TLJ News from August 16-20, 2006

Dennis Carlton Named Head of Economic Analysis in Antitrust Division

8/18. Dennis Carlton was named Deputy Assistant Attorney General for Economic Analysis in the Department of Justice's (DOJ) Antitrust Division. He will start in October of 2006. See, DOJ release.

He is currently a professor of business economics at the University of Chicago's Graduate School of Business. He is also a member of the Antitrust Modernization Commission (AMC). And, he is the senior managing director Lexecon, an economic consulting firm. See, Lexecon bio.

He is a co-author, with Jeffrey Perloff, of Modern Industrial Organization [Amazon], an 800 page textbook last revised for the fourth edition in 2004.

He has also authored or co-authored numerous articles and papers on a wide range of antitrust and competition topics. The following is a listing of some of his works that are relevant to technology that are published in the Social Sciences Research Network (SSRN). Access to the text requires registration. Access to some also requires payment. See also, all SSRN listings for Carlton.

DC Circuit Upholds FCC Order Re Separable Security for Cable Set-Top Boxes

8/18. The U.S. Court of Appeals (DCCir) issued its opinion [22 pages in PDF] in Charter Communications v. FCC, denying a petition for review of a Federal Communications Commission's (FCC) order that, among other things, declined to rescind a rule that will preclude cable operators from offering set-top converter boxes that bundle both security functions, such as descrambling, and non-security functions, such as channel selection, in a single device.

Cable companies Charter and Advance/Newhouse, along with their trade association, the National Cable and Telecommunications Association (NCTA), challenged the FCC's Second Report and Order [37 pages in PDF], adopted and released on March 17, 2005. This proceeding is titled "In the Matter of: Implementation of Section 304 of the Telecommunications Act of 1996 Commercial Availability of Navigation Devices". This order is FCC 05-76 in CS Docket No. 97-80.

See also, Section 304 of the Telecommunications Act of 1996, which is codified at 47 U.S.C. § 549, FCC release [PDF] summarizing this 2nd R&O, and story titled "FCC Again Delays Deadline for Integrating Navigation and Security Functionalities in Cable Set Top Boxes" in TLJ Daily E-Mail Alert No. 1,099, March 21, 2005.

The cable industry has argued that market conditions have changed since the FCC adopted it original ban on integration, and hence, it should be repealed. The Consumer Electronics Association (CEA) has argued that the ban should be continued, and that there should be no extensions of the implementation deadline. Some of the CEA's member companies want to compete in the market for the sale of set top boxes.

The FCC's March 17, 2005, 2nd R&O extended from July 1, 2006 to July 1, 2007, the deadline for cable companies to provide separable security for cable set-top boxes, and instructed the NCTA and CEA to submit further reports to the FCC.

The industries are developing downloadable security for set-top boxes.

The cable industry petitioned for review to challenge the FCC's decision to maintain the integration ban. The Court of Appeals rejected the petition.

Gary Shapiro, head of the CEA, stated in a release that "the District Court finally said 'enough is enough.' Cable has waged a nonstop campaign to thwart the will of Congress and the FCC since these rules were enacted in 1998. In fact, the opinion cites overwhelming evidence of cable's refusal to support consumers with CableCARDs." (Shapiro's reference to the District Court is an error.)

He added that "Today's opinion sets the record straight: consumers are entitled to a broad array of products that can connect to cable systems featuring innovative new features for competitive prices. In the wake of the Court's decision, we are hopeful that cable will stop its foot-dragging and comply with the law for the benefit of consumers."

Neal Goldberg, General Counsel for the NCTA, stated in a release that "While we are disappointed, it is always difficult to reverse an FCC decision given the deference courts must afford government agencies. We are encouraged by the court's observation that cable's progress on downloadable security 'may moot this entire controversy' and that the FCC was reasonable to delay the integration ban in light of the 'evolving nature of that technology.' Cable's progress on a downloadable security solution is the exact basis of the deferral request NCTA filed earlier this week with the Commission which, if granted, would save consumers millions of dollars every year."

On August 18, 2006, the NCTA filed a Request for Waiver [41 pages in PDF] with the FCC that requests a further extension of time until cable industry "deployment of downloadable security or December 31, 2009, whichever is earlier". See also, cover letter [PDF] to FCC.

This case is Charter Communications, Inc. and Advance/Newhouse Communications, petitioners v. FCC and USA, respondents, and CEA and NCTA, respondents, U.S. Court of Appeals for the District of Columbia, App. Ct. No. 05-1237, a petition for review of a final order of the FCC. Judge Garland wrote the opinion of the Court of Appeals, in which Judges Ginsburg and Tatel joined.

People and Appointments

8/18. Michael Mines and Chris Briese were named Deputy Assistant Directors in the Federal Bureau of Investigation's (FBI) Directorate of Intelligence. See, FBI release.

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8/18. The U.S. Court of Appeals (1stCir) issued its opinion in T-Peg v. Vermont Timber Works, a case regarding copyright in architectural works. The Court of Appeals reversed the summary judgment of the District Court for the Defendant, and remanded for trial. This case is T-Peg, Inc. and Timberpeg East, Inc. v. Vermont Timber Works, Inc. and Douglas Friant, U.S. Court of Appeals for the 1st Circuit, App. Ct. No. 05-2866, an appeal from the U.S. District Court for the District of Massachusetts.

8/18. The U.S. Court of Appeals (8thCir) issued its opinion [8 pages in PDF] in Schwan's IP v. Kraft Pizza Company, a trademark case. The Court of Appeals affirmed the judgment of the District Court for the alleged infringer (Kraft) on the basis that the mark "brick oven" is generic. This case is Schwan's IP, LLC and Schwan's Consumer Brands North America, Inc. v. Kraft Pizza Company, U.S. Court of Appeals for the 8th Circuit, App. Ct. No. 05-3463, an appeal from the U.S. District Court for the District of Minnesota.

8/18. The Government Accountability Office (GAO) released a report [40 pages in PDF] titled "Electronic Records Archives: The National Archives and Records Administration's Fiscal Year 2006 Expenditure Plan".

Bush's Press Office Criticizes District Court Opinion on NSA Surveillance Program

8/17. The White House press office released a statement that criticizes the August 17, 2006, opinion [44 pages in PDF] of the U.S. District Court (EDMich) in ACLU v. NSA.

The District Court held that the National Security Agency's (NSA) extrajudicial electronic intercepts where one party is within the U.S. and the other is outside violates the separation of powers doctrine, the First and Fourth Amendments, and federal statutes. The District Court also enjoined the program.

The District Court enjoined the NSA from "conducting warrantless wiretaps of telephone and internet communications, in contravention of the Foreign Intelligence Surveillance Act" and Title III.

The White House press office wrote that "Last week America and the world received a stark reminder that terrorists are still plotting to attack our country and kill innocent people. Today a federal judge in Michigan has ruled that the Terrorist Surveillance Program ordered by the President to detect and prevent terrorist attacks against the American people is unconstitutional and otherwise illegal. We couldn't disagree more with this ruling, and the Justice Department will seek an immediate stay of the opinion and appeal."

Its statement adds that "Until the Court has the opportunity to rule on a stay of the Court's ruling in a hearing now set for September 7, 2006, the parties have agreed that enforcement of the ruling will be stayed."

The statement continues that "United States intelligence officials have confirmed that the program has helped stop terrorist attacks and saved American lives. The program is carefully administered, and only targets international phone calls coming into or out of the United States where one of the parties on the call is a suspected Al Qaeda or affiliated terrorist. The whole point is to detect and prevent terrorist attacks before they can be carried out. That's what the American people expect from their government, and it is the President's most solemn duty to ensure their protection."

It concludes that "The Terrorist Surveillance Program is firmly grounded in law and regularly reviewed to make sure steps are taken to protect civil liberties. The Terrorist Surveillance Program has proven to be one of our most critical and effective tools in the war against terrorism, and we look forward to demonstrating on appeal the validity of this vital program."

This statement was issued by the White House press office. It does not identify authorship.

Anthony Romero, Executive Director of the ACLU, stated in a release that "Today's ruling is a landmark victory against the abuse of power that has become the hallmark of the Bush administration ... Government spying on innocent Americans without any kind of warrant and without Congressional approval runs counter to the very foundations of our democracy. Now Congress needs to do its job and stop the president from violating the law."

Former Rep. Bob Barr (R-GA) praised the District Court opinion. He wrote in a release that "This is a win for all Americans -- Judge Taylor has upheld the Constitution in her ruling and has defended the privacy rights of all Americans against overreaching federal power."

He added that "while we all support the Administration in its efforts to discover and thwart possible terrorist acts, including listening in on al Qaeda communications, our laws provide for a legal way for the government to proceed, and perhaps in light of this ruling the Administration will actually follow those laws."

District Court Holds NSA Surveillance Program Violates Constitution

8/17. The U.S. District Court (EDMich) issued its opinion [44 pages in PDF] in ACLU v. NSA, enjoining the National Security Agency's (NSA) extrajudicial electronic intercepts where one party is within the U.S. and the other is outside.

The District Court held that the program violates the separation of powers doctrine, the First and Fourth Amendments, and federal statutes. It also rejected the government's procedural arguments regarding standing and the states secrets doctrine.

See, full story.

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8/17. The U.S. Court of Appeals (9thCir) issued an amended opinion [PDF] in Davel Communications v. Qwest, a dispute between pay phone service providers and Qwest regarding payment for access. This opinion addresses the payphone industry provisions of 47 U.S.C. § 276, the Federal Communications Commission's (FCC) payphone orders, the filing of tariffs, the primary jurisdiction doctrine, the filed rate doctrine, and the statute of limitations contained in 47 U.S.C. § 415. This case is Davel Communications, Inc., et al. v. Qwest Corporation, U.S. Court of Appeals for the 9th Circuit, App. Ct. No. 04-35677, an appeal from the U.S. District Court for the Western District of Washington, D.C. No. CV-03-03680-MJP, Judge Marsha Pechman presiding.

Federal Circuit Addresses Patent Misuse

8/16. The U.S. Court of Appeals (FedCir) issued its divided opinion [27 pages in PDF] in Monsanto v. Scruggs [PDF], a case involving plant seed patents. The Court of Appeals affirmed the District Court's judgment of validity and infringement, but vacated the injunction for consideration in light of eBay v. MercExchange.

The Court of Appeals also affirmed the District Court's rejection of counterclaims and affirmative defense based upon alleged antitrust violations and patent misuse. However, Judge Dyk dissented on one aspect of the patent misuse defense, arguing that Monsanto's tying of its patented technology to another product may have constituted misuse.

Background. Monsanto owns U.S. Patent No. 5,352,605, titled "Chimeric genes for transforming plant cells using viral promoters". Monsanto used the technology in this patent to develop glyphosate herbicide resistant soybeans and cotton. Monsanto licenses its biotechnology to seed companies, which grow and sell seeds. (Monsanto uses the mark "Roundup Ready" for seeds and herbicides.)

Monsanto's licenses provide that the seed companies may not sell seeds containing Monsanto's technology to growers unless the growers sign one of Monsanto's license agreements. The licenses further provide that the seeds sold may be used to grow only a single commercial crop.

The majority opinion of the Court of Appeals summarized the agreements as follows: "Monsanto's restrictions on seed growers include: (1) requiring growers to use only seed containing Monsanto's biotechnology for planting a single crop (``exclusivity provision´´); (2) prohibiting transfer or re-use of seed containing the biotechnology for replanting (``no replant policy´´); (3) prohibiting research or experimentation (``no research policy´´); and (4) requiring payment of a ``technology fee.´´"

The dissenting opinion states that one provision is material to the dissent. Monsanto tied the purchase of Roundup herbicide to the purchase of Roundup ready seeds.

Mitchell Scruggs, Eddie Scruggs, and various Scruggs entities grow soybeans and cotton. Scruggs purchased soybeen and cotton seeds from a seed company that licensed Monsanto technology. However, Scruggs never signed a licensing agreement. Moreover, Scruggs planted these seeds, and after harvesting, retained the new generation of seeds. Scruggs planted these retained seeds, on so on.

District Court. Monsanto filed a complaint in U.S. District Court (NDMiss) against Scruggs alleging patent infringement.

Scruggs denied infringement. Scruggs also plead the affirmative defense of patent misuse. Scruggs also counterclaimed that Monsanto violated Sections 1 and 2 of the Sherman Act by tying the purchase of seeds to the purchase of Roundup through grower license agreements, grower incentive agreements, and seed partner license agreements, as well as by tying the Roundup and Bollgard traits in cotton seeds. Scruggs also asserted that Monsanto violated Section 2 of the Sherman Act by unlawfully monopolizing or attempting to monopolize a relevant market.

Scruggs also asserted common law counterclaims of invasion of privacy, trespass, tortious interference with contract and/or business relations, abuse of process, conversion, nuisance, strict liability in tort, negligence, and unfair competition.

Scruggs sought a declaration of patent invalidity.

The parties filed cross motions for summary judgment.

The District Court granted summary judgment of infringement, and enjoined Scruggs from further use of the seeds containing Monsanto's patented biotechnology. The District Court also granted summary judgment for Monsanto on the patent misuse, antitrust, and other defenses and counterclaims.

The District Court made no finding regarding market power.

On March 1, 2006, the Supreme Court issued its opinion [20 pages in PDF] in Illinois Tool Works v. Independent Ink, a patent tying antitrust case in which the Supreme Court vacated the judgment of the Federal Circuit and remanded. The Federal Circuit held in January of 2005 that "a rebuttable presumption of market power arises from the possession of a patent over a tying product". The Supreme Court concluded that "Congress, the antitrust enforcement agencies, and most economists have all reached the conclusion that a patent does not necessarily confer market power upon the patentee. Today, we reach the same conclusion, and therefore hold that, in all cases involving a tying arrangement, the plaintiff must prove that the defendant has market power in the tying product." See also, story titled "Supreme Court Vacates in Patent Tying Antitrust Case" in TLJ Daily E-Mail Alert No. 1,321, March 2, 2006.

Scruggs brought this appeal.

Majority Opinion of the Court of Appeals. The Court of Appeals affirmed, but vacated the injunction, and remanded, because of the Supreme Court's recent opinion in eBay v. MercExchange.

The majority reasoned that all of the licensing restrictions are legitimate uses of a patent. It wrote that "Field of use licensing restrictions, i.e., permitting the use of inventions in one field and excluding it in others, are also within the scope of the patent grant."

It continued that "Monsanto has a right to exclude others from making, using, or selling its patented plant technology, ... and its no replant policy simply prevents purchasers of the seeds from using the patented biotechnology when that biotechnology makes a copy of itself. This restriction therefore is a valid exercise of its rights under the patent laws. Furthermore, Monsanto's uniform technology fee is essentially a royalty fee, the charging of which is also within the scope of the patent grant. Lastly, the no research policy is a field of use restriction and is also within the protection of the patent laws."

The majority further found no patent misuse arising out of unlawful tying. The majority pointed out that the tied product cited by the dissent was the only product approved for sale by the Environmental Protection Agency (EPA), so a licensing clause requiring the use of that product could not be anticompetitive.

The Court of Appeals vacated the injunction, and remanded for consideration of the request for an injunction in light of the Supreme Court's May 15, 2006, opinion [12 pages in PDF] in eBay v. MercExchange. The Supreme Court held that the traditional four factor framework that guides a court's decision whether to grant an injunction applies in patent cases. See, story titled "Supreme Court Rules on Availability of Injunctive Relief in Patent Cases" in TLJ Daily E-Mail Alert No. 1,371, May 17, 2006.

The Supreme Court wrote that "a plaintiff seeking a permanent injunction must satisfy a four-factor test before a court may grant such relief. A plaintiff must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction."

Dissenting Opinion. Judge Dyke dissented solely on the patent misuse issue. He wrote that "Scruggs argues that Monsanto's grower license agreements between 1996 and 1998 unlawfully tied the purchase of Roundup herbicide to the purchase of Roundup ready seeds, and that this constituted patent misuse, rendering the patent unenforceable. The district court rejected this argument. ... the majority also rejects this contention, on the ground that the agreements, in essence, merely enforced then-existing EPA regulations. ... With respect, I think that the district court’s decision in this respect, approved by the majority, is contrary to Supreme Court precedent."

He concluded that "I would vacate the judgment as to the alleged tie in the 1996-1998 grower agreements, and remand for the district court to determine whether the relevant contract provision in fact constituted patent misuse and, if misuse occurred, whether it was purged."

This case is Monsanto Company v. Mitchell Scruggs, et al., U.S. Court of Appeals for the Federal Circuit, App. Ct. Nos. 04-1532, 05-1120, and 05-1121, appeals from the U.S. District Court for the Northern District of Mississippi, D.C. No. 3:00CV161-P-D, Judge Allen Pepper presiding. Judge Mayer wrote the opinion of the Court of Appeals, in which Judge Bryson joined. Judge Dyk wrote a separate opinion concurring in part and dissenting in part.

Gonzales Says Online Radicalization Must Be Contained

8/16. Attorney General Alberto Gonzales gave a speech in Pittsburgh, Pennsylvania titled "Stopping Terrorists Before They Strike: The Justice Department’s Power of Prevention". He said that "our strategy of prevention is built on four primary pillars of activity", one of which is "containment of the radicalization that leads to homegrown, al Qaeda-inspired terrorists." See, full story.

Go to News from August 11-15, 2006.