TLJ News from November 1-5, 2005

People and Appointments

11/4. On November 3, 2005, the Senate Judiciary Committee (SJC) approved, by unanimous consent, the nomination of Wan Kim to be the Assistant Attorney General in charge of the Department of Justice's Civil Rights Division. On November 4, 2005, the full Senate confirmed him.

11/4. The Senate confirmed Katherine Baicker to be a member of the President's Council of Economic Advisors.

11/4. The Senate confirmed Matthew Slaughter to be a member of the President's Council of Economic Advisors.

11/4. The Securities and Exchange Commission (SEC) announced that Deputy Chief Accountant Andrew Bailey will leave the SEC in December 2005. See, SEC release.

11/4. The Internet Corporation for Assigned Names and Numbers (ICANN) announced its selection of four slates of nominees for four ICANN bodies: the Board of Directors, the Council of the Country Code Names Supporting Organization (ccNSO), the Council of the Generic Names Supporting Organization (GNSO) and the Interim At Large Advisory Committee (ALAC). See, ICANN release.

More News

11/4. The Federal Communications Commission (FCC) adopted and released an item [32 pages in PDF] titled "Clarification Order and Notice of Proposed Rulemaking" pertaining to the distributed transmission systems (DTS) by digital television stations. This initiates a new proceeding titled "In the Matter of Digital Television Distributed Transmission System Technologies". This item is FCC 05-192 in MB Docket No. 05-312. See also, FCC release [2 pages in PDF] describing this item. The FCC has not yet set deadlines for submitting comments.

11/4. The Federal Communications Commission (FCC) released a report [18 pages in PDF] titled "Report on Information Consumer Inquiries and Complaints: 3rd Quarter Calendar Year 2005".

FCC Adopts NPRM Regarding Local Franchising of Video Services

11/3. The Federal Communications Commission (FCC) adopted, but did not release, a "Notice of Proposed Rulemaking" (NPRM) regarding Section 621(a)(1)'s directive that local franchising authorities (LFAs) not unreasonably refuse to award competitive franchises. This NPRM also includes numerous tentative conclusions.

The FCC issued only a short news release [PDF] describing this NPRM. Also, the four Commissions released statements. This NPRM is FCC 05-189 in MB Docket 05-311.

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."

The vote was unanimous, but the four Commissioners made clear in their statements that they possess varying degrees of enthusiasm for this proceeding.

FCC Release. The FCC release states that the NPRM asks for comments on whether LFAs "are unreasonably refusing to grant competitive franchises" and "what problems cable incumbents have encountered with LFAs, including how best the Commission can ensure that the local franchising process is not inhibiting the ability of incumbent cable operators to invest in broadband services."

The FCC release states that the NPRM asks "whether the Commission has authority to implement the procompetitive mandate of Section 621(a)(1)."

The release also describes several tentative conclusions contained in the NPRM. The release states that it "tentatively concludes that the Commission is empowered by provisions of both Title I and Title VI of the Communications Act to take steps appropriate to ensure that the local franchising process does not serve as an unreasonable barrier to entry for competitive cable operators. The Notice also tentatively concludes that the Commission may deem to be preempted and superseded any law or regulation of a State or LFA that causes an unreasonable refusal to award a competitive franchise in contravention of Section 621(a)."

Title VI pertains to cable regulation, and includes Section 621. Title I is merely a short passage that contains a general statement regarding protecting against public interest harms. However, the FCC is engaged in the process of classifying and reclassifying services as Title I services, rather than as Title II communications or Title VI cable services, and creating a new regulatory framework, unguided by statute, under the principle of ancillary jurisdiction.

The FCC release also states that the NPRM tentatively concludes that "it is not unreasonable for an LFA, in awarding a franchise, to ``assure that access to cable service is not denied to any group of potential residential cable subscribers because of the income of the residents of the local area in which such group resides´´; ``allow [a] cable system a reasonable period of time to become capable of providing cable service to all households in the franchise area´´; and ``require adequate assurance that the cable operator will provide adequate public, educational and governmental access channel capacity, facilities, or financial support.´´"

The FCC release also states that "Assuming there is both the need and the authority for Commission intervention, the Notice asks how the Commission should interpret the mandate of Section 621(a)(1). The item tentatively concludes that the Commission should interpret the relevant language of Section 621(a)(1) broadly in order to prohibit not only unreasonable refusals to award competitive franchises, but also the establishment of procedures and other requirements that unreasonably interfere with the ability of would-be new entrants to introduce quickly their competitive offerings."

The FCC release also states that the NPRM asks "what specific steps should the Commission take to implement Section 621(a)(1)."

The FCC release also states that the NPRM asks whether the FCC has authority "to establish a minimum amount of time for potential competitors with existing facilities to build out their networks beyond their current service territories", and "what would constitute a reasonable minimum timeframe".

The FCC release also states that the NPRM asks whether the FCC "should address actions at the state level, to the extent we find such actions create unreasonable barriers to entry for potential competitors."

The release also states that the FCC will hold a hearing. It does not set a date.

Commissioners' Spin. FCC Chairman Kevin Martin wrote in his statement [PDF] that "Telephone companies and other facilities-based new entrants to the multichannel video programming distribution (MVPD) market have the potential to provide strong competition to incumbent cable operators. These new entrants are making significant investments in the infrastructure that enables them to offer video service along with telephone and broadband services to consumers. We are hearing from some providers that local authorities may be making the process of getting franchises unreasonably difficult. New video entrants, regardless of the technology they employ, should be encouraged -- not impeded from entry."

Commissioner Kathleen Abernathy wrote in her statement [PDF] that "With the issuance of this Notice we begin the process of answering a complex question: when, if ever, do cable franchising requirements become unreasonable barriers to entry by competing cable service providers, and how should “unreasonable” barriers be defined and dealt with?"

Commissioner Jonathan Adelstein voted for the NPRM, but wrote in his statement [PDF] that "it remains far from clear whether Congress specifically intended any role for the Commission in preempting and superseding the practices of local governments in the local franchising process"

Jonathan AdelsteinAdelstein (at left) continued that the FCC "needs to tread with caution and care before it asserts any authority to interpose itself with LFAs to the extent Congress specifically delegated power to local officials. We are going out on limb already by creating a ``de facto´´ refusal theory and tentatively concluding that the Commission has the ability to determine whether an LFA is ``unreasonably refus[ing] to award a competitive franchise.´´"

He added that "I would not have been willing to support this NPRM if we had not also made clear that we will consider it reasonable for local officials to carry out their basic responsibilities as Congress intended. Specifically, we tentatively conclude that it is ``not unreasonable´´ for an LFA to carry out its statutory mandate to prevent economic redlining, to establish reasonable build-out requirements to ``all households in the franchise area,´´ and to ``provide adequate public, educational and governmental access channel capacity, facilities or financial support.´´ We should not and indeed cannot usurp for ourselves the authority granted by Congress to local governments. This tentative conclusion makes clear we respect the powers specifically enumerated by Congress for the LFAs."

Commissioner Michael Copps stated that "more competition in the delivery of video services would bring significant benefits to consumers". He wrote in his statement [PDF] that "Cable and telephone companies are beginning to compete to offer consumers the much-heralded triple play -- bundles of telephone, video and Internet services. Cable companies have already jumped into the voice service market, and telephone companies are entering the video fray. This crossover is exciting, and it means that old industry boundaries are eroding, giving way to a new and hopefully more consumer-friendly future."

He also praised the local franchising authorities (LFAs) and franchising process, but conceded that "it may be that some changes are called for".

Kyle McSlarrow

Industry Reaction. Kyle McSlarrow (at right), P/CEO of the National Cable Telecommunications Association (NCTA), stated in a release that "We are pleased that the FCC’s examination of local cable franchising will include existing operators as well as new entrants, which is consistent with our philosophy that communications regulation should treat like services alike. We welcome the opportunity that this notice provides to comment on issues regarding the franchising process that are important to cable operators."

Walter McCormick, P/CEO of USTelecom (aka USTA), stated in a release that "The local franchising process is seriously flawed and has significantly delayed the deployment of video services to consumers. With new entrants eager to enter the video market, the Commission’s action today can help bring more video competition to consumers and eliminate the unnecessary barriers to entry that limit video choice. As we have seen from recent positive action in the states and legislation making its way through Congress, this is an important issue that must be resolved quickly. We applaud Chairman Martin’s leadership on this proceeding and will continue to pursue all avenues to bring more competition to the video market."

BellSouth's Jonathan Banks stated in a release that "We welcome the FCC's effort to examine the interplay between local franchising requirements and the entry of new competitors into the video marketplace. Streamlining the local franchising process and eliminating unreasonable conditions on entering local video markets will help pave the way to increased investment in fiber networks and new technologies." He added that "This FCC effort to ensure that local franchising requirements do not stand in the way of broadband innovation should run on a parallel track with federal and state legislative efforts to move away from a patchwork of entry obligations set by local authorities towards a simplified and uniform set of obligations that will ensure that consumers benefit from new video competition as soon as possible."

FCC Requires DBS, Satellite Radio, Digital Broadcasters, and Others to Carry AES Communications

11/3. The Federal Communications Commission (FCC) adopted, but did not release, a "First Report and Order and Further Notice of Proposed Rulemaking" regarding expanding the categories of service providers that are subject to the FCC's Emergency Alert  System (EAS) mandates.

The FCC issued only a short news release [PDF] describing this item. Also, the four Commissioners released statements. This item is FCC 05-191 in EB Docket No. 04-296.

The FCC initiated this proceeding with an NPRM adopted on August 4, 2004. See, story titled "FCC Adopts NPRM Regarding Emergency Alert System" in TLJ Daily E-Mail Alert No. 954, August 6, 2004. That NPRM is FCC 04-189 in EB Docket No. 04-296.

The order portion of this item amends the FCC's EAS rules to cover providers of digital broadcast and cable TV, digital audio broadcasting, satellite radio, and direct broadcast satellite services.

Chairman Kevin Martin wrote in his statement [PDF] that in addition the EAS "should incorporate the internet".

Commissioner Jonathan Adelstein wrote in his statement [PDF] that the EAS was not used at the time of Hurricane Katrina, Hurricane Rita, the east coast blackout, or the terrorist attacks of September 11, 2001. Nevertheless, he argued that the FCC must mandate that more services providers modify their facilities to become capable of distributing AES communications. Moreover, he stated that he wants multilingual EAS communications.

The FCC's release states that the Report and Order will set a compliance deadline of December 31, 2006, except for digital broadcast satellite (DBS), for which the compliance deadline will be May 31, 2007.

The FCC's release then states that the NPRM portion of this item asks for comments regarding the rules for these newly affected service provides. The FCC seeks comment on how to "develop a next-generation alert and warning system" and the "type of system architecture and common protocols that would be required in such a system".

The release also states that the FCC seeks comments regarding how the FCC "could facilitate the effective integration of wireless technologies into a next generation alert and warning system, and whether traditional telephone companies that plan to provide high definition digital content to customers' homes through fiber optic connections should have public alert and warning responsibilities. In addition, the Further Notice seeks comment on issues relating to the participation of state and local authorities in the EAS system."

See also, statement [PDF] by Commissioner Kathleen Abernathy, and statement [PDF] by Commission Michael Copps.

Also, on October 20, 2005, the Senate Commerce Committee amended and approved S 1753, the "Warning, Alert, and Response Network Act", a bill that would create a new government program titled the "National Alert System". Administrative and rule making authority would be given to a new National Alert Office within the National Oceanic and Atmospheric Administration (NOAA), and the FCC. See, story titled "Senate Commerce Committee Approves WARN Act" in TLJ Daily E-Mail Alert No. 1,238, October 24, 2005.

FCC Revises Rules Regarding DTV Tuner Requirements

11/3. The Federal Communications Commission (FCC) adopted, but did not release, a Second Report and Order regarding requirements for new television receivers to include the capability to receive digital television signals. The FCC released only a short release [1 page in PDF] describing this item.

The FCC releaset states that the R&O provides that "Beginning March 1, 2006, DTV tuners will be required in all mid-size sets as well. With the change adopted in this Second Report and Order, the final step in the phase-in plan will now require that all new TV sets in all size ranges and other TV receivers include a DTV tuner beginning March 1, 2007. (Previously, the deadline for small sets (13”- 24”) and for other TV receivers was July 1, 2007). The Commission also extended the DTV tuner requirement to new TV receivers screen sizes less than 13” on the same schedule as other TV receivers. (Previously, the tuner requirement did not apply to very small sets (smaller than 13”)." (Parentheses in original.)

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.

The just adopted item is FCC 05-190 in ET Docket No. 05-24.

FEC to Write Rules Regulating Online Speech by End of February

11/3. The Federal Election Commission (FEC) announced, following the House rejection of HR 1606, the "Online Freedom of Speech Act", that the FEC is "committed to completing action on all of the affected regulations by the end of February". See, FEC release.

The FEC is engaged in the process of drafting rules implementing the Federal Election Campaign Act (FECA), as amended by the 2002 McCain Feingold act. The FEC previously adopted rules that provided that "The term public communication shall not include communications over the Internet." The FEC thus exempted the political expression of bloggers and other internet speakers from being prohibited or regulated by the FEC.

The sponsors of the 2002 act challenged this rule in court. The U.S. District Court (DC) overturned this rule on the grounds that it was inconsistent with the statute. HR 1606 would have amended the FECA to provide that a "public communication" "shall not include communications over the Internet". Now, the FEC must write rules that regulate and inhibit online speech.

See also, stories titled "House Rejects Online Freedom of Speech Act" and "Commentary: Analysis of the Vote on HR 1606" in TLJ Daily E-Mail Alert No. 1,246, November 3, 2005.

The FEC did not announce an effective date for these regulations. Unless the FEC were to set an effective date beyond Tuesday, November 7, 2006, then its rules would affect political speech related to the 2006 Congressional elections.

State Department Official Announces Plans for IPR Enforcement Cooperation Between US and Europe

11/3. Anthony Wayne, Assistant Secretary for Economic and Business Affairs at the Department of State, gave a speech in Washington DC titled "Multilateral Cooperation Case Study: IP and the Global Agenda". He discussed plans for further cooperation between the US and Europe on intellectual property law protection.

Anthony WayneWayne (at right) said that cooperation "is truly the only way we can reverse the tide of intellectual property theft that is threatening our economic security and competitiveness".

He said "we hope to share information regarding IP training programs and, to the extent possible, coordinate U.S. and EU IP training opportunities in priority sources of IP infringement -- like China and Russia."

He said that the two plan "to invite the U.S. and EU citizens who own intellectual property themselves to become a more integral part of our cooperative IP enforcement and education efforts."

He said that "we plan to increase cooperation between U.S. and EU Member States’ customs authorities to identify and implement the best possible practices to detect IP infringement and increase seizures of IP infringing goods."

He said that "we want to get our customs authorities trading information on how to better manage risks and use the most effective techniques to meet this global challenge, and we want to tighten up our enforcement coordination on the ground so we can stop pirates and counterfeiters at our borders."

And, he said that "we will make sure the operational work we launch together is successful by ensuring we collect needed statistical data in a way we can both understand."

More Court Opinions News

11/3. The U.S. Court of Appeals (7thCir) issued an opinion [18 pages in PDF] in Kemper v. Cingular, a long running dispute between competitors in the cellular phone market. The Court of Appeals held that "the district court’s denial of Cingular's motion for judgment as a matter of law on Kempner’s claim of tortious interference with prospective business is REVERSED, and judgment as a matter of law on Kempner's claim of tortious interference is GRANTED in favor of Cingular. The remaining rulings of the district court are AFFIRMED." This case is Kemper Mobile Electronics, Inc. v. Southwestern Bell Mobile Services, dba Cingular Wireless, U.S. Court of Appeals for the 7th Circuit, App. Ct. Nos. 04-3411 and 04-3561, appeals from the U.S. District Court for the Northern District of Illinois, Eastern Division, D.C. No. 02 C 5403, Judge Sidney Schenkier presiding.

11/1. The U.S. Court of Appeals (10thCir) issued its opinion in Western Diversified Services v. Hyundai, a trademark infringement case. The Court of Appeals reversed the District Court's partial summary judgment for the alleged infringer, Hyundai. This case is Western Diversified Services, Inc. v. Hundai Motor America, Inc., U.S. Court of Appeals for the 8th Circuit, App. Ct. No. 03-4248, an appeal from the U.S. District Court for the District of Utah, D.C. No. 2:99-CV-84-B.

Capitol Hill News

11/3. The House Commerce Committee's (HCC) Subcommittee on Commerce, Trade, and Consumer Protection approved HR 4127, the "Data Accountability and Trust Act" or DATA, by a vote of 13-8. The Subcommittee rejected several proposed amendments.

11/3. The House amended and approved HR 4128, the "Private Property Rights Protection Act of 2005", by a vote of 376-38. See, Roll Call No. 568. 36 of the 38 votes against the bill were cast by Democrats. The bill was introduced by Rep. James Sensenbrenner (R-WI) and others in response to the March 23, 2005 opinion [58 pages in PDF] of the Supreme Court in Kelo v. New London. Rep. Sensenbrenner stated during House debate that this bill would "restore the property rights of all Americans by establishing a penalty for states and localities that abuse their eminent domain power by denying states or localities that commit such abuse all federal economic development funds for a period of two years.  Under this legislation, there is a clear connection between the federal funds that would be denied and the abuse Congress is intending to prevent - if  states or localities abuse their eminent domain power by using ``economic development´´ as a rationale for a taking, they shall not receive federal ``economic development´´ funds that could contribute to similarly abusive land grabs."

11/3. The Senate approved S 1932, the "Deficit Reduction Omnibus Reconciliation Act of 2005", by a vote of 52-47. See, Roll Call No. 303. It was a largely party line vote, with Republican voting yes, and Democrats voting no. This contains technology related components. It will be the subject of further coverage in the TLJ Daily E-Mail Alert.

People and Appointments

11/3. President Bush named Matthew Scott Robinson to be Special Assistant to the President for Speechwriting. He previously worked in the Department of Justice's Office of Legal Policy (OLP). See, White House release.

11/3. President Bush named Rudy Fernandez to be Special Assistant to the President for Intergovernmental Affairs. He previously was Deputy Assistant Secretary for Governmental Affairs at the Department of Transportation. See, White House release.

11/3. President Bush named Stephen McMillin to be Deputy Assistant to the President and Advisor to the Chief of Staff. See, White House release.

11/3. The Senate Judiciary Committee (SJC) approved, by unanimous consent, the nomination of Steven Bradbury to be the Assistant Attorney General in charge of the Department of Justice's (DOJ) Office of Legal Counsel.

11/3. The Senate Judiciary Committee (SJC) approved, by unanimous consent, the nomination of Thomas Barnett to be the Assistant Attorney General in charge of the Department of Justice's (DOJ) Antitrust Division.

More News

11/3. The Federal Communications Commission (FCC) adopted and released a Report and Order [65 pages in PDF] in its proceeding titled "In the Matter of Implementation of the Satellite Home Viewer Extension and Reauthorization Act of 2004 Implementation of Section 340 of the Communications Act". This R&O adopts rules pertaining to satellite carriage of significantly viewed television stations pursuant to the SHVERA. This item is FCC 05-187 in MB Docket No. 05-49.

11/3. The Securities and Exchange Commission (SEC) published a guide titled "Online Brokerage Accounts: What You Can Do to Safeguard Your Money and Your Personal Information".

11/3. The Senate Judiciary Committee (SJC) reported, by unanimous consent, S 1699, the "Stop Counterfeiting in Manufactured Goods Act", and S 1095, the "Protecting American Goods and Services Act of 2005". It held over HR 683, the "Trademark Dilution Revision Act of 2005".

11/3. The Senate Judiciary Committee (SJC) held an executive business meeting. It held over two bills pertaining 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".

IRS Loses Another Appeal Regarding 3% Excise Tax

11/2. The U.S. Court of Appeals (6thCir) issued it opinion [20 pages in PDF] in Office Max v. USA, affirming the District Court's judgment for Office Max, a taxpayer that argued that certain services are not subject to the 3 per cent excise tax on communications services, provided for by 26 U.S.C. § 4251.

Introduction. This opinion is in agreement with the May 10, 2005, opinion [22 pages in PDF], of the U.S. Court of Appeals (11thCir) in ABIG v. US. See also, story titled "IRS Loses Appeal Over 3% Excise Tax on Communications" in TLJ Daily E-Mail Alert No. 1,133, May 11, 2005.

Also, last week, the Internal Revenue Service (IRS) announced, with reference to ABIG v. US, that it "will continue to assess and collect the tax under § 4251 on all taxable communications services, including communications services similar to those at issue in the cases. Collectors should continue to collect the tax, including from taxpayers within the jurisdiction of the United States Court of Appeals for the Eleventh Circuit." See also, story titled "IRS Announces That It Will Violate Court of Appeals Ruling Regarding Excise Tax on Phone Service", in TLJ Daily E-Mail Alert No. 1,241, October 27, 2005.

The IRS offered the excuse that "the government will continue to litigate this important issue. The government is prosecuting appeals in five different circuits. The appeal in Office Max v. United States, 309 F. Supp. 2d 984 (N.D. Ohio 2004), has been briefed and argued, and the parties are awaiting a decision."

The IRS is litigating this issue repeatedly, constantly loosing, yet refusing to follow any of the court opinions. The 6th Circuit wrote that "we are not alone. Every court to reach this issue -- save one district court subsequently reversed -- has concluded that the statute unambiguously requires variance by both distance and elapsed transmission time." The Court provides citations to seven proceedings (at pages 7-8).

TLJ spoke with an attorney in the IRS's Office of Chief Counsel, which prepared the IRS's October notice. She stated that no one in the Office of Chief Counsel would answer any questions from TLJ. The Department of Justice attorneys who handled the appeal in the Office Max case have not returned phone calls from TLJ.

TLJ also spoke with Henry Levine of the Washington DC law firm of Levine Blaszek Block and Boothby. He represented Office Max in this case, as well as ABIG in the 11th Circuit. He speculated that the reason that the IRS decided not to follow the 11th Circuit opinion, and the numerous District Court opinions, was that it thought that the 6th Circuit would rule for the IRS, based upon the oral argument before the 6th Circuit. Judge Rogers, the presiding Judge, appeared to side strongly with the IRS. Judge Rosen, who is only a District Court Judge sitting by designation, appeared to favor the taxpayer. The third Judge, Sutton, had only recently been confirmed by the Senate, and said nothing at oral argument.

When the opinion was issued, it revealed that Sutton wrote an opinion shredding the IRS's argument, with Rosen joining. This left Rogers in dissent.

Now that the IRS has lost twice before Courts of Appeals, and many more times in District Courts, it may concede defeat and follow the courts' opinions.

There are presently five appeals pending. One in the DC Circuit, Amtrak v. U.S., has already been argued. The others are pending in the Federal Circuit, 2nd Circuit, and 3rd Circuit. The IRS lost in the District Court in each case.

Majority Opinion of the 6th Circuit. The Court of Appeals in the present case began its opinion with this: "When a party presents the question whether ``and´´ means ``or,´´ it is tempting to be dismissive of the claim or, worse, to make a crack about the demise of the rule of law."

However, since the United States Department of Justice put a crack team of serious attorneys on the case, the Court wrote a 15 page opinion in which it concluded that, for the statutory language at issue, the word "and" does in fact mean "and".

Office Max purchases telephone service from MCI. When MCI billed Office Max, it also collected, and forwarded to the IRS, a 3% charge, pursuant to § 4251. The rates were based on the length of calls, but not on distance.

§ 4251 imposes a tax on certain "communications services". § 4251(b) provides that the term ''communications services'' means "(A) local telephone service; (B) toll telephone service; and (C) teletypewriter exchange service". This case concerns "toll telephone service".

26 U.S.C. § 4252(b) provides that "toll telephone service" means

"(1) a telephonic quality communication for which
   (A) there is a toll charge which varies in amount with the distance and elapsed transmission time of each individual communication and
   (B) the charge is paid within the United States, and
(2) a service which entitles the subscriber, upon payment of a periodic charge (determined as a flat amount or upon the basis of total elapsed transmission time), to the privilege of an unlimited number of telephonic communications to or from all or a substantial portion of the persons having telephone or radio telephone stations in a specified area which is outside the local telephone system area in which the station provided with this service is located."

(Parentheses in original.)

That is, to be taxable, a "toll telephone service" must include a "toll charge which varies in amount with the distance and elapsed transmission time". The key word here is "and". Office Max asserted that "and" means "and". The IRS asserted that, in this case, "and" means "or".

The Court concurred with Office Max, and all of the other courts, that in this statute "and" does mean "and", and therefore, the service purchased by Office Max from MCI does not fall within the definition of "telephone toll service", and is therefore not subject to the 3% excise tax.

Dissent. There is also a dissenting opinion, by Judge Rogers. It may be most notable, not for the conclusion that "and" means "or", but rather for the methods of statutory construction that it employs.

For example, while courts often quote judicial precedents, and scholarly treatises, Judge Rogers began by quoting a non-existent hypothetical drunkard. This drunkard, write Rogers, might state "I like beer and wine." And this drunkard might interpret his statement to mean that he does not like beer and wine mixed together in the same glass. And thus, pursuant to this authority, the IRS can interpret "and" to mean "or".

Judge Rogers is not clear in his dissent as to whether his principle of statutory construction implies that the U.S. Congress drafts its statutes with no more care than a linguistically challenged drunkard, whether courts should construe statutes as though the court were composed of drunkards.

Judge Sutton, who wrote the opinion of the Court, responded that the "time and distance" requirement in the definition of telephone toll service is really more like "tequila and worm" than "beer and wine".

The IRS is represented by Teresa McLaughlin and Robert Metzler of the Department of Justice.

This case is Office Max, Inc. v. U.S.A., U.S. Court of Appeals for the 6th Circuit, App. Ct. No. 04-4009, an appeal from the U.S. District Court for the Northern District of Ohio, at Cleveland, D.C. No. 03-00961, Judge Patricia Gaughan presiding.

Senate Commerce Committee Approves VOIP 911 Bill

11/2. The Senate Commerce Committee (SCC) amended and approved S 1063, the "IP-Enabled Voice Communications and Public Safety Act of 2005".

The SCC approved an amendment in the nature of a substitute by unanimous consent. The SCC approved three amendments. It then approved the bill as amended by unanimous consent. See, bill as reported.

See, full story.

FCC Sets Comment Deadlines for DR Petition on IP Originated VOIP Traffic and Intercarrier Compensation

11/2. On October 3, 2005, Grande Communications filed a petition for a declaratory ruling [30 pages in PDF] with the Federal Communications Commission (FCC) that seeks a declaratory ruling (DR) regarding the treatment of traffic terminated through Grande to end users of interconnected local exchange carriers (LECs), in circumstances where customers of Grande have certified that the traffic originated in Internet protocol (IP) format.

Grande, which provides telecommunications services in the state of Texas, requests that the FCC issue a DR that "where a LEC receives a self-certification from its customer that the traffic the customer will send is enhanced services, VoIP-originated traffic ... that other LECS, receiving Certified Traffic over local interconnection trunks from the LEC, are to treat the traffic as local traffic for intercarrier compensation purposes and may not access charges against Certified Traffic, unless the Commission decides otherwise in the IP-Enabled Services or Intercarrier Compensation Rulemakings or in another proceeding."

The FCC initiated its proceeding titled "In the Matter of IP-Enabled Services" with an NPRM in early 2004. The 2004 NPRM is FCC 04-28 in WC Docket Nos. 04-36. The FCC adopted it on February 12, 2004. See also, story titled "FCC Adopts NPRM Regarding Regulation of Internet Protocol Services" in TLJ Daily E-Mail Alert No. 837, February 16, 2004.

The FCC's intercarrier compensation proceeding has been lurking for four and one half years. The FCC adopted its original Notice of Proposed Rulemaking (NPRM) [70 pages in PDF] on April 19, 2001, and released it on April 27, 2001. It is FCC 01-132 in Docket No. CC 01-92. See also, FNPRM numbered FCC 05-33, also in Docket No. 01-92.

Grande also requests that for such self-certified traffic that the FCC rule that "the LEC may properly rely on the customer's self-certification when the LEC makes decision about how to route Certified Traffic for termination" and that "the LEC, where it has no information to conclude that the certification is inaccurate, may offer the customer local services and send Certified Traffic to other terminating LECs, where it is destined for an end user of another LEC, over local interconnection trunks, unless and until the  the Commission decides otherwise in the IP-Enabled Services or Intercarrier Compensation Rulemakings or in another proceeding."

The FCC published a notice in the Federal Register (November 2, 2005, Vol. 70, No. 211, at Pages 66411 - 66412) that describes this petition and sets comment deadlines. The deadline to submit initial comments is December 12, 2005. The deadline to submit reply comments is January 11, 2006.

Grande is represented by Brad Mutschelknaus of the law firm of Kelly Drye and Warren.

This proceeding is WC Docket No. 05-283. See also, FCC public notice numbered DA 05-2680.

House Rejects Online Freedom of Speech Act

11/2. The House rejected HR 1606, the "Online Freedom of Speech Act", by a vote of 225-182. See, Roll Call No. 559. The bill was considered under suspension of the rules, which meant that it could not be amended, and that a two thirds majority was required for approval.

The vote broke down largely along party lines, with Republicans voting 179-38 in favor, and with Democrats voting 46-143.

Rep. Jeb Hensarling (R-TX) introduced HR 1606 on April 13, 2005. It is a short and simple bill. The only substantive language provides as follows: "Paragraph (22) of section 301 of the Federal Election Campaign Act of 1971 (2 U.S.C. 431(22)) is amended by adding at the end the following new sentence: `Such term shall not include communications over the Internet.'."

The House Administration Committee held a hearing on September 22, 2005. See, story titled "House Committee Holds Hearing on Regulation of Internet Speech" in TLJ Daily E-Mail Alert No. 1,222, September 27, 2005.

While HR 1606 is a short bill, its context and consequences are more complicated. This is a response to the Federal Election Commission's (FEC) implementation of the provisions of the Federal Election Campaign Act (FECA), as amended by the Bipartisan Campaign Reform Act of 2002 (BCRA), that require the FCC to write rules restricting political speech on the internet. The FECA, and regulations thereunder, nominally regulate political money, such as campaign contributions and expenditures. The BCRA requires the FEC to construe individuals' acts of political expression, such as operating blogs, as though the exercise of expression were a financial transaction. The FEC, in its first attempt to write rules, created an exemption for communications over the internet. The authors of the BCRA challenged this in the District Court, and won. The Court held that the FEC could not exempt communications over the internet. The FEC is now in the process of writing new rules. HR 1606 would have statutorily instructed the FEC to do what it did in its first attempt.

The BCRA, which is also known as McCain Feingold, is now Public Law No. 107-155. Sen. John McCain (R-AZ) and Sen. Russ Feingold (D-WI) were the lead sponsors in the Senate. Rep. Christopher Shays (R-CT) and Rep. Marty Meehan (D-MA) were the lead sponsors in the House.

As required by the BCRA, the FEC promulgated implementing regulations. At issue was the definition of "public communication". 2 U.S.C. § 431(22) provides that "The term ``public communication´´ means a communication by means of any broadcast, cable, or satellite communication, newspaper, magazine, outdoor advertising facility, mass mailing, or telephone bank to the general public, or any other form of general public political advertising."

The FEC wrote in its rules that "The term public communication shall not include communications over the Internet." This was codified at 11 C.F.R. § 100.26.

Rep. Shays and Rep. Meehan then filed a complaint in the U.S. District Court (DC) challenging many of these regulations. Sen. McCain and Sen. Feingold submitted an amicus curiae brief. Senate rules prohibited them from being parties.

The District Court, Judge Colleen Kotelly presiding, overturned 14 parts of the FEC's implementing regulations, including the one regarding internet communications. The Court also held that the Congressmen have standing. See, September 18, 2004 Memorandum Opinion and Order [159 pages in PDF]. This is reported at Shays v. FEC, 337 F.Supp.2d 28 (D.D.C. 2004).

The District Court's decision is significant for technology law, and in particular, for political speech on the internet. The BCRA provides for regulation of certain "public communications"s. The FEC promulgated a rule that provides that "The term public communication shall not include communications over the Internet." But, the District Court held that the FEC lacked authority to do this. Hence, certain internet communications, such as personal blogs, web sites, and e-mail, may be subject to federal regulation under the FECA as "public communication"s. Many individuals and small businesses that engage in internet based speech lack the resources to comply with the FEC's regulatory regime, and hence, face government enforcement actions, and a chilling of their speech.

The FEC appealed with respect to five of the fourteen overturned rules. However, it did not appeal the portion of the District Court ruling that threatens internet speech.

The FEC issued another notice of proposed rulemaking (NPRM) in March of this year. See, story titled "FEC Approves NPRM on Internet Speech" in TLJ Daily E-Mail Alert No. 1,103, March 25, 2005. See also, stories titled "Bloggers Dodge McCain Feingold Bullet" in TLJ Daily E-Mail Alert No. 1,102, March 24, 2005, "FEC to Consider Rules Regarding Internet Speech" in TLJ Daily E-Mail Alert No. 1,100, March 22, 2005.

The FEC has held a public hearing, but has yet to issue new rules.

Rep. Hensarling, the sponsor of the bill, wrote in a November 1, 2005, statement that "Unfortunately, new federal campaign finance regulations could actually end up stifling political speech and threatening Americans’ constitutional rights.  The Federal Election Commission (FEC) is expected to finalize rules and regulations that could squash not only free speech and political activism, but also impede innovation and technology, unless Congress acts now."

He added that "The Internet has opened many new doors for political speech. In today’s e-society, websites and blogs are quickly becoming the most popular and efficient way for people to communicate, express their views, and debate the merits of candidates and causes. Clearly, we ought to embrace these newcomers to our political process instead of applying additional complex and stifling regulatory burdens."

Disclosure. TLJ publishes information via e-mail and the web regarding, among other things, past and future candidates for federal office. This issue references many persons who will likely be candidates for re-election in 2006. Hence, the FEC's rules, and Congressional legislation, may affect TLJ. Readers may wish to take this into consideration when assessing the reliability and objectivity of any TLJ stories on this topic.

Commentary: Analysis of the Vote on HR 1606

11/3.The roll call vote defeating HR 1606, the "Online Freedom of Speech Act", on November 2, 2005, revealed several patterns.

First, it was a party line vote. Republicans voted 179-38 in favor, and Democrats voted 46-143. Second, there was a regional trend. Most of the opposition came from Democrats and Republicans in New England, the northern industrial states, and the midwest. Third, there was a urban rural split. Representatives from rural and sparsely populated areas were more likely to support the bill than urban representatives.

This bill provides a rare opportunity to study the support of members of the House for promoting the development and use of information technologies. Almost all members state that they want to promote technology. Roll call votes sometimes force members to disclose the extent of their commitment.

See, full story.

Amazon Announces Book Digitization Programs

11/2. Amazon announced two programs, named Amazon Pages and Amazon Upgrade. Amazon stated in a release that its Pages program will allow consumers to "purchase and read online just the pages they need" out of books.

The Upgrade program will allow consumers who have purchased from Amazon a physical book, to then upgrade their purchase to include complete online access.

Amazon added that it is working in "collaboration with our publishing partners". In contrast, Google's Library program, which involves scanning of library books, does not involve permission from authors, publishers, or other copyright holders.

Amazon stated thate its existing Search Inside the Book program, includes "hundreds of thousands of books".

See also, story titled "Google, Publishers and Authors Debate Google's Print for Libraries Program" in TLJ Daily E-Mail Alert No. 1,239, October 25, 2005.

Chief Justice Roberts Recuses Himself in Case Regarding Patentable Subject Matter

11/2. The Supreme Court issued another order [PDF] 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. On October 31, 2005, the Supreme Court granted certiorari. See, Order List [16 pages in PDF] at page 2.

See also, story titled "Supreme Court Grants Certiorari in LabCorp v. Metabolite" in TLJ Daily E-Mail Alert No. 1,244, November 1, 2005.

The just released order states a follows: "Having been advised by the Chief Justice that he now realizes that he should have recused himself from participation in this case, and does now recuse himself, the Court vacates its order of Monday, October 31, 2005. The Court has reconsidered the petition for certiorari, which is granted but limited to question three as presented in the petition. The Chief Justice has not participated in the vote to withdraw the order of October 31, 2005 or in the instant reconsideration of the petition for certiorari."

The previous order granting certiorari also limited review to question three.

The Supreme Court did no disclose the reason for the recusal. However, 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.

2nd Circuit Affirms in Drug Patent Antitrust Case

11/2. The U.S. Court of Appeals (2ndCir) issued its divided opinion [100 pages in PDF] in In Re: Tamoxifen Citrate Antitrust Litigation, a case involving new drug applications (NDAs), the Hatch Waxman Act, and antitrust law. The Court of Appeals affirmed the District Court's summary judgment for defendants.

This is a class action lawsuit brought on behalf of consumers of the drug tamoxifen citrate, and others, alleging that a settlement between Barr Laboratories, Inc., Zeneca, Inc., and AstraZeneca Pharmaceuticals LP violates antitrust law.

The class representatives filed their complaint in the U.S. District Court (EDNY) against Barr, Zeneca, and AstraZeneca, alleging violation of the Sherman Act. The District Court granted summary judgment to the defendants. The plaintiffs appealed.

The Court of Appeals affirmed.

This case is In Re: Tamoxifen Citrate Antitrust Litigation, U.S. Court of Appeals for the 2nd Circuit, App. Ct. No. No. 03-7641, an appeal from the U.S. District Court for the Eastern District of New York, Judge Leo Glasser presiding. Judge Sack wrote the opinion of the Court of Appeals, in which Judge Raggi joined. Judge Poole wrote a dissenting opinion (at pages 73-100).

This article provides a brief and inadequate summary of the opinion and dissent. This case involves drug patents, not patents information technology patents. Nevertheless, persons interested in technology related law may wish to read this opinion for its discussion of the purposes of, and interaction between, patent law and antitrust law.

Also, the Supreme Court has a pending petition for writ of certiorari in FTC v. Schering-Plough Corp., another case that involves the application of antitrust law and the Hatch Waxman Act. See, story titled "Supreme Court Seeks Views of SG in FTC v. Schering-Plough" in TLJ Daily E-Mail Alert No. 1,244, November 1, 2005.

More News

11/2. The Senate Commerce Committee (SCC) amended and approved S 1063, the "IP-Enabled Voice Communications and Public Safety Act of 2005".

8th Circuit Affirms in Qwest v. Minnesota PUC

11/1. The U.S. Court of Appeals (8thCir) issued its opinion [15 pages in PDF] in Qwest v. Minnesota PUC, a case regarding interconnection agreements between an ILEC and CLECs.

The Minnesota Department of Commerce filed an administrative complaint with the Minnesota Public Utility Commission (MPUC) against Qwest Communications, an incumbent local exchange carrier (ILEC), alleging that it had entered into secret interconnection agreements with some competitive local exchange carriers (CLECs). It further alleged that Qwest did not submit these to the MPUC, and that this discriminated against non-party CLECs.

The Communications Act, at 47 U.S.C. § 252, mandates that interconnection agreements must be submitted to state PUCs for approval. § 252(a) provides, in part, that "Upon receiving a request for interconnection, services, or network elements pursuant to section 251 of this title, an incumbent local exchange carrier may negotiate and enter into a binding agreement with the requesting telecommunications carrier or carriers ... The agreement ... shall be submitted to the State commission ..."

§ 252(e) provides that "Any interconnection agreement adopted by negotiation or arbitration shall be submitted for approval to the State commission. A State commission to which an agreement is submitted shall approve or reject the agreement, with written findings as to any deficiencies."

§ 252(i) then provides that "A local exchange carrier shall make available any interconnection, service, or network element provided under an agreement approved under this section to which it is a party to any other requesting telecommunications carrier upon the same terms and conditions as those provided in the agreement."

The MPUC held that Qwest knowingly and intentionally violated §§ 251 and 252 of the Communications Act by failing to file twelve agreements, fined Qwest $25.95 Million, and ordered Qwest to pay restitution, pursuant to Minnesota state law, to the non-party CLECs.

Qwest filed a complaint in U.S. District Court (DMinn) against the MPUC. The District Court upheld the fine. But, the District Court held that the MPUC lacks the authority under Minnesota law to order Qwest to comply with restitution for CLECs that were not parties to unfiled interconnection agreements. Both Qwest and the MPUC appealed.

The Court of Appeals affirmed on all issues before it.

This case is Qwest Corporation v. Minnesota Public Utilities Commission, et al., U.S. Court of Appeals for the 8th Circuit, App. Ct. Nos. 04-3368, 04-3408, and 04-3510, appeals from U.S. District Court of the District of Minnesota. Judge Lay wrote the opinion of the Court of Appeals, in which Judges Riley and Fagg joined.

4th Circuit Affirms in NCSC v. Cisco

11/1. The U.S. Court of Appeals (4thCir) issued its opinion [14 pages in PDF] in NCSC v. Cisco, a dispute between Cisco and one of its former distributors. Cisco prevailed in the District Court, and on appeal.

Cisco Systems makes networking equipment. Network Computing Services Corporation (NCSC) entered into a contract with Cisco to become a reseller of Cisco equipment in the state of South Carolina. NCSC also provides consulting services. Cisco authorized other resellers in South Carolina. Cisco also required NCSC it to agree not to be listed as an official distributor of any of Cisco’s competitors.

NCSC filed a complaint in U.S. District Court (DSC) against Cisco alleging violation of the Sherman Act, breach of an oral contract, violation of the South Carolina unfair trade practices statute, and common law fraud. NCSC alleged that Cisco took advantage of sales leads that NCS supplied to it, and then told several potential customers to do business with other Cisco distributors instead of NCSC.

NCSC dropped the Sherman Act and breach of contract claims. The District Court granted summary judgment to Cisco on the unfair trade practices claim, and the common law fraud claim. NCSC appealed.

The Court of Appeals affirmed. The Court of Appeals, applying the law of South Carolina, wrote that the unfair trade practices claim fails because there was no evidence that Cisco's conduct caused harm to any member of the South Carolina public.

This case is Network Computing Services Corporation v. Cisco Systems, Inc., et al., U.S. Court of Appeals for the 4th Circuit, App. Ct. Nos. 04-2166 and 04-2213, appeals from the U.S. District Court for the District of South Carolina, at Columbia, Judge Joseph Anderson presiding, D.C. No. CA-01-281-3. This is a per curiam opinion by Judges Widener, Niemeyer and Michael.

The Court of Appeals also wrote that this is an "unpublished" opinion, and that "Unpublished opinions are not binding precedent in this circuit. See Local Rule 36(c)."

Rep. Oxley to Retire

11/1. Rep. Mike Oxley (R-OH) (at right) announced that he will retire from the Congress at the end of his current term. He is currently the Chairman of the House Financial Services Committee (HFSC). See, release.

Rep. Mike OxleyRep. Oxley (at right) was first elected Chairman at the beginning of the 107th Congress, in early 2001. House Republican rules term limit Chairmen after six years. Hence, he would have relinquished the Chairmanship at the end of the current Congress.

Some of the other members who might be considered for the HFSC Chairmanship include Rep. Richard Baker (R-LA), Rep. Spencer Bachus (R-AL), Rep. Deborah Pryce (R-OH), and Rep. Michael Castle (R-DE).

In recent years, Rep. Baker has sponsored and promoted legislation, which did not become law, that would have required public companies to expense only those stock options granted to the CEO and the next four highest paid officers. It also provides an exemption for small businesses. As for the top five employees, the bill required companies to follow the FASB standards, but with a zero volatility assumption. The Financial Accounting Standards Board (FASB) mandated expensing of all stock options. However, many technology companies, technology workers, and the groups that represent them, opposed the FASB mandate, and sought a legislative remedy.

The House approved Rep. Baker's bill, HR 3574 (108th Congress), the "Stock Options Accounting Reform Act", on July 20, 2004. See also, story titled "House Passes Stock Option Accounting Reform Act" in TLJ Daily E-Mail Alert No. 942, July 21, 2004. The Senate did not approve the bill.

Alternatively, if the Democrats obtain a majority in the House in the 2006 elections, Rep. Barney Frank (D-MA) would likely become the next HFSC Chairman.

People and Appointments

11/1. President Bush formally nominated Ben Bernanke to be a member and Chairman of the Board Of Governors of the Federal Reserve System. See, White House release. President Bush announced this nomination last week. See, story titled "Bush Picks Bernanke to Replace Greenspan" in TLJ Daily E-Mail Alert No. 1,239, October 25, 2005.

11/1. The Securities and Exchange Commission (SEC) announced that David Smith, Associate Director (Public Utility and Investment Company Regulation) of the Division of Investment Management at the SEC will leave the SEC in November. He will work for the Mutual Fund Directors Forum. See, SEC release.

FCC Revises Agenda for November 3 Meeting

11/1. The Federal Communications Commission (FCC) announced on November 1 that it "will consider one additional item" at its meeting of November 3. The FCC announced in a release [PDF] that it will also consider a First Report and Order and Further Notice of Proposed Rulemaking regarding its Emergency Alert System rules. This proceeding is EB Docket No. 04-296.

On October 21, the FCC issued an agenda that listed this item for its October 28 meeting. The FCC rescheduled this meeting several times, eventually holding it on October 31.

Also on October 31 the FCC issued a notice stating that this Emergency Alert System item was taken off the agenda for the October 31 meeting. Now, the FCC has put it on the agenda for its November 3 meeting.

5 U.S.C. § 552b requires that agencies give notice "at least one week before the meeting, of the time, place, and subject matter of the meeting".

On October 27, the FCC released the original agenda [PDF] for its November 3 meeting. This agenda lists three items, a Notice of Proposed Rulemaking (NPRM) regarding Section 621 and new video entrants, a Report and Order regarding DTV tuners, and Clarification Order and Notice of Proposed Rulemaking regarding the use of distributed transmission system (DTS) technologies by digital television stations.

Go to News from October 26-31, 2005.