BIS's McCormick Addresses Regulation of Tech Exports to PR China

6/9. David McCormick, Under Secretary at the Department of Commerce's Bureau of Industry of Security (BIS), gave a speech at the Center for Strategic and International Studies (CSIS) in Washington DC. He primarily discussed the direction of BIS regulation of exports to the Peoples Republic of China.

But first, he said that "Intellectual Property Rights remain a very important subject. The foundation of America's competitiveness is a knowledge-based, innovation-driven economy. And that economy depends not only on a well-educated and skilled workforce, but also global intellectual property protection. A responsible stakeholder should not tolerate widespread theft of intellectual property. Not only is piracy of ideas rampant in China , but also two-thirds of all the phony goods seized by U.S. Customs come from China . In addition, we know that 90 percent of the software sold within China was pirated."

McCormick (at right) also said that "Human Rights is another issue of concern", including "internet censorship". He elaborated, "How can one open a society to trade and maximize the flow of information that it requires, but also maintain the political restrictions that China has tried to impose? In the long run, you cannot."

The BIS regulates exports from the U.S., and matters related to exports. Hence, it has no authority related to over human rights or IPR enforcement.

McCormick next discussed the BIS's area of responsibility. He said that "China's military modernization is a third area of concern, and one which is particularly central to export control policy." He said the U.S. export control policy must ensure that exported dual use technologies must be used for civilian purposes, and not also be used to advance China's military.

He asserted that the BIS "has made real progress in evolving our strategic trade controls in the past several years in ways that have been beneficial for both the United States and China."

He elaborated that "For certain technologies, our new policy will free future trade of dual use items with certified importers in China for civilian purposes. U.S. exporters seeking to grow market share in critical sectors such as semiconductor equipment and electronics will be spared the need to apply for licenses for potentially hundreds of millions of dollars worth of sales to these companies in China."

"This aspect of the policy, however, not only frees up legitimate trade, but also increases U.S. security by ensuring closer scrutiny of key technology purchasers in China", said McCormick. "To become eligible, Chinese companies must demonstrate an established record of nonproliferation and responsible civilian use of U.S. imports. This process will require unprecedented openness and cooperation on the part of Chinese companies. And it will create incentives for them to demonstrate good faith and sound practices. In addition, it will allow U.S. government officials to focus on more complex cases with more severe implications for American security."

He continued that "The new policy will also bolster U.S. security by preventing exports of technologies for incorporation into Chinese weapons systems. It is not a wide-ranging ``catch-all regulation´´ that subjects everything from fountain pens to office furniture to government scrutiny. Rather, these changes carefully target certain technologies that, while unrestricted until now, have the potential to materially enhance China's military capabilities."

He added that "The Administration will also urge others, particularly in Europe and Japan, to take similar steps. And we will continue to conduct on-the-ground spot checks in China to reduce the risk that civilian exports are diverted to third parties or to China's own military purposes."

SEC's Cox Discusses Regulation and Information

6/9. Chris Cox, Chairman of the Securities and Exchange Commission (SEC), gave a speech in New York City to the New York Financial Writers Association.

He said that "lawmakers and regulators" "make things so needlessly complicated". And, he said that "Our capital markets rely on trust, and investors can't trust legalese and jargon."

He said that the function of financial journalists is to translate government jargon, and the financial reports of public companies, into plain English. He added that "our entire free enterprise system would crumble without the work of thousands of journalists competing to discover the truth."

He also said that "Someone's always going to try to shoot the messenger. But know that the SEC will not be one of them."

However, he acknowledged that "the SEC earlier this year subpoenaed some journalists". But, he insisted, "issuing a subpoena to a journalist will be exceedingly rare".

He also discussed the SEC's rulemaking and enforcement activities with respect to executive compensation and back dating of stock options.

Bernanke Outlines Theory of Tech Innovation, Innovation Policy, and Economic Growth

6/9. Federal Reserve Board (FRB) Chairman Ben Bernanke gave a speech at the Massachusetts Institute of Technology (MIT) in which he outlined a theory of how technological innovation, combined with the right technology related policies, lead to greater productivity and economic growth.

Bernanke (at right) said that "technological change and innovation are today in large part driving economic growth and the improvement of living standards".

He elaborated that "even the very best ideas in science or engineering do not automatically translate into broader economic prosperity.  In large measure, the material benefits of innovation spring from complementarities between technology and economics, where I include in ``economics´´ not only economic ideas but also economic policies and, indeed, the entire economic system. When the economics is right, scientific and technological advances promote economic development, which in turn, in a virtuous circle, may provide resources and incentives that help to foster more innovation."

He argued that the case of the former Soviet Union is consistent with this theory. He said that it "did not lack for scientific and engineering talent but which had an economic system that was poorly suited for translating scientific advances into economic progress".

He also argued that the case of the United States in the last ten years supports his theory. He explained that "Before the mid-1990s, the growth of productivity -- the amount of output produced per worker or per hour of work -- had been relatively sluggish for more than two decades in this country." Then, "In the mid-1990s, however, productivity growth picked up in the United States. The growth rate of productivity increased still further around the turn of the century and remains strong today."

He then argued that "the pickup in U.S. productivity growth in the mid-1990s was importantly related to advances in information and communication technologies."

He then offered an explanation for why information technology boosted U.S. productivity, but not productivity in Europe -- the "complementarity of technology and economics."

First, he pointed to regulation of labor markets. He said that "taking full advantage of new information and communication technologies may require extensive reorganization of work practices, reassignment and retraining of workers, and ultimately some reallocation of labor among firms and industries. Regulations that raise the costs of hiring and firing workers and that reduce employers’ ability to change work assignments -- like those in a number of European countries, for example -- may make such changes more difficult to achieve."

Second, he pointed to regulation of production. He said that "a high degree of competition and low barriers to the entry of new firms in most industries in the United States provide strong incentives for firms to find ways to cut costs and to improve their products. In some other countries, in contrast, the prominence of government-owned firms with a degree of monopoly power, together with a regulatory environment that protects large incumbent firms and makes the entry of new firms difficult, reduces the competitive pressure for innovation and the application of new ideas."

Third, he pointed to "free and open trade; companies that are exposed to global competition tend to be much more efficient and to produce goods of higher quality than companies that are sheltered from international competition."

Fourth, he noted that "Some observers point to the depth, liquidity, and sophistication of American financial markets as contributing to recent productivity gains. Sizable markets for venture capital and ready access to equity financing facilitate start-up enterprises, which are often the best means of bringing new technologies to the market."

Fifth, he said that the U.S. "benefits from its high-quality research universities, which have shown both the willingness and the ability to collaborate with the private sector and, in some cases, with the government as well, in the development and commercialization of new ideas."

Sixth, he said that the "relatively more positive attitudes toward competition and entrepreneurship in the United States -- a factor that spans economics and sociology -- may also stimulate innovation and its commercial application as well as economic policies that support innovation.

Seventh, he said that "Management practices also differ across countries". However, he did not identify any of the better practices.

Finally, he identified one economic policy that hinders the U.S. He said that this is "the relatively poor performance of our K-12 educational system in stimulating interest in and providing solid training in the sciences".

He also discussed, in a different part of his speech, an aspect of the U.S. commercial and social culture that may also contribute to higher relative creativity, economic growth, and productivity growth in the U.S. than in Europe, Japan, and other developed nations.

He said, "it is OK to fail".

He added that "New opportunities will always arise for those who seek them. If you remain nimble in searching out new and unexpected opportunities, it will not only benefit you, but it will also benefit the economy and our society, as long experience has shown that dynamism and creativity are the seeds of innovation and of progress."

Notably, Bernanke said nothing about policies related to patents, copyrights, or other areas of intellectual property. Also, he had nothing to say about tax policies, such as the research and development tax credit. Finally, he said nothing about immigration and visas for innovation sector individuals.

Bernanke also said that a "significant amount of time passes between the initial development and diffusion of new technologies and the realization of the associated productivity benefits", and that this has been observed with information and communications technologies.

He suggested that for firms to realize productivity gains from new technologies, they must both invest in the physical technology, and in "intangible technology". He elaborated that adopting new technology also requires firms "to make collateral investments in research and development, organizational structure, and employee training."

That is, it takes companies and people years to figure out how to make good use of their new computers and software. This, suggested Bernanke, offers an explanation for why personal computers, and associated software, were developed in the 1980s, but increases in productivity did not appear until the 1990s.

The written transcript of Bernanke's speech also contains hyperlinks to six papers (and cites a seventh) which support arguments made in the speech.

Bernanke's speech is largely consistent with speeches given in recent years by former Chairman Alan Greenspan and former Vice Chairman Roger Ferguson. All have argued that productivity growth in the U.S. picked up around 1995, that this was the result of the adoption of new information technologies, and that this has caused economic growth and higher living standards. Also, all have left the role of intellectual property out of their analyses.

Court of Appeals Upholds All of FCC's CALEA Order

6/9. The U.S. Court of Appeals (DCCir) issued its divided opinion [29 pages in PDF] in ACE v. FCC, petitions for review of the Federal Communications Commission's (FCC) August 5, 2005, order [59 pages in PDF] that provides that facilities based broadband service providers and interconnected voice over internet protocol (VOIP) providers are subject to requirements under the 1994 Communications Assistance for Law Enforcement Act (CALEA). The Court of Appeals denied the petition.

Judge David Sentelle wrote the opinion of the Court, in which Judge Janice Brown joined. Judge Harry Edwards wrote an emphatic dissent. He wrote that the FCC "forgot to read the words of the statute", that its order "manufactures broad new powers out of thin air", and that its legal argument in defense of the broadband service providers portion of the order is "utter gobbledygook".

The FCC's order is FCC 05-153 in ET Docket No. 04-295 and RM-10865. See also, stories titled "FCC Amends CALEA Statute" in TLJ Daily E-Mail Alert No. 1,191, August 9, 2005; "FCC CALEA Order Challenged" in TLJ Daily E-Mail Alert No. 1,240, Wednesday, October 26, 2005; and "Court of Appeals Hears Oral Argument in Challenge to FCC's August 5 CALEA Order" and "Commentary: Administrative Process and the FCC" in TLJ Daily E-Mail Alert No. 1,365, May 8, 2006. See also, ACE brief [71 pages in PDF] and FCC brief [52 pages in PDF] filed with the Court of Appeals.

This opinion is a significant victory for the Department of Justice, Federal Bureau of Investigation, and National Security Agency, which seek to maintain universal surveillance capabilities across all communications and information technologies.

Opponents of the FCC's order from the technology sector, academia, and the privacy and civil rights community have argued that it will increase prices consumers pay for services, harm network and information security, reduce technological innovation, drive businesses offshore, and harm privacy.

The CALEA provides that telecommunications carriers must design their equipment and networks to facilitate lawfully conducted wiretaps and other intercepts. Broadband service providers are not carriers, either under the plain meanings of the Communications Act, or under FCC determinations. Nevertheless, the Department of Justice asked the FCC to write rules concluding that, for the purposes of the CALEA, broadband service providers are carriers. The FCC complied. Petitions for review were then filed. The just issued opinion denies these petitions, thereby upholding the FCC's determination.

The FCC based its determination on two separate grounds. First, it concluded that the definition of "telecommunications carrier" in CALEA is different and much broader than the definition of that term in the Communications Act, and can encompass providers of services that are not classified as telecommunications services under the Communications Act. Second, it asserted that the services covered by the order replace a substantial portion of conventional telecommunications services. There is a series of articles in TLJ Daily E-Mail Alert 960, August 17, 2004, which offer the legal analysis that neither of these two legal arguments is tenable.

Dissent. Judge Edwards wrote in his dissent that "In determining that broadband Internet providers are subject to CALEA as ``telecommunications carriers,´´ and not excluded pursuant to the ``information services´´´ exemption, the Commission apparently forgot to read the words of the statute. CALEA does not give the FCC unlimited authority to regulate every telecommunications service that might conceivably be used to assist law enforcement. Quite the contrary. Section 1002 is precise and limited in its scope. It expressly states that the statute's assistance capability requirements ``do not apply to [ ] information services.´´ Id. Broadband Internet is an “information service” – indeed, the Commission does not dispute this. Therefore, broadband Internet providers are exempt from the substantive provisions of CALEA."

He added that "The FCC apparently believes that law enforcement will be better served if broadband Internet providers are subject to CALEA’s assistance capability requirements. Although the agency may be correct, it is not congressionally authorized to implement this view."

He also wrote that "What we see in this case is an agency attempting to squeeze authority from a statute that does not give it. The FCC’s interpretation completely nullifies the information services exception and manufactures broad new powers out of thin air."

Judge Edwards did agree with the majority, however, regarding the portion of the FCC's order pertaining to interconnected voice over internet protocol (VOIP) providers. He wrote that "There is no doubt that VoIP replaces a substantial portion of local telephone exchange service -- it offers exactly the same functionality as phone service. And, in contrast to broadband service, the Commission has explicitly refrained from designating VoIP as an information service under the Communications Act".

Reaction. FCC Chairman Kevin Martin stated in a release [PDF] that "Enabling law enforcement to ensure our safety and security is of paramount importance. Today, the United States Court of Appeals for the District of Columbia Circuit affirmed the Commission’s decision concluding that VoIP and facilities-based broadband Internet access providers have CALEA obligations similar to those of telephone companies. I am pleased that the Court agreed with the Commission’s finding, which will ensure that law enforcement agencies' ability to conduct lawful court-ordered electronic surveillance will keep pace with new communication technologies."

Jim Dempsey of the Center for Democracy & Technology (CDT) stated in a release that "This ruling threatens both civil liberties and to technology innovation". He added that "Congress intended to exclude the Internet from the wiretap design mandates, because the Internet is fundamentally different from the telephone network. The FCC wanted a certain result from the get-go, and they twisted or ignored the words of the statute to get it. This decision threatens the privacy rights of innocent Americans as well as the ability of technology companies to innovate freely."

This case is American Council on Education, et al. v. FCC and USA, U.S. Court of Appeals for the District of Columbia, App. Ct. Nos. 05-1404, 1408, 1438, 1451 and 1453, Judges Sentelle, Brown and Edwards presiding.

People and Appointments

6/9. Jeffrey Rosen was named General Counsel of the Office of Management and Budget (OMB). See, OMB release [PDF]. He was previously General Counsel at the Department of Transportation. Before that, he was a partner at the law firm of Kirkland & Ellis.

6/9. President Bush announced his intent to nominate Stephen McMillin to be Deputy Director for the Budget at the Office of Management and Budget (OMB). See, OMB release [PDF].

6/9. President Bush announced his intent to nominate Randall Fort to be Assistant Secretary of State for Intelligence and Research. He is currently Co-Head of Global Security at Goldman Sachs. See, White House release.

6/9. President Bush nominated Alexander Acosta to be the U.S. Attorney for the Southern District of Florida for the term of four years. See, White House release.

6/9. President Bush nominated Troy Eid to be be the U.S. Attorney for the District of Colorado for the term of four years. See, White House release.

6/9. President Bush nominated Phillip Green to be the U.S. Attorney for the Southern District of Illinois for the term of four years. See, White House release.

6/9. President Bush nominated George Holding to be U.S. Attorney for the Eastern District of North Carolina for the term of four years. See, White House release.

6/9. President Bush nominated Sharon Lynn Potter to be the U.S. Attorney for the Northern District of West Virginia for the term of four years. See, White House release.

6/9. President Bush nominated Brett Tolman to be the U.S. Attorney for the District of Utah for the term of four years. See, White House release. He is currently Chief Counsel for the Senate Judiciary Committee's (SJC) Crime and Terrorism Unit.

More News

6/9. The Progress and Freedom Foundation (PFF) released a paper titled "Rhetoric vs. Reality: Lessig on Network Neutrality". The author is the PFF's Kyle Dixon. He rebuts the op-ed titled "No Tolls on the Internet" by Lawrence Lessig and Robert McChesney published in the June 8 issue of the Washington Post.

6/9. Robert Cresanti, the Under Secretary of Commerce for Technology, gave a speech titled "Technology Administration Revivification of U.S. S&T Competence & Competitiveness" to the Institute of Electrical and Electronics Engineers (IEEE) in Cambridge, Massachusetts.

House Approves COPE Act, Without Network Neutrality Amendment

6/8. The House amended and approved HR 5252, the "Communications Opportunity, Promotion, and Enhancement Act of 2006" (COPE Act). The vote on final approval was 321-101. See, Roll Call No. 241.

Republicans voted 215-8 for the bill. Democrats voted 106-92.

The House rejected the Markey network neutrality amendment [PDF] by a vote of 152-269. See, Roll Call No. 239. Republicans voted 11-211. Democrats voted 140-58.

The House approved the Smith antitrust amendment by a vote of 353-68.. See, Roll Call No. 238. Republicans voted 222-1. Rep. James Sensenbrenner (R-WI) cast the only Republican vote against this amendment. He also voted for the Markey amendment, and against final passage.

See, full story.

CIIP Subcommittee Approves Section 115 Reform Act

6/8. Rep. Lamar Smith (R-TX) and Rep. Howard Berman (D-CA) introduced HR 5533 [57 pages in PDF], the "Section 115 Reform Act of 2006", or SIRA. The House Judiciary Committee's (HJC) Subcommittee on Courts, the Internet, and Intellectual Property (CIIP) approved the bill, without amendment, by unanimous voice vote, on June 8.

The bill as introduced and approved makes changes to the discussion draft that was circulated on June 7, 2006, and hyperlinked in the story titled "CIIP May Mark Up SIRA" in TLJ Daily E-Mail Alert No. 1,386, June 7, 2006.

The bill would revise 17 U.S.C. § 115 to provide digital music providers, such as Apple's iTunes, a blanket compulsory license for digital phonorecord deliveries and hybrid offerings.

Rep. Smith, the Chairman of the CIIP Subcommittee, and sponsor of HR 5553, wrote in a statement that "Retailers and online companies should be competing with each other, not competing with piracy".

See, full story.

EU's Mandelson Criticizes PRC for Failure to Enforce IPR

6/8. Peter Mandelson, the European Trade Commissioner, gave a speech titled "A World of Opportunity: China and the future of international trade" in Beijing, PR China. He discussed many trade related subjects, including intellectual property rights (IPR) and IPR enforcement.

Mandelson (at left) said that "in the global information economy, knowledge is a currency of its own. All of us are taking steps to focus political attention on education and skills. This involves unprecedented investment, rules that protect intellectual property and a willingness to embrace innovation and the risks of entrepreneurship. Europe is benefiting from the talent of our newest Member States; here in China you are producing more than 4 million science graduates and 600,000 engineers each year."

He continued that "As tariffs and quotas are progressively reduced, the greatest barriers to trade are becoming regulatory barriers -- non-transparent licensing and standards enforcement, or poor protection for intellectual property rights. We need to work out together new responses to these new priorities."

He elaborated that there is a "serious problem" with IPR enforcement in the PRC. "The EU produces expensive, innovative and branded products. To retain their value these products depend on a robust international system to protect brands, patents and copyright. This is an area where we need to work with China to deliver rapid progress. And developing more robust IPR protection will also help China develop her own brands and patents in the future. Please do bear that in mind. I was pleased yesterday to sign an agreement to prevent the sale of counterfeit goods in some markets here. I have also agreed with Minister Bo, whom I value as both a friend and colleague, to work together to open new centres in China to monitor and enforce IPR compliance."

He also used this speech to identity other trade related problems in the PRC: "New non-tariff barriers such as procedures for product certification, labelling approvals, or approval of ingredients. Lengthy authorisation periods. Unjustified sanitary barriers in agricultural trade. The adoption of national standards that do not match widely accepted international ones. Failure to open up government procurement. Complex rules restricting foreign investment. Unequal access to banking finance."

He also said that "Trade in services is an area where China has made some ambitious commitments in the WTO, but where these commitments have not yet been translated into real opportunities for our operators: for instance in the financial, telecom and construction sectors. Yet opening these sectors would be in China’s interest. Opening up banking would allow enterprises to have better access to capital funding; opening telecoms would contribute to a more dynamic telecom sector, more jobs and cheaper calls."

On the other hand, Mandelson did not mention any of the trade restraining protectionist policies pursued by the European Union.

He also addressed the importance of the Doha round of trade negotiations. He stated that "our highest priority right now in the ``globalisation agenda´´ is an ambitious and successful conclusion of the Doha Development Round. There is no better means to reach the UN Millennium Development Goals. Failure to broker a deal would shake public confidence in our capacity to ensure that the benefits of globalisation are fairly shared. It would risk fuelling protectionism. It would weaken the rules-based international trading system and would make life much harder for China in growing your external trade. Doha is, in all these respects, too important to fail."

He also said that he wants to work with the Chinese to remove trade barriers, and that doing so will benefit both Europe and the PRC.

Senate Confirms Schwab for USTR

6/8. The Senate confirmed Susan Schwab to be the U.S. Trade Representative (USTR). She replaces Robert Portman, who is the newly appointed Director of the Office of Management and Budget (OMB).

Schwab released a statement after her confirmation. She wrote that "Trade is one of President Bush's top priorities. He has championed a compelling vision that will increase trade flows, create new economic opportunities for all countries, alleviate poverty in the developing world and promote democratic reform."

She added that "I am eager to move ahead with our bilateral and multilateral efforts to realize the president's vision for free and fair trade. And I look forward to working closely with members of the House and Senate to advance the interests of American farmers, workers, businesses and service providers as we advance America's pro-trade agenda."

Sen. Charles Grassley (R-IA), the Chairman of the Senate Finance Committee, spoke in support of Schwab in the Senate. He also said that "We need to achieve substantial progress in the Doha Round negotiations, and soon, if we’re going to succeed in getting an agreement before trade promotion authority expires next year.  And we still have a long way to go to reach an ambitious outcome that would be acceptable to the United States Congress."

Sen. Grassley continued that "We're also in the process of negotiating free trade agreements with a number of important trading partners, including South Korea and Malaysia. Our negotiations with South Korea and Malaysia will present new challenges, particularly in addressing regulatory and other non-tariff barriers to trade. It’s essential that our bilateral negotiations with South Korea, Malaysia, and other nations conclude in time to be considered under trade promotion authority."

In addition, it's important that our next Trade Representative continue to encourage meaningful regulatory reform in other major trading partners such as Japan and China." He added that "we in Congress need to recommit ourselves to securing improved market access for our exporters, both in the Doha Round negotiations and by means of bilateral and regional trade agreements."

People and Appointments

6/8. The Senate confirmed Peter Sheridan to be a Judge of the U.S. District Court for the District of New Jersey by a vote of 98-0. See, Roll Call No. 167.

6/8. The Senate confirmed Noel Hillman to be a Judge of the U.S. District Court for the District of New Jersey by a vote of 98-0. See, Roll Call No. 166.

6/8. The Senate confirmed Thomas Ludington to be a Judge of the U.S. District Court for the Eastern District of Michigan. See, Congressional Record, March 8, 2006, at Page S5675.

6/8. The Senate confirmed Sean Cox to be a Judge of the U.S. District Court for the Eastern District of Michigan. See, Congressional Record, March 8, 2006, at Page S5675.

More News

6/8. The U.S. Court of Appeals (FedCir) issued its opinion [PDF] in Xerox v. 3Com, a patent infringement case involving computerized interpretation of handwritten text. This action involves assertions by Xerox that 3Com's handwriting recognition technology named "Graffiti", which is in Palm's Pilot, infringes Xerox's U.S. Patent No. 5,596,656. The District Court granted summary judgment of invalidity that several claims of the Xerox patent are invalid. The Court of Appeals reversed in part, vacated in part, and remanded. This case is Xerox Corporation v. 3Com Corporation, et al., U.S. Court of Appeals for the Federal Circuit, App. Ct. No. 04-1470, an appeal from the U.S. District Court for the Western District of New York, Judge Michael Telesca presiding.

6/8. The National Telecommunications and Information Administration (NTIA) published a notice in the Federal Register that describes, and sets the comment deadline (July 10, 2006) for, its notice of inquiry (NOI) regarding "implementation of the Spectrum Sharing Innovation Test-Bed (Test-Bed) where Federal and non-Federal users can study the feasibility of increasing the efficient use of the spectrum". See, Federal Register, June 8, 2006, Vol. 71, No. 110, at Pages 33282-33284.

Sen. Stevens Discusses His Communications Bill

6/7. Sen. Ted Stevens (R-AK), the Chairman of the Senate Commerce Committee, gave a speech in Washington DC to the National Cable and Telecommunications Association (NCTA). He discussed his bill, S 2686, the "Communications, Consumers' Choice, and Broadband Deployment Act".

Sen. Stevens (at right) discussed the video franchising section of the bill. "One area where there has been much discussion is the concern of local governments. They expressed them to the Committee at out first legislative hearing in May, their concerns about the provision in our first bill. In response to their concerns, I’ve asked my staff to work with local government, with USTA, and NCTA to seek a compromise on franchise reform."

He added that "I do believe that we’re going to be able to do what I said in the beginning -- create a level playing field, between cable and the Bells, encourage competition and the deployment of broadband, and in the process, create even more jobs as we go along. To strike a balance and level that playing field, this bill provides cable operators with interconnection rights."

He also discussed network neutrality. He said that "I think the compromise should and will focus on protecting the needs and rights of consumers, preserving network management, and staying away from the commercial interaction between companies that I refer to, that is so large, as a battle of the titans, when they get into a fight. I see no reason why we should use government lawyers to try and referee a fight between billion and billion dollar entities that are disputing their rights with one another. I think the FCC should be there to protect the consumer and to ensure that there is a level playing field for everybody."

And, he said that "A new draft will be circulated this week."

Rules Committee Adopts Rule for Consideration of COPE Act

6/7. The House Rules Committee (HRC) adopted a structured rule for the consideration of HR 5252, the "Communications Opportunity, Promotion, and Enhancement Act of 2006" (COPE Act). The House may begin consideration of the bill on Thursday, June 8.

The House Commerce Committee (HCC) amended and approved this bill on April 26, 2006. See, HR 5252 as reported [62 pages in PDF] by the HCC, and story titled "Amendment by Amendment Summary of Full Committee Mark Up of COPE Act" in TLJ Daily E-Mail Alert No. 1,360, April 28, 2006.

The HRC made in order a manager's amendment [6 pages in PDF] offered by Rep. Joe Barton (R-TX), the Chairman of the House Commerce Committee (HCC), and lead sponsor of the bill.

The HRC made in order the network neutrality amendment [PDF] offered by Rep. Ed Markey (D-MA), Rep. Rick Boucher (D-VA), Rep. Anna Eshoo (D-CA), and Rep. Jay Inslee (D-WA).

However, the HRC did not make in order another amendment offered by Rep. James Sensenbrenner (R-WI), Chairman of the House Judiciary Committee (HJC), that would have given the courts authority under the Clayton Act to enforce network neutrality principles. But, the HRC made in order an amendment [3 pages in PDF] offered by Rep. Lamar Smith (R-TX) regarding preservation of antitrust authority.

The HRC also rejected an amendment offered by Rep. Charles Gonzalez (D-TX) that would have extended network neutrality principles to cover large content aggregators, such as Google and Yahoo.

The HRC also made in order an amendment [3 pages in PDF] offered by Rep. Gil Gutknecht (R-MN) and others that would expand the entities that would be required to pay universal service taxes to include VOIP service providers. It would also require VOIP service providers to pay "for the transportation of a VOIP service over the facilities and equipment of another provider".

The HRC rejected many amendments pertaining to Title I of the bill, which establishes a national cable franchise. It rejected proposals to add buildout requirements (amendment offered by Rep. Hilda Solis) and further anti-discrimination requirements (Rep. Hilda Solis). It rejected a proposal to provide for local enforcement of rights of way disputes (Rep. Mike Doyle). It also rejected a proposal to provide VOIP service providers the same statutory immunity from liability for providing 911 and E911 service that communications carriers already (Rep. Bart Gordon).

The HRC also rejected many proposed amendments with little, if any, connection to the underlying bill. It rejected amendments pertaining to media concentration (Rep. Maurice Hinchey), revival of the fairness doctrine (Rep. Maurice Hinchey), resolution of the Washington Nationals cable rights dispute (Rep. Jim Davis), and creating an Office of Internet Safety and Public Awareness at the FTC (Rep. Melissa Bean).

Network Neutrality. Rep. Markey (at right) spoke at the HRC meeting on June 7 to advocate his network neutrality amendment.

He argued that the "non-discriminatory nature of the internet" should not be changed by the cable and phone companies. He argued that without his amendment those companies will afflict the internet with their bureaucratic analog mind set.

The bill currently, in Title II, provides that the Federal Communications Commission (FCC) is authorized to enforce its August 2005 policy statement [3 pages in PDF] regarding network neutrality through case by case adjudicatory proceedings.

The Markey amendment would replace the current language with a broader network neutrality mandate. This amendment is based upon (but makes many changes to) HR 5273, the "Network Neutrality Act of 2006", a bill introduced by Rep. Markey and others on May 2, 2006. See, story titled "Rep. Markey Introduces Network Neutrality Bill" in TLJ Daily E-Mail Alert No. 1,363, May 3, 2006.

The amendment first identifies a collection of national policies regarding maintaining an open internet. It then imposes a collection of duties upon each "broadband network provider". It then enumerates excepted activities. It then provides for an expedited complaint process at the FCC.

One of the provisions that is in this amendment, but not HR 5273, is an antitrust savings clause. It provides that "Nothing in this section shall be construed to modify, impair, or supersede the applicability of the antitrust laws, as such term is defined in section 602(e)(4) of the Telecommunications Act of 1996."

Rep. James Sensenbrenner (R-WI) (at left), the Chairman of the House Judiciary Committee (HJC), and Rep. John Conyers (D-MI), the ranking Democrat on the HJC, offered a related amendment, that was not made in order. It is substantially similar to HR 5417, the "Internet Freedom and Nondiscrimination Act of 2006", which the HJC approved on May 25, 2006. See, story titled "House Judiciary Committee Approves Net Neutrality Bill" in TLJ Daily E-Mail Alert No. 1,379, May 26, 2006.

While the Markey amendment, which was made in order, would impose certain duties upon each "broadband network provider", and then give the FCC enforcement authority, the Sensenbrenner amendment would have amended the Clayton Act to prohibit certain practices by "any broadband network provider". That is, it would have provided for judicial enforcement.

Rep. Sensenbrenner argued that "the antitrust laws should apply uniformly across the board", while HR 5252 leaves the FCC with exclusive authority to deal with anti-competitive conduct by broadband network providers.

Rep. Sensenbrenner also argued that if the HRC were to make this amendment in order, it would avoid the problem of bringing two separate bills to the House floor, and sending two related bills to the Senate.

Two members of the HRC, Rep. Alcee Hastings (D-FL) and Rep. Jim McGovern (D-MA), expressed support for this amendment. However, it was not made in order.

However, the HRC made in order a more limited amendment offered by Rep. Lamar Smith (R-TX), a member of the HJC, which would add a new subsection (d) to network neutrality language in the bill. It is as follows:

   "(d)(1)RULE OF CONSTRUCTION.---Nothing in this section shall be construed to modify, impair, or supercede the applicability of the antitrust laws or the jurisdiction of the district courts of the United States to hear claims arising under the antitrust laws.
   (2) DEFINITION OF ANTITRUST LAWS.---The term 'antitrust laws' has the meaning given to it in subsection (a) of the first section of the Clayton Act (15 U.S.C. 12(a)), except that such term includes section 5 of the Federal Trade Commission Act (15 U.S.C. 45) to the extent that such section 5 applies to unfair methods of competition."

Rep. Smith did not attend the HRC meeting.

Rep. Charles Gonzalez (D-TX) (at right) offered a related amendment, that was not made in order. It would have extended network neutrality principles to major content aggregators, such as Google and Yahoo. He said that Google and Yahoo in the search market, and eBay in the auction market, are close to being monopolies.

He also said that they already have entered into contracts that provide for the sort of prioritization that the proponents of the Markey amendment predict the broadband network providers will enter into.

His amendment was not made in order. It serves the purpose of shifting some attention from the motivations and likely business practices of the large access providers, such as SBC, AT&T and Verizon, to the motivations and business practices of the large internet content providers.

Gutknecht Amendment. Rep. Gutknecht's amendment provides, in part, as follows:

"RULE OF CONSTRUCTION.---Nothing in this Act (including the amendments made in this Act) shall be construed to exempt a VOIP service provider from requirements imposed by the Federal Communications Commission or a State commission on all VOIP service providers to
   (1) pay appropriate compensation for the transportation of a VOIP service over the facilities and equipment of another provider; or
   (2) contribute on an equitable and non-discriminatory basis to the preservation and advancement of universal service."

Rep. Gutknecht, who was joined by Rep. Bart Stupak (D-MI) and Rep. Collin Peterson (D-MN), argued the universal service portion of this amendment. He argued that services in rural areas need to be subsidized.

Other Amendments Made in Order. The HRC also made in order several amendments to Title I of the bill. The HRC made in order an amendment [2 pages in PDF] offered by Rep. Sheila Lee (D-TX) that would reduce the PEG/iNET fee from 1% to .5% for "a cable operator that is a small business concern owned and controlled by socially and economically disadvantaged individuals or a small business concern that is owned and controlled by women".

The HRC also made in order an amendment [7 pages in PDF] offered by Rep. Al Wynn (D-MD) that would allow local franchising authorities to issue an order requiring compliance with FCC consumer protection rules.

The HRC also made in order an amendment [2 pages in PDF] offered by Rep. Eddie Johnson (D-TX) that would increase from $500,000 to $750,000 the penalty for an operator who discriminates by denying access to a service on the basis of income.

The HRC also made in order an amendment [3 pages in PDF] offered by Rep. Bobbie Rush (D-IL) that provides for a complaint process to resolve fee disputes.

Data Retention. There is nothing in the bill as reported by the HCC, the manager's amendment, or any of the other amendments made in order, that would impose a data retention requirement on internet service providers.

During the HCC mark up on April 26, 2006, Rep. Barton and Rep. Diana DeGette (D-CO) discussed adding a data retention mandate to the bill when the bill went to the full House. See, story titled "House Commerce Committee Considers Data Retention Mandate" in TLJ Daily E-Mail Alert No. 1,365, May 8, 2006.

The House could take up the COPE Act on Thursday, June 8. However, the House has several other items on its schedule for Thursday, including HR 5522, the "Foreign Operations, Export Financing, and Related Programs Appropriations Act, 2007".

It is possible that the House will not begin consideration of the COPE Act until Friday, June 9. Alternatively, it might take up the rule for consideration of the bill on Thursday, but leave consideration of the bill for Friday.

House Approves Broadcast Decency Enforcement Act

6/7. The House approved S 193, the "Broadcast Decency Enforcement Act of 2005", by a vote of 379-35. See, Roll Call No. 230. The Senate approved the bill on May 18, 2006. President Bush will sign this bill.

This bill amends 47 U.S.C. § 503 to increase the maximum forfeiture penalty for the broadcast of obscene, indecent, or profane language from $32,500 to $325,000.

Rep. Joe Barton (R-TX), stated that "It is time that we reclaim America's airwaves for decency, and this bill is a firm message that we have had enough".

President Bush stated in a release that "I applaud the Congress for passing S. 193, the Broadcast Decency Enforcement Act. I believe that government has a responsibility to help strengthen families. This legislation will make television and radio more family friendly by allowing the FCC to impose stiffer fines on broadcasters who air obscene or indecent programming. I look forward to signing this important legislation into law."

FCC Chairman Kevin Martin wrote that "I welcome Congress' decision to give the Commission increased fining authority in our efforts to protect children from inappropriate programming. Many parents are increasingly concerned about what is on television and radio today. Today's vote demonstrates that Congress shares their concern and has a clear desire for a more meaningful enforcement of our decency standard. The Broadcast Decency Enforcement Act gives the Commission more tools to enable parents to watch television and listen to radio as a family. In addition, I believe that concerns regarding content should be addressed in a comprehensive fashion by empowering parents to choose the programming that comes into their homes."

FCC Commissioner Deborah Tate wrote that "Congress has once again sent a firm message that the minds of our children are a national priority. Increased fines strengthen the FCC’s ability to enforce the law. I take this responsibility very seriously. However, it will take more than cleaning up indecency to make television a positive force in our children’s lives. We need to also give parents more choice in the channels sent into their homes, find ways to make our children more media literate, and promote the production of more positive, educational, and inspirational children’s programming."

CIIP May Mark Up SIRA

6/7. The House Judiciary Committee's (HJC) Subcommittee on Courts, the Internet, and Intellectual Property (CIIP) may meet to mark up a discussion draft the "Section 115 Reform Act (SIRA) of 2006" as early as Thursday afternoon, June 8, 2006

The event is not yet listed in the calendar of the HJC web site. A spokesman for the HJC told TLJ that nothing is on the calendar. However, a member of Rep. Lamar Smith's (R-TX) staff told TLJ that the bill may be marked up as early as Thursday afternoon.

Rep. Smith, the Chairman of the Subcommittee on CIIP, has not has yet introduced a bill. However, there have been several discussion drafts. See, June 7, 2006, version [52 pages in PDF] of this draft.

17 U.S.C. § 115, which is titled "Scope of exclusive rights in nondramatic musical works: Compulsory license for making and distributing phonorecords", covers the licensing of the reproduction and distribution rights for nondramatic musical works. There is a wide degree of consensus that Section 115 is obsolete in addressing many issues raised by new technologies and services, and in need of reform. However, there is much dispute regarding how to revise it.

The discussion draft takes a blanket licensing approach to the digital reproduction and distribution of musical works.

The discussion draft also provides for a collective licensing structure for online music services through the use of designated agents. It also addresses royalty rates.

The Subcommittee on CIIP held a hearing on May 16, 2006, on an earlier version of the discussion draft. See, prepared testimony [PDF] of David Israelite (P/CEO of the National Music Publishers' Association), prepared testimony of Jonathan Potter (Executive Director of the Digital Media Association), prepared testimony [PDF] of Rick Carnes (President of the Songwriter's Guild), and prepared testimony of Cary Sherman (General Counsel of the Recording Industry Association of America).

The DiMA represents companies that provide internet radio, music download and music subscription services, including AOL Music, Yahoo! Music, MSN Music, RealNetworks, the iTunes Music Store, MTV, and Napster. The DiMA's Potter praised the discussion draft. The NMPA's Israelite also praised the discussion draft.

However, the RIAA's Sherman criticized the draft bill. First, he wrote that "New technologies have presented so many opportunities: not just online music services, but also ringtones; DVDs, DualDiscs, and other kinds of multisession discs; locked content; music videos; and hybrid offerings that combine physical and online elements – including kiosks and bundled offerings. Because Section 115 is a relic of a different time, every one of these has presented new mechanical licensing challenges, and our ability to resolve them and get products into the market is falling behind."

Then, he complained that the bill "removes record companies from the digital music value chain", "nullifies license agreements negotiated by record companies", prohibits "licensing of record company online activities", and "requires that record companies pay administrative costs as both licensors and licensees".

In addition, the Copyright Office prepared a statement for the May 16 hearing. It wrote that the discussion draft of the SIRA "appears to be a productive step forward in modernizing section 115 of the Copyright Act for the digital age".

It also wrote that "The SIRA appropriately focuses on those issues absolutely necessary to establish a functional licensing structure to enable legitimate music services to provide, and the consuming public to enjoy, vast quantities and varieties of music through the digital delivery of music online. It is also appropriate that the SIRA leaves undisturbed the structure established by section 115 for the reproduction and distribution of nondramatic musical works in physical formats (e.g., compact discs, vinyl records and cassette tapes), a structure that has worked well for that marketplace. (Parentheses in original. Footnote omitted.)

A collection of companies and groups sent a letter to Rep. Smith and Rep. Howard Berman (D-CA) on June 6, 2006, expressing opposition to the bill. They wrote that the draft bill "would constitute an extraordinary expansion of copyright rights that would harm technology, innovation, and consumers" and "threaten the development of new, innovative technologies and services that deliver all forms of content".

They continued that "This bill apparently reflects a privately negotiated outcome between two interest groups, and does not reflect such a consensus." (The bill reflects agreement between the DiMA and NMPA.) The letter added that "Any change as major as SIRA merits careful consideration and input from all users of copyrighted works, and from the general public."

More specifically, they wrote that "The bill appears to establish, for the first time, that every incidental, server, cache, network and buffer copy made in digital transmission systems, digital networks, and computers and other personal consumer equipment is subject to the control of copyright owners and must be licensed. The bill erroneously suggests that interactive public performances of sound recordings are ``digital phonorecord deliveries´´ (i.e., a transfer of ownership) subject to license for reproductions of copies. The bill goes so far as to provide that even noninteractive public performances require licenses for such copies. There is no justification to so penalize streaming, or, indeed, any other type of licensed transmission made via internet or any digital communications network, based on such a technicality. Virtually every digital transmission and display technology requires some degree of caching or buffering. ... Where a transmission is lawfully made, there is no basis for giving copyright owners added control because of incidental copies that have no independent economic value apart from the performance itself."

They also wrote that "The bill also appears to establish, for the first time, that every digital performance or display also is a distribution, for which the transmitter must take additional licenses, and potentially pay duplicative fees, for consumer conduct that long has been considered private, noncommercial ``fair use.´´" Moreover, "The apparent requirement that fair uses be licensed -- even at a zero rate -- sets a dangerous precedent for all fair uses of information, news and entertainment, regardless of whether in print, audio or video."

They added that "The bill would effectively declare all home recording – even time-shifting – to be unlawful without a reproduction license."

These opponents include BellSouth, Bonneville International, Cox Radio, Entercom Communications, Greater Media, RadioShack, Salem Communications, Sirius Satellite Radio, and XM Satellite Radio.

These opponents also include the American Association of Law Libraries, Computer & Communications Industry Association (CCIA), Consumer Electronics Association (CEA), Consumer Project on Technology, Electronic Frontier Foundation, Home Recording Rights Coalition, Local Radio Internet Coalition, National Religious Broadcasters Music License Committee, Public Knowledge, and the Association for Computing Machinery.

Sen. Specter Writes VP Cheney Regarding NSA Surveillance and Subpoenas

6/7. Sen. Arlen Specter (R-PA) sent a letter to Vice President Dick Cheney regarding the Senate Judiciary Committee's investigation into the National Security Agency's (NSA) interception of communications, including the possibility that it will subpoena executives at telecommunications companies.

He wrote that "When there were public disclosures about the telephone companies turning over millions of customer records involving allegedly billions of telephone calls, the Judiciary Committee scheduled a hearing of the chief executive officers of the four telephone companies involved. When some of the companies requested subpoenas so they would not be volunteers, we responded that we would honor that request. Later, the companies indicated that if the hearing were closed to the public, they would not need subpoenas."

He continued that "I then sought Committee approval, which is necessary under our rules, to have a closed session to protect the confidentiality of any classified information and scheduled a Judiciary Committee Executive Session for 2:30 P.M. yesterday to get that approval."

"I was advised yesterday that you had called Republican members of the Judiciary Committee lobbying them to oppose any Judiciary Committee hearing, even a closed one, with the telephone companies. I was further advised that you told those Republican members that the telephone companies had been instructed not to provide any information to the Committee as they were prohibited from disclosing classified information."

He also wrote that "If an accommodation cannot be reached with the Administration, the Judiciary Committee will consider confronting the issue with subpoenas and enforcement of that compulsory process if it appears that a majority vote will be forthcoming. The Committee would obviously have a much easier time making our case for enforcement of subpoenas against the telephone companies which do not have the plea of executive privilege."

More Capitol Hill News

6/7. The House Science Committee HSC) amended and approved HR 5356, the "Early Career Research Act of 2006". The HSC approved an amendment in the nature of a substitute that incorporated HR 5357, the "Research for Competitiveness Act of 2006", into HR 5356.

6/7. The House Science Committee HSC) amended and approved HR 5358, the "Science and Mathematics Education for Competitiveness Act of 2006".

6/7. The House Judiciary Committee (HJC) amended and approved HR 2840, the "Federal Agency Protection of Privacy Act of 2005".

6/7. The House Small Business Committee held a hearing titled "Contracting the Internet: Does ICANN create a barrier to small business?". See, opening statement of Rep. Don Manzullo (R-IL), Chairman of the Committee. See also, prepared testimony of Beckwith Burr (Wilmer Hale), prepared testimony of John Jeffrey (General Counsel of the ICANN), prepared testimony of Richard White (member of VeriSign's Internet Advisory Board), prepared testimony of Champ Mitchell (Ch/CEO of Network Solutions), prepared testimony of Steven DelBianco (Executive Director of NetChoice), and prepared testimony of Craig Goren (CEO of Clarity Consulting).

6/7. The Progress and Freedom Foundation (PFF) published a transcript [33 pages in PDF] of its March 31, 2006, panel discussion titled "Orphan Works: A Search for Solutions". The Copyright Office issued its report [133 pages in PDF] titled "Report on Orphan Works" on January 31, 2006. The House Judiciary Committee's Subcommittee on Courts, the Internet and Intellectual Property approved HR 5439 [PDF], the "Orphan Works Act of 2006", by voice vote, on May 24, 2006.

1st Circuit Affirms Section 253 Preemption of 5% of Gross Revenue Fee

6/7. The U.S. Court of Appeals (1stCir) issued its opinion in Puerto Rico Telephone Company v. Municipality of Guayanilla, affirming the judgment of the District Court.

The Municipality of Guayanilla enacted an ordinance imposing a 5% of gross revenue fee on telecommunications providers for their use of public rights of way within the municipality.

Puerto Rico Telephone Company (PRTC) filed a complaint in U.S. District Court (DPR) against the municipality alleging violation of 47 U.S.C. § 253. The District Court held that the ordinance is preempted by Section 253.

The Court of Appeals affirmed.

This case is Puerto Rico Telephone Company, Inc. v. Municipality of Guayanilla, et al., U.S. Court of Appeals for the 1st Circuit, App. Ct. No. 05-1400, an appeal from the U.S. District Court for the District of Puerto Rico, Judge Salvador Casellas presiding.

People and Appointments

6/7. Federal Communications Commission (FCC) Commissioner Deborah Tate named Ian Dillner to be one of her Legal Advisors. He was previously an acting Legal Advisor for FCC Chairman Kevin Martin. See, FCC release [PDF].

6/7. President Bush nominated Gregory Frizzell to be a Judge of the U.S. District Court for the Northern District of Oklahoma. See, White House release.

More News

6/7. The Department of Commerce's Bureau of Industry and Security (BIS) published a notice in the Federal Register that summarizes its findings that Swiss Telecom violated the Export Administration Regulations for exporting telecommunications equipment and technical information to Iran. See, Federal Register,June 7, 2006, Vol. 71, No. 109, at Pages 32920-32923.

6/7. The National Institute of Standards and Technology (NIST) released its Draft Special Publication 800-100 [huge Zipped PDF] titled "Information Security Handbook: A Guide for Managers". The deadline to submit comments is August 7, 2006.

People and Appointments

6/6. The Senate confirmed Renee Bumb to be a Judge of the U.S. District Court for the District of New Jersey by a vote of 89-0. See, Roll Call No. 162.

6/6. President Bush nominated Marcia Howard to be a Judge of the U.S. District Court for the Middle District of Florida. See, White House release.

6/6. President Bush nominated Leslie Southwick to be a Judge of the U.S. District Court  for the Southern District of Mississippi. See, White House release.

6/6. President Bush announced his intent to designate Lieutenant General Ronald Burgess to be acting Principal Deputy Director of National Intelligence. See, White House release.

6/6. Jeanne Bumpus was named Director of the Federal Trade Commission's (FTC) Office of Congressional Relations. She is currently Staff Director for the Senate Committee on Indian Affairs. She replaces Anna Davis who left the FTC to become the Executive Director for Legislative Affairs at the National Board of Professional Teaching Standards. See, FTC release.

More News

6/6. The House approved HR 5126, the "Truth in Caller ID Act of 2006", by voice vote.

6/6. The House began its consideration of S 193, the "Broadcast Decency Enforcement Act of 2005". It postponed further action on the bill until June 7.

6/6. Federal Reserve Board (FRB) Governor Susan Bies gave a speech titled "Challenges of Conducting Effective Risk Management in Community Banks" in Coronado, Colorado, in which she recommended contingency planning at financial institutions for "terrorist attacks and natural disasters". Although, her statements were applicable to a wide range of business sectors. She said that "Potential problems include destruction of facilities, missing personnel, power and communications outages ..." She recommended that banks "should plan for ways to track and communicate with personnel through a range of channels, including ways to reach personnel if phone and electrical services are down". She also said that "Employees may also need to be prepared to perform services manually if computer systems become unavailable."

6/6. The Senate Judiciary Committee (SJC) held an executive business meeting. Sen. Arlen Specter (R-PA), the Chairman of the SJC, discussed the possibility that the SJC would issue subpoenas to obtain information from telecommunications carriers regarding providing phone records to the National Security Agency (NSA). The SJC will not issue subpoenas at this time.

6/6. Rep. Joe Barton (R-TX), Rep. John Dingell (D-MI), and other members of the House Commerce Committee sent a letter [3 pages in PDF] to the Government Accountability Office (GAO) requesting that it conduct a study on the use of (or failure to use) information technology by dealers in credit-derivatives markets. The Congressmen wrote that "Dealers are relying on telephones and faxes to conduct and confirm trades instead of using information technology systems to help them conduct and manage their credit derivative activities and exposures." The letter asks the GAO, among other things, to "Determine the extent to which dealers are using information technology systems to conduct, confirm, transfer, and manage the risk of credit derivatives transactions, as well as the reliability, resiliency, and security of any such systems."

Go to News from June 1-5, 2006.