TLJ News from September 21-25, 2012

NTIA's Strickling Criticizes ETNO Proposal for IP Interconnection Regulation

9/24. Lawrence Strickling, head of the National Telecommunications and Information Administration (NTIA), gave a speech at Columbia University in New York City in which he roundly criticized the European Telecom Network Operators' (ETNO) proposed changes to the International Telecommunication Union (ITU) International Telecommunications Regulations (ITRs) to regulate internet protocol (IP) interconnection and compensation with, among other things, a "sending party network pays" (SPNP) rule.

The ETNO argues that "Internet traffic is increasingly asymmetric, driven by 'Over-the-Top' services such as video streaming applications and a sending party pays model is capable of dealing efficiently with asymmetric traffic. Perpetuating an 'unpaid peering' approach for IP Interconnection that developed when traffic patterns were largely symmetric can hamper the incentive to invest in transport capacity and network quality."

The ETNO asserts that it is "not trying to bring back the circuit switched architecture of the PSTN". It also asserts that it is "not asking for increased regulatory intervention". And, it asserts that it is not opposed to private negotiation of IP interconnection, or peering agreements. Rather, it asserts that "revenue flows need to be realigned" with a "sending party network pays"  rule that provides an "adequate return on investment". Moreover, this must be mandated by international treaty requirements.

The ETNO made this proposal for consideration at the ITU's World Conference on International Telecommunications (WCIT), which will take place in Dubai in December. See, ETNO's document [10 pages in PDF] titled "ITRs Proposal to Address New Internet Ecosystem". See also, the ETNO's letter of September 21.

Lawrence StricklingStrickling (at right) reiterated that "the Obama Administration strongly believes that the best way to resolve Internet policy issues, including those associated with investment in broadband networks, is through multistakeholder processes -- not intergovernmental treaties like the ITRs."

He criticized the ETNO's proposal to "assign governments the role of ensuring that service providers provide satisfactory quality of service commitments to each other and require providers to negotiate a sustainable system of compensation between providers applying the principle of ``sending network pays.´´"

"Let me be clear", said Strickling. The US government is "unequivocally opposed to this proposal for two reasons. First, a treaty conference where only member states have a vote is the wrong place to debate a change of this magnitude. Second, the proposal is a bad idea. It is a solution in search of a problem".

He elaborated that "less than two percent of the international voice traffic of US operators is terminated under the traditional settlements arrangements of the 1988 ITRs. So we have a situation where 98% of this traffic is exchanged without reference to the ITRs, yet a group of incumbent carriers now wants to extend this regime to Internet traffic?"

"The Internet does not operate under the anachronistic model of monopoly telephone providers that control all aspects of their networks within their countries. Rather, it is a diverse, multi-layered system that thrives only through the cooperation of many different parties." He continued that "the magic is that the system works without requiring all of these parties to have a commercial relationship with each other or even to know everyone else involved in a given communications."

Moreover, "Private negotiations between providers of peering and transit agreements have worked well on the whole in the absence of international treaty requirements. There should be a compelling showing of how the current system is not working before this matter is taken up in treaty negotiations, and that case simply has not been made."

Also, the ETNO's proposal is "a relic of an industry and network structure that no longer exists".

He said the the ETNO proposal would "almost certainly" impose "new burdens throughout the chain of Internet connections, reaching both content providers and end users. ... Implementing a sending-party-pays regime would require a cascading series of payments across all involved networks."

Strickling added that there are also the issues of "attempting to meter and bill for Internet traffic, what happens to network performance if such a system is grafted onto the Internet, and the likely reduction of overall Internet usage that might result."

He concluded it would be "foolhardy" for the ETNO proposal to be taken seriously at the WCIT.

American Library Association Demands E-Books from Publishers

9/24. The American Library Association (ALA) sent an angry letter to book major publishers criticizing them for not letting libraries distribute their e-books.

This letter, signed by Maureen Sullivan, head of the ALA, states that "Simon & Schuster, Macmillan, and Penguin have been denying access to their e-books for our nation's 112,000 libraries". She demanded that "Simon & Schuster must sell to libraries".

"We librarians cannot stand by and do nothing while some publishers deepen the digital divide. We cannot wait passively while some publishers deny access to our cultural record. We must speak out on behalf of today's -- and tomorrow's -- readers. The library community demands meaningful change and creative solutions that serve libraries and our readers who rightfully expect the same access to e-books as they have to printed books."

See, full story.

More News

9/24. The Department of Justice's (DOJ) Antitrust Division published a notice in the Federal Register (FR) that announces that the DVD Copy Control Association (DVD CCA) filed a notification of a change in its membership, pursuant to the National Cooperative Research and Production Act of 1993, which pertains to limiting antitrust liability of standard setting consortia. See, FR, September 24, 2012, Vol. 77, No. 185, at Page 58870.

9/24. The Department of Justice's (DOJ) Antitrust Division published a notice in the Federal Register (FR) that announces that the Connected Media Experience, Inc. filed a notification of a change in its membership, pursuant to the National Cooperative Research and Production Act of 1993, which pertains to limiting antitrust liability of standard setting consortia. See, FR, September 24, 2012, Vol. 77, No. 185, at Page 58870.

Pending Court of Appeals Nominees

9/22. The Senate adjourned early on September 22, 2012, until mid-November, without confirming four persons who have been nominated for the Court of Appeals, and approved by the Senate Judiciary Committee (SJC). The four are:

Taranto's nomination is particularly significant for the development of technology related areas of law. He has been nominated for the Court of Appeals that has jurisdiction over appeals in patent cases. He represented Grokster before the Supreme Court in MGM v. Grokster. He also represented Rambus in some of the many proceedings relating to its participation in the JEDEC standards setting process and later assertion of patent rights. See, story titled "Obama Nominates Taranto for Federal Circuit" in TLJ Daily E-Mail Alert No. 2,312, November 17, 2011.

There are also three persons who have been nominated by the President, but not approved or rejected by the SJC:

The Senate stopped confirming Court of Appeals nominees in August, as is customary in Presidential election years. See, story titled "Confirmations and Presidential Elections" in TLJ Daily E-Mail Alert No. 2,417, August 1, 2012.

Pending District Court Nominees

9/22. The Senate adjourned early on September 22, 2012, until mid-November, without confirming 15 persons who have been nominated for the U.S. District Court, and approved by the Senate Judiciary Committee (SJC). The 15 are:

Sen. Patrick Leahy (D-VT) gave a speech in the Senate on September 20 in which he bemoaned delays in their confirmations, and Republican obstructionism.

He said that "Senate Republicans have raised the level of partisanship so that these Federal trial court nominees have now become wrapped around the axle of partisanship. Despite a vacancy crisis that threatens the ability of Federal courts to provide justice for the American people, Senate Republicans now refuse to allow a vote on any of the 17 pending district court nominees". (The Senate confirmed two of these 17 on September 21.)

Sen. Leahy continued that "The partisan refusal to allow votes on consensus nominees has become standard operating procedure for Senate Republicans. In each of the last two years, Senate Republicans refused to follow the Senate’s traditional practice of clearing the calendar of noncontroversial nominees." And, he repeatedly referred to these as "consensus" nominees.

Actually, six of these 15 are consensus nominees. 9 of these 15 are not consensus nominees.

The Constitution provides that the President appoints judges. However, the longstanding practice is that the Senators from the President's party pick the District Court nominees for their states. Senators from the other party sometimes also join in supporting these nominees.

Sen. James Inhofe (R-OK) and Sen. Tom Coburn (R-OK) both support Dowdell. Sen. Mark Kirk (R-IL) supports Durkin. Sen. Marco Rubio (R-FL) supports both Davis and Walker. And, Sen. Patrick Toomey (R-PA) supports both Manion and Brann. However, the other nine have been nominated for seats in states in which both Senators are Democrats, and hence, there is no Republican Senator to provide consensus.

Sen. Leahy argued also, as he does in these periodic speeches, that there is a "vacancy crisis" and that the pending nominees are highly qualified. Both arguments suffered a blow on September 12, when Judge Katherine Forrest, whom the Senate confirmed last November, found time to write a 112 page opinion explaining her decision to hold unconstitutional, and permanently enjoin enforcement of, a Congressional statute authorizing the indefinite detention of terrorists. Her decision regarding the plaintiffs' standing to sue, and her decision on the merits, gave Senate Republicans material for alleging left wing judicial activism by Obama judicial nominees.

The plaintiffs include perennial leftist Noam Chomsky, Christian Hedges (author of the book titled "American Facists: The Religious Right and the War on America), and a web site dedicated to supporting the Occupy Wall Street movement. This case is Hedges v. Obama, U.S. District Court for the Southern District of New York, D.C. No. Case 1:12-cv-00331-KBF.

If Mitt Romney were elected President in November, then in the 113th Congress Sen. Leahy and Sen. Charles Grassley (R-IA) would reverse positions. Sen. Leahy would revert to obstructing Republican nominees, and Sen. Grassley would revert to bemoaning Democratic obstructionism.

Tech Related Nominations Left Pending

9/22. The Senate adjourned early on September 22, 2012, until mid-November, without confirming two persons who have been nominated for key technology related positions, both of whom have been approved by the Senate Judiciary Committee (SJC).

The two are William Baer, who has been nominated to be Assistant Attorney General in charge of the Department of Justice's (DOJ) Antitrust Division, and David Medine, who has been nominated to the Privacy and Civil Liberties Oversight Board.

There are also positions for which the President has nominated someone who has not yet been approved by the committee with jurisdiction, and positions for which the President has nominated no one.

For example, there is no confirmed Associate Attorney General. Although, President Obama nominated Tony West on September 20. He has been the acting Associate AG since March.

Also, there is only an acting Secretary of Commerce. Rebecca Blank has been acting Secretary since former Secretary John Bryson resigned in June. President Obama has nominated no one for the position.

Senate Adjourns Until After Elections

9/22. The Senate adjourned, except for pro forma sessions, until Tuesday, November 13, 2012.

Sen. Jeff Sessions (R-AL), the ranking Republican on the Senate Budget Committee (SBC), delivered the Weekly Republican Address [YouTube] on Saturday, September 22. He stated that "the Senate Democrat Majority has decided to adjourn through November having utterly failed to meet its most basic obligations. For the last three years, in a time of national crisis, Senate Democrats have deliberately violated the legal requirement to produce a budget plan. How can they ask the American people to send them one more dime in new taxes when they won’t even meet their legal duty to write a financial plan and tell how that money will be spent?"

Sen. Sessions added that "They also failed to pass a single annual appropriations bill -- not once, but twice -- the first time a single spending bill wasn’t passed in Senate history. They would not even bring up the crucial national defense authorization bill -- for the first time in 50 years. And they presented no plan to prevent the huge tax hikes and steep cuts to defense known as the fiscal cliff."

Sen. Harry Reid (D-NV), the Senate Majority Leader, stated in the Senate, "I’ve listened to my Republican colleagues come to the Senate floor to lament how little the Senate has accomplished during the 112th Congress. I share that concern. In fact, it’s a wonder we’ve gotten anything done at all, considering the lack of cooperation Democrats have gotten from our Republican colleagues." See, transcript.

Capitol Hill News

9/21. The House adjourned on September 21 until after the November elections. The Senate adjourned early on September 22 until November 13, 2012.

9/21. The Senate passed passed HR 6215 [LOC | WW], a technical corrections bill regarding remedies for trademark dilution, by voice vote. The House passed this bill on September 11, 2012. See, story titled "House Passes Technical Correction to Trademark Dilution Statute" in TLJ Daily E-Mail Alert No. 2,446, September 12, 2012. This bill is now ready for President Obama's signature. See also, story titled "Rep. Smith Introduces Bill to Tweak Trademark Dilution Statute" in TLJ Daily E-Mail Alert No. 2,414, July 28, 2012, and story titled "House Judiciary Committee Passes Technical Amendment to Trademark Dilution Statute" in TLJ Daily E-Mail Alert No. 2,422, August 6, 2012.

9/21. The Senate passed S 3486 [LOC | WW], the "Patent Law Treaties Implementation Act",  by voice vote. Sen. Patrick Leahy (D-VT) and Sen. Charles Grassley (R-IA) introduced S 3486 on August 2, 2012. The Senate Judiciary Committee (SJC) amended and approved this bill on September 20, 2012. See, story titled "Senate Judiciary Committee Approves Patent Law Treaties Implementation Act" in TLJ Daily E-Mail Alert No. 2,452, September 20, 2012. This bill would implement two patent law treaties, the "Hague Agreement Concerning International Registration of Industrial Designs", concluded in 1999, and the "Patent Law Treaty", concluded in 2000, which the Senate ratified in 2007. Rep. Lamar Smith (R-TX), Rep. John Conyers (D-MI), Rep. Bob Goodlatte (R-VA), and Rep. Mel Watt (D-NC) introduced the related bill in the House on September 19, 2012. See, HR 6432 [LOC | WW].

Internet Radio Fairness Act Introduced

9/21. Sen. Ron Wyden (D-OR) introduced S __ [PDF], the "Internet Radio Fairness Act of 2012" in the Senate. Rep. Jason Chaffetz (R-UT) and Rep. Jared Polis (D-CO) introduced HR 6480 [LOC | WW], a substantially identical bill in the House.

Sen. Wyden issued a release that states that "Since the passage of the Digital Millennium Copyright Act in 1998, Internet Radio providers have been forced to pay royalty rates for the songs they broadcast that are considerably higher than their competitors in this digital marketplace. These unfair and discriminatory royalty rates have stifled innovation, competition and the growth of the music marketplace."

Currently, Copyright Royalty Judges set royalty rates for cable and satellite radio under one standard, and royalty rates for internet radio under another. These bills would put internet radio under the same standard as cable and satellite.

Rep. Chaffetz and Rep. Polis issued a release that states that "The long-established method (known as the 801(b) standard) that copyright judges use to determine royalty rates for satellite and cable providers enables a broader and balanced set of factors to be considered. HR 6480 puts Internet radio under this 801(b) standard. The 801(b) standard helps strike the appropriate balance to promote the creation of copyrighted works and encourage copyright users to develop new markets for these works. The 801(b) standard is used for all other forms of statutory royalty rate setting, including for cable and satellite radio and for determining the royalties paid by the recording industry to music publishers and songwriters, and has worked successfully since 1976." (Parentheses in original.) See, 17 U.S.C. § 801.

The Computer and Communications Industry Association's (CCIA) Ed Black stated in a release that "As consumers demand new ways to listen to music using the latest technology, we need to update the laws to ensure that new competitors do not face discrimination as they enter the marketplace. Charging different rates for different digital radio providers is fundamentally unfair and goes against the interests of an economy that has time and again chosen to boost competition and innovation."

The CCIA's Matt Schruers added that "The current system we have to set royalty rates is the result of piecemeal legislation that favors some digital radio providers over others. Language in the Copyright Act actually directs those setting royalty rates to “minimize any disruptive impact” on current industries -- or in other words -- support incumbents and discourage competition from new players."

He said that "This legislation would update the law to no longer discourage competition since technology has enabled different distribution methods for radio offerings."

The Consumer Electronics Association's (CEA) Michael Petricone stated in a release that "Under today’s outdated rules, Internet radio providers are forced to pay a significantly larger percentage of royalties than their competitors. In some cases, Internet radio providers pay half of their annual revenues in performance royalties, while other music providers pay less than 10 percent. This irrational and unfair royalty system hinders investment and innovation in Internet radio." He added that these bills "will drive innovation, investment and jobs, not just in Internet radio but also in the hardware used to access Internet services."

Pandora's Tim Westergren stated in a release that "Royalty rates for different formats of digital radio are astonishingly unequal. Currently, internet radio shoulders the largest royalty burden, far higher than any other form of radio. Last year, Pandora paid roughly 50 percent of its total revenue in royalties, more than six times the percentage paid by SiriusXM. The Internet Radio Fairness Act of 2012 addresses this discriminatory practice of favoring one form of digital radio over another by extending the common standard to include internet radio."

The National Association of Broadcasters (NAB) stated in a release that the "NAB appreciates the leadership of Reps. Chaffetz and Polis and Sen. Wyden and strongly supports legislative efforts to establish fair webcast streaming rates. NAB will work with the bill's sponsors and all interested parties to create broadcast radio streaming rates that promote new distribution platforms and new revenue streams that foster the future growth of music."

On August 20, 2012, Rep. Jerrold Nadler (D-NY) released a discussion draft [9 pages in PDF] of a bill to be titled "Interim Fairness in Radio Starting Today Act of 2012", or the "Interim FIRST Act". See, story titled "Rep. Nadler Releases Draft Bill Regarding Performance Rights" in TLJ Daily E-Mail Alert No. 2,434, August 22, 2012.

FTC and EC Approve UMG EMI Merger

9/21. The U.S. Federal Trade Commission (FTC) and the European Commission (EC) made coordinated announcements that both have approved the merger of Universal Music Group (UMG) and EMI Recorded Music.

The FTC closed its investigation, by a vote of 5-0. It wrote in letters to legal counsel for the merging companies that the FTC's Bureau of Competition (BOC) "has been conducting a nonpublic investigation to determine whether the proposed acquisition by Vivendi, S.A. of EMI Recorded Music may violate Section 7 of the Clayton Act or Section 5 of the Federal Trade Commission Act." (Vivendi is the parent company of UMG.)

The FTC letters state, "Upon further review of this matter, it now appears that no further action is warranted by the Commission at this time. Accordingly, the investigation has been closed. This action is not to be construed as a determination that a violation may not have occurred, just as the pendency of an investigation should not be construed as a determination that a violation has occurred. The Commission reserves the right to take such further action as the public interest may require."

The FTC imposed no conditions. However, the EC conditioned its approval on EMI's divestiture of the Parlophone label and other assets. The EC stated in a release that it "had concerns that the transaction, as initially notified, would have allowed Universal to significantly worsen the licensing terms it offers to digital platforms that sell music to consumers. To meet these concerns, Universal offered substantial commitments. In light of these commitments, the Commission concluded that the transaction would not raise competition concerns anymore."

Section 7 of the Clayton Act, which is codified at 15 U.S.C. § 18, is the statute that gives the FTC and Department of Justice (DOJ) authority to block mergers and acquisitions that may substantially lessen competition, or tend to create a monopoly.

Section 7 of the Clayton Act provides, in part, that "No person engaged in commerce or in any activity affecting commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no person subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of another person engaged also in commerce or in any activity affecting commerce, where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly."

Section 5 of the FTC Act, which is codified at 15 U.S.C. § 45, is an anti-fraud consumer protection statute, which the FTC, under the Chairmanship of Jonathan Leibowitz, now asserts is an all purpose antitrust statute, but without the associated body of case law to limit FTC application.

The FTC also released a two page statement [PDF] by Richard Feinstein, Director of the BOC, that explains the FTC's Clayton Act analysis. It makes no reference to Section 5 of the FTC Act.

It states that FTC "staff did not find sufficient evidence of head-to-head competition to conclude that the combination of Universal and EMI would substantially lessen competition. In the recorded music business, the products are highly differentiated, and companies compete for distribution in multiple ways, including: (1) the sale of new titles in large retailers; (2) the sale of catalog titles; and (3) the opportunity to promote artists and records. Commission staff therefore considered the level of direct competition between Universal and EMI across all of these different types of channels. Universal is very strong in popular new releases, but EMI -- the smallest of the Majors -- has a portfolio much more heavily weighted toward older titles."

This statement also addresses the FTC staff's assessment of "the impact of the acquisition on the development of interactive music streaming services". The conclusion was that "each leading interactive streaming service must carry the music of each Major to be competitive. Because each Major currently controls recorded music necessary for these streaming services, the music is more complementary than substitutable in this context, leading to limited direct competition between Universal and EMI. In the end, insufficient evidence existed showing that Universal and EMI offer products that could be viewed by streaming services as direct substitutes."

The Public Knowledge's (PK) Jodie Griffin wrote a short piece in which she criticized the FTC's decision. She wrote that "UMG has clearly recognized that even if it doesn't stay relevant in today's market by adapting to changing technology and consumer demands, it can maintain its position in the marketplace simply by consolidating gatekeeper power over the businesses that are trying to move the music industry forward. Why earn relevance when you can buy it? This decision by the FTC bodes ill for the foreseeable future of the digital music business. The FTC has enabled the dominant gatekeeper to further entrench itself between musicians and their fans, now with even less competition to pressure UMG to be fair to either."

The Tech Freedom's Berin Szoka praised the approval. He also offered some parting comments for Sen. Herb Kohl (D-WI), the Chairman of the Senate Judiciary Committee's (SJC) Subcommittee on Antitrust, Competition Policy and Consumer Rights, who is not running for re-election in November.

Szoka wrote that "Senator Herb Kohl isn't happy that the FTC imposed no conditions on the deal. This is hardly surprising, since he's been repeating the same ``Big is Bad´´ mantra for over twenty years. But the entire point of having an expert agency like the FTC is to ensure that mergers are assessed under antitrust law's legal doctrines -- which are grounded in the same law and economics scholarship that has so thoroughly discredited Kohl's visceral loathing of mergers. Let's hope whoever succeeds Kohl as Chairman of the Senate Antitrust Committee is more humble about his ability to out-smart either the FTC or the great ongoing churn of the digital revolution. That, ultimately, is what protects consumers, not political grandstanding."

People and Appointments

9/21. The Senate confirmed Gonzalo Curiel to be a Judge of the U.S. District Court for the Southern District of California by voice vote

9/21. The Senate confirmed Robert Shelby to be a Judge of the U.S. District Court for the District of Utah by voice vote.

9/21. Fritz Attaway retired. He worked for the Motion Picture Association of America (MPAA) for 36 years. See, MPAA release.

9/21. President Obama announced his intent to nominate Alan Estevez to be Principal Deputy Under Secretary of Defense for Acquisition, Technology, and Logistics. See, White House news office release.

More News

9/21. The Government Accountability Office (GAO) released a report [47 pages in PDF] titled "Divers License Security: Federal Leadership Needed to Address Remaining Vulnerabilities". It states that "While most states have taken steps required by the REAL ID Act of 2005 (Act), officials in some states indicated that they may not comply with certain provisions -- such as re-verifying SSNs for license renewals -- because of state laws or concerns that these requirements are unnecessary and burdensome." Title II of the REAL ID Act imposes federal mandates on the states' identification document process, and mandates state electronic databases and data sharing. The Act sets minimum standards for states, penalizes states that do not implement its standards, but nevertheless relies upon states to implement it, at their own cost. Many states have refused to comply. See also, story titled "House Judiciary Subcommittee Holds Hearing on REAL ID Act" in TLJ Daily E-Mail Alert No. 2,352, March 21, 2012.

9/21. Joseph Wayland, acting Assistant Attorney General in charge of the Department of Justice's (DOJ) Antitrust Division gave a speech titled "Antitrust Policy in the Information Age: Protecting Innovation and Competition".

Go to News from September 16-20, 2012.