AT&T Corp., U.S. District Court for the District of Columbia, D.C. No. 1:05CV02103, Judge Henry Kennedy presiding.
GAO Reports on the U.S.'s and India's Measurement of Offshoring
10/27. The Government Accountability Office (GAO) released a report [35 pages in PDF] title "International Trade: U.S. and India Data on Offshoring Show Significant Differences".
The report finds that a "significant gap exists between U.S. and Indian data on trade in" business, professional, and technical (BPT) services. This is the category of trade data "most often associated with services offshoring". The report continues that "U.S. data indicate that U.S. firms import a small fraction of what India reports as exports to the United States in this category, and this trade -- as well as the difference in these data -- is growing. For 2002, the United States reported $240 million in unaffiliated imports of BPT services from India, while India reported about $6.5 billion in affiliated and unaffiliated exports in similar services categories."
For 2003, the GAO report states that "the United States reported $420 million in unaffiliated imports of BPT services from India, while India reported approximately $8.7 billion in affiliated and unaffiliated exports of similar services to the United States. Thus, the gap in data has increased by about one-third from 2002 to 2003."
The GAO report offers several differences in methodology that account for some of the difference. One of these is differences between how the U.S. and India treat services, particularly in computer and software related matters. The report states that "India defines services more broadly than does the United States. For example, Indian data on trade in services include packaged software and software embedded on computer hardware, which the United States classifies as trade in goods. An Indian official estimated that this factor accounts for approximately 10 to 15 percent of Indian exports. In addition, India includes in its data certain information technology-enabled services, such as some financial services, that are not included in BEA's definition of BPT services."
Also, on October 24 and 25, 2005, the U.S. Bureau of Industry and Security (BIS) held a conference in Washington DC titled "18th Annual Update 2005 Conference on Export Controls and Policy". See, speech by Peter Lichtenbaum, speech by David McCormick (the new Under Secretary for Industry and Security), and speech by Carlos Guitierrez (Secretary of Commerce).
Copyright Office Publishes Interim Regulations for Preregistration of Unpublished Works
10/27. The Copyright Office (CO) published a notice in the Federal Register that describes, recites, and sets the effective date (November 15, 2005) of interim regulations promulgated pursuant to the Artists' Rights and Theft Prevention Act of 2005 (ART Act) governing the preregistration of unpublished works that are being prepared for commercial distribution in classes of works that the Register of Copyrights has determined have had a history of pre-release infringement.
The ART Act is Title I of the Family Entertainment and Copyright Act (FECA). The FECA was S 167. It is now Public Law No. 109-9.
The ART Act contains several provisions. One requires the Register of Copyrights to "establish procedures for preregistration of a work that is being prepared for commercial distribution and has not been published ... for any work that is in a class of works that the Register determines has had a history of infringement prior to authorized commercial distribution". It also provides that infringement actions may be based upon these preregistrations.
During Congressional consideration, members were clear about the purpose of these new preregistration provisions. Registration of copyright with the CO is a prerequisite for a suit for infringement of United States works and a prerequisite for awards of attorney's fees and statutory damages. Yet, pirates often obtain, copy, and disseminate works before they are reduced to final form and released to the public. These acts can cause significant commercial harm. These acts occur before the copyright holder has obtained a certificate of registration from the CO.
However, the Congress left it to the CO to identify precisely which classes of works are to be covered.
See also, story titled "House Approves Copyright Bill" in TLJ Daily E-Mail Alert No. 1,119, April 20, 2005, and story titled "Copyright Office Commences Rulemaking on Preregistration of Unpublished Works" in TLJ Daily E-Mail Alert No. 1,181, July 25, 2005.
The notice states that "The Register has now carefully reviewed the record
in this rulemaking proceeding to determine the classes of works that have had a
history of infringement prior to authorized commercial distribution. Based on
that review of the comments, it appears that the case has been made for
eligibility for preregistration of the following classes of works upon their
fulfillment of the conditions specified in 37 CFR 202.16:
(i) Motion pictures;
(ii) Sound recordings;
(iii) Musical compositions;
(iv) Literary works being prepared for publication in book form;
(v) Computer programs (including videogames); and
(vi) Advertising or marketing photographs."
Also, "Any class of work that the Register determines has had a history of
pre-release infringement may be preregistered without regard to whether the work
is intended to be distributed in physical formats or is intended for
The notice also states that the CO's "online preregistration system, which is in its final stages of preparation, will go online, and preregistration will be available, on November 15."
The notice also states that over the objection of some commenters, the CO has determined that "the preregistration record will be a public record, and information from the preregistration records will be available on the Copyright Office Web site".
See, Federal Register, October 27, 2005, Vol. 70, No. 207, at Pages 61905 - 61908.
Bush Withdraws Miers Nomination
10/27. President Bush withdrew the nomination of Harriet Miers to be an Associate Justice of the Supreme Court. He added that "she will continue to serve our Nation as White House Counsel".
Bush praised her "extraordinary legal experience, her character, and her conservative judicial philosophy". He continued, "I understand and share her concern, however, about the current state of the Supreme Court confirmation process. It is clear that Senators would not be satisfied until they gained access to internal documents concerning advice provided during her tenure at the White House -- disclosures that would undermine a President's ability to receive candid counsel. Harriet Miers' decision demonstrates her deep respect for this essential aspect of the Constitutional separation of powers -- and confirms my deep respect and admiration for her." See, Bush's statement.
Sen. Arlen Specter (R-PA), the Chairman of the Senate Judiciary Committee (SJC), stated that "I respect Ms. Harriet Miers’ decision to withdraw from consideration for the Supreme Court. At the same time, I do regret that our constitutional process was not completed. Instead of a hearing before the Judiciary Committee and a debate on the Senate floor, Ms. Miers’ qualifications were subjected to a one-sided debate in news releases, press conferences, radio and TV talk shows, and the editorial pages. I acknowledge the rights of everyone to express themselves as they see fit. But that should not have precluded Ms. Miers from getting basic due process."
Sen. Patrick Leahy (D-VT), the ranking Democrat on the SJC, stated that "I look forward to consulting with the President on his third nominee to succeed Sandra Day O’Connor on the Supreme Court, and I hope it is a decision he approaches with the necessary independence from partisan factions." See, statement.
Bush Makes Appointments to Foreign Intelligence Advisory Board
10/27. President Bush announced his intent to appoint eleven persons to be members of the President's Foreign Intelligence Advisory Board (PFIAB), for a term of two years: James Barksdale, Arthur Culvahouse, William DeWitt, James Ellis, Donald Evans, Martin Faga, Lee Hamilton, Ray Hunt, David Jeremiah, John Morrison, and Elizabeth Cornell. Several of these appointees are associated with information technology related entities.
James Barksdale is a Director of Time Warner, FedEx, and Sun Microsystems. He is also a member of the Board of Trustees of In-Q-Tel. He is also General Partner of Barksdale Group, a venture capital firm. He was P/CEO of Netscape until its acquisition by AOL.
Arthur Culvahouse is a partner in the Washington DC office of the law firm of O'Melveny & Myers. He was President Reagan's last White House Counsel, the position now held by Harriet Miers. Before that he was a long time assistant to former Sen. Howard Baker (R-TN).
William DeWitt is Managing Partner and Chairman of the St. Louis Cardinals, and a long time friend and financial supporter of Bush.
James Ellis is a recently retired Navy Admiral who was Commander in Chief of the U.S. Strategic Command.
Donald Evans was Bush's first Secretary of Commerce.
Martin Faga is P/CEO and a member of the Board of Trustees of MITRE Corporation.
Lee Hamilton is a former Congressman from the state of Indiana.
Ray Hunt is an oilman from Dallas, Texas. He is CEO of Hunt Oil Company and Ch/CEO/P of Hunt Consolidated, Inc. He is also a Director of Halliburton Company and Electronic Data Systems Corporation.
David Jeremiah is a former Navy Admiral and Vice Chairman of the Joint Chiefs of Staff who is now Partner and President of Technology Strategies & Alliances Corporation, a advisory and investment banking firm that focuses on aerospace, defense, telecommunications, and electronics. He is also a member of the Board of Trustees of In-Q-Tel.
John Morrison is Managing Director of Goldner Hawn Johnson and Morrison, Inc., a private investment company. He is also a Director of the Overseas Private Investment Corporation (OPIC). And, he attended Yale at the same time as Bush.
Elizabeth Cornell is a professor of engineering at Stanford University.
Bush also announced his intent to appoint Stefanie Osburn to be Executive Director of the PFIAB. She is Chief of Staff for the Deputy Director of National Intelligence for Management at the Central Intelligence Agency (CIA). She has worked for the CIA for over 20 years.
See, White House release.
FCC Releases Agenda for November 3 Meeting
10/27. The Federal Communications Commission (FCC) released the agenda [PDF] for its event titled "Open Meeting" on Thursday, November 3, 2005. There are currently three items on the agenda.
Section 621 and New Video Entrants. The agenda states that the FCC will consider a Notice of Proposed Rulemaking (NPRM) regarding Section 621(a)(1)'s directive that local franchising authorities not unreasonably refuse to award competitive cable franchises. The agenda reveals nothing further.
FCC Chairman Kevin Martin gave a speech [4 pages in PDF], remotely, to the U.S. Telecom Association (USTA) meeting in Las Vegas, Nevada, on October 26. He said that "Section 621 of the statute prohibits local authorities from granting exclusive franchises and from unreasonably refusing to award a second franchise."
Martin (at right) also stated that "I recently presented my colleagues with a Notice of Proposed Rulemaking that asks how the local franchising process is working and what actions, if any, the Commission should take to fulfill Congress's directive that franchising authorities not grant exclusive franchises or unreasonably refuse to award additional competitive franchises. I plan on the Commission considering this item at our November meeting which is just a few days away."
Martin did not disclose the contents of this NPRM. However, he did say that "I believe that new video entrants, regardless of the technology employed, should be encouraged -- not impeded from entry."
Section 621 of the Communications Act of 1934, as amended by the Cable Television Consumer Protection and Competition Act of 1992, is codified at 47 U.S.C. § 541. Subsection (a)(1) provides that "A franchising authority may award, in accordance with the provisions of this subchapter, 1 or more franchises within its jurisdiction; except that a franchising authority may not grant an exclusive franchise and may not unreasonably refuse to award an additional competitive franchise. Any applicant whose application for a second franchise has been denied by a final decision of the franchising authority may appeal such final decision pursuant to the provisions of section 555 of this title for failure to comply with this subsection."
There are also proposals to amend Section 621. See, for example, HR 3146, the "Video Choice Act of 2005", sponsored by Rep. Marsha Blackburn (R-TN), and the related bill in the Senate, S 1349, the "Video Choice Act of 2005 ", sponsored by Sen. Gordon Smith (R-OR). See also, HR 2726, the "Preserving Innovation in Telecom Act of 2005", sponsored by Rep. Pete Sessions (R-TX).
DTV Tuners. The agenda also states that the FCC will consider a Second Report and Order concerning its requirements for new television receivers to include the capability to receive digital television signals.
On June 9, 2005, the FCC adopted and released a Report and Order and Further Notice of Proposed Rule Making [25 pages in PDF]. The FNPRM portion proposed to advance the date for receivers with screen sizes of 13-25 inches, and other devices that receive television signals, including VCRs and DVD players and recorders, from July 1, 2007 to December 31, 2006. The FNPRM also sought comment on whether the requirement to include a DTV tuner in new receivers should be extended to receivers with screen sizes less than 13 inches.
See, story titled "FCC Adopts Order and NPRM Regarding Its Digital Tuner Rules" in TLJ Daily E-Mail Alert No. 1,153, June 14, 2005. This R&O and FNPRM is FCC 05-121 in ET Docket No. 05-24.
DTS Technologies. Finally, the agenda states that the FCC will consider a "Clarification Order and Notice of Proposed Rulemaking" to clarify the interim policy and propose rules for the use of distributed transmission system (DTS) technologies by digital television stations.
This event is scheduled for 9:30 AM on Thursday, November 3, 2005 in the FCC's Commission Meeting Room, Room TW-C305, 445 12th Street, SW. The event will be webcast by the FCC. The FCC does not always take up all of the items on its agenda. The FCC does not always start its monthly meetings at the scheduled time. The FCC usually does not release at its meetings copies of the items that its adopts at its meetings.
More Court Opinions
10/26. The U.S. Court of Appeals (10thCir) issued its opinion in Mactec v. Gorelick , a case involving a contract dispute over payment of royalties for a patented invention. While Mactec raised the issue of patent misuse, the Court of Appeals decided on procedural grounds, and did not address patent misuse. The contract at issue included a mandatory arbitration provision. Gorelick, the inventor, initiated an arbitration proceeding. Mactec asserted the defense of patent misuse, citing Zenith Radio Corp. v. Hazeltine Research Inc., which is reported at 395 U.S. 100. The arbitrator found for Gorelick and awarded approximately $4.5 Million in damages. Mactec filed a complaint in U.S. District Court (DColo) seeking to vacate the arbitration award. It later filed a second complaint seeking a declaratory judgment on the issue of patent misuse. Gorelick prevailed in both actions, and Mactec appealed. The Court of Appeals affirmed in the first action, as a consequence of its holding that "a non-appealability clause in an arbitration agreement that forecloses judicial review of an arbitration award beyond the district court level is enforceable". It also held that the declaratory judgment appeal is barred by the doctrine of res judicata. Hence, the Court of Appeals did not address the patent misuse issue. This case is Mactec, Inc. v. Steven Gorelick, U.S. Court of Appeals for the 10th Circuit, App. Ct. Nos. 03-1290, and 03-1378, appeals from the U.S. District Court for the District of Colorado, D.C. No. 02-M-1456 and 02-M-1319. Judge Ebel wrote the opinion of the Court of Appeals, in which Judges Henry and White joined.
10/26. The U.S. Court of Appeals (10thCir) issued its opinion in US v. Wenger, a criminal case involving convictions for touting securities for compensation, without disclosure, in violation of Section 17(b) of the Securities Act of 1933, which is codified at 15 U.S.C. § 77q(b), and Section 10(b) of the Securities Exchange Act of 1934, which is codified at 15 U.S.C. § 78j(b). Wenger appealed. He argued, among other things, that Section 17(b) violates the First Amendment and is unconstitutionally vague. The Court of Appeals affirmed. This case is U.S.A. v. Wenger, U.S. Court of Appeals for the 10th Circuit, App. Ct. No. 04-4022, an appeal from the U.S. District Court for the District of District of Utah, D.C. No. 99-CR-260-PGC.
More Capitol Hill News
10/27. The House approved HR 420, the "Lawsuit Abuse Reduction Act of 2005", by a vote of 228-184. See, Roll Call No. 553. This bill that addresses FRCP Rule 11 violations, and forum shopping. The vote broke down along party lines, with all but five Republicans voting for the bill, and all but 16 Democrats opposing the bill.
10/27. The Senate Judiciary Committee held its weekly executive business meeting on Thursday, October 27. The agenda included several technology related bills and nominations. The SJC held over consideration of all of these. It held over three Department of Justice (DOJ) nominations: Thomas Barnett (to be an Assistant Attorney General in charge of the Antitrust Division), Steven Bradbury (AAG for the Office of Legal Counsel), and Wan Kim (AAG for the Civil Rights Division). It held over two bills related to personal data and privacy: S 1789, the "Personal Data Privacy and Security Act of 2005", and S 751, the "Notification of Risk to Personal Data Act". It also held over three bills pertaining to trademarks and counterfeiting: S 1699, the "Stop Counterfeiting in Manufactured Goods Act", S 1095, the "Protecting American Goods and Services Act of 2005", and HR 683, the "Trademark Dilution Revision Act of 2005".
10/27. The House Judiciary Committee (HJC) amended and approved HR 4128, the "Private Property Rights Protection Act of 2005". The full House is scheduled to consider this bill on Wednesday, November 2, or Thursday, November 3. See, Republican Whip Notice.
People and Appointments
10/27. Skip Frantz, EVP and Secretary of Alltel, was elected Chairman of the Board of the United States Telecom Association. See, USTA release.
10/27. Walter Ricciardi and Peter Bresnan were named Deputy Directors of the Securities and Exchange Commission's (SEC) Division of Enforcement. Linda Thomsen remains the Director of the SEC's Division of Enforcement. See, SEC release.
House Commerce Committee Approves DTV Bill
10/26. The House Commerce Committee (HCC) approved the "Digital Television Transition Act of 2005" by a vote of 33-17.
This is Title I [33 pages in PDF] of a larger bill that also includes provisions related to Medicaid, Katrina health relief, and Katrina and Rita energy relief.
This title sets a date of January 1, 2009 for the return of television broadcasters' spectrum in 700 MHz band now being used for analog broadcasting. 24 MHz of spectrum would be made available for public safety uses. 60 MHz would be for advanced wireless services.
Rep. Joe Barton (R-TX), the Chairman of the HCC, stated on Tuesday, October 25, that "Enactment of this legislation by December would give us three years to prepare for the transition. That is more than enough time for manufacturers and retailers to move low-cost digital televisions and converter-boxes into the market, for the FCC to complete the channel allocation process, for broadcasters to finalize their digital facilities, and for government and industry to prepare consumers for the transition."
On Thursday, October 20, 2005, the Senate Commerce Committee (SCC) approved related language titled the "Digital Transition and Public Safety Act of 2005" by a vote of 19-3. See, bill language [PDF] and SCC release. See also, story titled "Senate Commerce Committee Approves DTV Bill" in TLJ Daily E-Mail Alert No. 1,238, October 24, 2005.
The SCC language provides for a transfer date of April 7, 2009.
The House language provides $990 Million for a "Digital Television Conversion Fund", to fund a digital-to-analog converter box program. It provides for a consumer education program and mandates. It also provides that new televisions of 13 inches or more must include a digital tuner by March 1, 2007.
The House language also requires cable systems with a capacity greater than 550 MHz to transmit a standard definition version of a must carry broadcast signal as well as an analog version of that signal for five years after the hard deadline. After five years, all cable systems must transmit whatever digital version of a station is sent to them by a broadcaster.
Neither the House nor Senate language currently contains a broadcast flag provision.
Janice Obuchowski, Executive Director of the High Tech DTV Coalition, praised the HCC in a release. She said that "We congratulate the House Commerce Committee on taking another giant step towards bringing the benefits of wireless broadband and public safety communications to the American public ... We are gratified that there is bipartisan support of the high common ground of the hard date and confident that differences in implementation details will be worked through as this legislative process unfolds."
Rep. Barton also said that this legislation will create a "renaissance of television".
IRS Announces That It Will Violate Court of Appeals Ruling Regarding Excise Tax on Phone Service
10/26. The Internal Revenue Service (IRS) announced in a notice [PDF] that it will violate the holding of the U.S. Court of Appeals (11thCir) announced in its May 10, 2005 opinion [22 pages in PDF] in American Bankers Insurance Group v. US. See, full story.
USTR Requests Information From PR China Regarding IPR Enforcement
10/26. Peter Allgeier, of the Office of the U.S. Trade Representative (USTR), wrote a letter [PDF] to Sun Zhenyu, the People's Republic of China's ambassador to the World Trade Organization (WTO), requesting information regarding "specific cases of IPR enforcement that China has identified for the years 2001 through 2004".
The letter states that this request is made "pursuant to Article 63.3 of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights", which is also know as the TRIPS Agreement [33 pages in PDF].
Article 63.3 provides, in full, that "Each Member shall be prepared to supply, in response to a written request from another Member, information of the sort referred to in paragraph 1. A Member, having reason to believe that a specific judicial decision or administrative ruling or bilateral agreement in the area of intellectual property rights affects its rights under this Agreement, may also request in writing to be given access to or be informed in sufficient detail of such specific judicial decisions or administrative rulings or bilateral agreements."
In addition, Rob Portman, the USTR, wrote in a release that "The United States is deeply concerned by the violations of intellectual property rights in China ... The development of intellectual property is one of the driving forces of U.S. economic competitiveness, and we will utilize all tools at our disposal to ensure that U.S. intellectual property rights are protected."
Portman (at right) added that "Based on all available information, piracy and counterfeiting remain rampant in China despite years of engagement on this issue. If China believes that it is doing enough to protect intellectual property, then it should view this process as a chance to prove its case ... Our goal is to get detailed information that will help pinpoint exactly where the enforcement system is breaking down so we can decide appropriate next steps."
Robert Holleyman, P/CEO of the Business Software Alliance (BSA), stated in a release that "Ambassador Portman recently requested greater transparency from the Chinese government on IPR infringement levels and enforcement activity. BSA sees this level of engagement as critical to the progress we must make on the ground in China to reduce piracy levels from the current 90 percent and applauds Ambassador Portman for his commitment to addressing this ongoing problem. Greater transparency will provide the world community with the information it needs to better assist Chinese authorities to live up to the letter and the spirit of their WTO Trips agreements and chip away at China’s severe and persistent intellectual property piracy problem."
Eric Smith, President of the International Intellectual Property Alliance (IIPA), praised the USTR. He stated in a release [PDF] that "Over the almost four years since China entered the WTO, the enforcement authorities, to the best of our knowledge, have brought, at the most, a handful of criminal cases against infringers of our members’ copyrights and convicted even fewer. As an inevitable consequence of this failure, the theft of U.S. copyright material continues unabated. IIPA conservatively estimates that losses due to piracy of U.S. copyrights in China in 2004 exceeded $2.5 billion and that piracy levels continue at around 90% of the market".
Myron Brilliant, of the U.S. Chamber of Commerce, stated in a release that "We hope that China will view today’s requests by the United States, Japan, and Switzerland as an opportunity to demonstrate to the world its strong commitment to enforce IPR ... China needs to shed light on what it is doing to enforce its IPR laws and provide evidence that its current enforcement is actually deterring IP theft."
Bush Discusses Free Trade and Doha Trade Negotiations
10/26. President Bush gave a speech on economic issues. He discussed, among other topics, using electronic records in health care, and the Doha round trade negotiations.
He stated that "we're working to expand information technology in the field of medicine. If you've ever looked at the -- the IT part of medicine, you'll be amazed at how backwards it is. It's easier to get information on buying a car than it is on health care items. And that doesn't make any sense. So we've got a goal to computerize medical records that will help make America's health care more transparent and more efficient, which will help patients make rational choices and help doctors save lives."
He later addressed trade negotiations. He said that "To continue to open up new markets for goods and services and farm products, we have got to work for a free and fair global trading system. The United States has taken a leadership role in working toward a successful conclusion to the Doha trade negotiations at the World Trade Organization. A successful Doha round will reduce and then eliminate tariffs and other barriers on farm and industrial goods, will phase out unfair agricultural subsidies, and open up global markets for services and products and leave all nations better off. The Doha negotiations are now at a critical point."
The World Trade Organization (WTO) will hold its Sixth WTO Ministerial Conference in Hong Kong, China, on December 13-18, 2005. See, WTO notice.
Bush also said that "I'm going to continue to pursue trade agreements on a bilateral, regional and global level, to open up markets and to maintain our position as a strong economy in the world."
"It's important that people in Washington not use trade as a political issue", said Bush. "I've been disappointed with how the trade debates have gone in Washington. In the 1990s, many Democrats supported important trade agreements such as NAFTA. Fewer and fewer Democrats today are willing to stand by that position and support trade bills that are good for American workers. It's time to get politics out of trade policy and focus on what's best for the United States of America."
10/26. The House Judiciary Committee's (HJC) Subcommittee on Courts, the Internet, and Intellectual Property postponed its mark up of HR 4093, the "Federal Judgeship and Administrative Efficiency Act of 2005", which had been scheduled for October 26 at 3:00 PM. This bill would split the 9th Circuit, and create new judgeships for the Courts of Appeals, District Courts, and Bankruptcy Courts.
10/26. Federal Communications Commission (FCC) published a notice in the Federal Register that describes and sets comments deadlines for its notice of proposed rulemaking (NPRM) regarding the specific relocation procedures applicable to Broadband Radio Service (BRS) operations in the 2150-2160/62 MHz band, which the FCC previously decided will be relocated to the newly restructured 2495-2690 MHz band. The FCC also seeks comment on the specific relocation procedures applicable to Fixed Microwave Service (FS) operations in the 2160-2175 MHz band. Initial comments are due by November 25, 2005. Reply comments are due by December 12, 2005. This NPRM is FCC 05-172 in ET Docket No. 00-258. See, Federal Register, October 26, 2005, Vol. 70, No. 206, at Pages 61752 - 61762.
Go to News from October 21-25, 2005.