Before the

**Federal Communications Commission**

**Washington, D.C. 20554**

)

In the Matter of )

)

Petition of MCI for Declaratory Ruling ) CCBPol. 97-4

that New Entrants Need Not Obtain )

Separate License or Right-to-use Agreements )

Before Purchasing Unbundled Elements )

)

Implementation of the Local Competition ) CC Docket No. 96-98

Provisions in the Telecommunications Act )

of 1996 )

)

**MEMORANDUM OPINION AND ORDER**

Adopted: April 17, 2000 Released: April 27, 2000

By the Commission:

**TABLE OF CONTENTS**

I. INTRODUCTION 2

II\. BACKGROUND 3

III\. DISCUSSION 5

A. Jurisdiction 5

B. Implication of Intellectual Property Rights 6

C. Incumbent LEC Obligations Under Section 251(c)(3) 7

IV\. ORDERING CLAUSE 14

**I. INTRODUCTION**

Number range level0Number range level1Number range level2Number range
level3Number range level4Number range level5Number range level6Number
range level71. MCI filed a petition for declaratory ruling relating to
intellectual property rights. Specifically, it asked the Commission to
declare that any requirement that a requesting telecommunications
carrier obtain separate license or right-to-use agreements before it may
obtain access to unbundled network elements violates sections 251 and
253 of the Communications Act of 1934, as amended (the Act).[^1] MCI
also asks the Commission to issue a declaratory ruling that the Act\'s
nondiscrimination requirement requires an incumbent LEC to provide
requesting telecommunications carriers the same rights to intellectual
property that the incumbent LEC enjoys.[^2] In addition, MCI requests
that the Commission hold that intellectual property rights of third
parties are not implicated in the sale of unbundled network
elements.[^3]

2\. For the reasons set forth below, we grant MCI\'s petition to the
extent that it requests that we declare that section 251(c)(3) of the
Telecommunications Act of 1996 (1996 Act) requires an incumbent local
exchange carrier (\"LEC\") to use its best efforts to obtain coextensive
intellectual property rights from the vendor on terms and conditions
that are equal in quality to the terms and conditions under which the
incumbent LEC has obtained these rights. [^4] We deny, however, MCI\'s
petition to the extent that it requests that the Commission hold that
intellectual property rights of third parties are not implicated in the
sale of unbundled network elements. In reaching this conclusion, we also
respond to a primary jurisdiction referral of the United States District
Court for the Western District of Texas (\"Texas District Court\").[^5]
Although we do not believe that this issue is currently preventing
competing carriers from being able to enter the local exchange and
exchange access markets, we seek to ensure that there are no barriers to
entry in the local exchange and exchange access markets.

**II. BACKGROUND**

3\. In the 1996 Act, Congress moved to restructure the local
telecommunications market so as to remove legal and economic impediments
to market entry that had previously existed. A key aspect of this
restructuring is to require incumbent LECs to offer to requesting
telecommunications carriers, among other things, access to network
elements on an unbundled basis. By permitting competing carriers to
enter local markets through the acquisition of unbundled network
elements, the 1996 Act sought to increase the opportunities for
competitive entry and reduce the existing competitive advantages of
incumbent local exchange carriers. Section 3(29) of the Communications
Act defines the term \"network element\" to mean both \"a facility or
equipment used in the provision of a telecommunications service\" and
\"features, functions, and capabilities that are provided by means of
such facility or equipment.\"[^6] Section 251(c)(3) of the Act requires
incumbent LECs to provide requesting telecommunications carriers
nondiscriminatory access to network elements on an unbundled basis at
any technically feasible point on rates, terms, and conditions that are
just, reasonable, and nondiscriminatory.

4\. On January 25, 1999, the United States Supreme Court (\"Supreme
Court\") released an opinion in *AT&T Corp. v. Iowa Utilities Board* in
which it vacated section 51.319 of the Commission\'s rules.[^7] Section
51.319, which was adopted in the *Local Competition First Report and
Order*, set forth the minimum number of network elements that incumbent
LECs must make available on an unbundled basis to requesting carriers
pursuant to section 251(c)(3). The Supreme Court found that the
Commission, in determining which network elements must be unbundled
pursuant to section 251(c)(3), had not adequately considered the
\"necessary\" and \"impair\" standard of section 251(d)(2).[^8] In a
*Third Report and Order and Fourth Further Notice of Proposed
Rulemaking*, we addressed the issues of which particular elements are
\"proprietary,\" and whether any of these elements must be unbundled in
light of the \"necessary\" and \"impair\" standards of section
251(d)(2).[^9] We found that a proprietary network element is
"necessary" within the meaning of section 251(d)(2)(A) if, taking into
consideration the availability of alternative element outside the
incumbent's network, lack of access to an element would, as a practical,
economic and operational matter, preclude a requesting carrier from
providing the services it seeks to offer.[^10] We clarify at the outset,
that the instant order is limited to our interpretation of section
251(c)(3) and the obligations that this section imposes on incumbent
LECs with respect to the intellectual property rights associated with
network elements that they are required to unbundle for requesting
carriers pursuant to section 251(d)(2).[^11]

5\. In its petition, MCI asserts that certain incumbent LECs have
insisted that carriers requesting access to unbundled network elements
(\"competing carriers\" or \"requesting carriers\") obtain licenses or
right-to-use agreements associated with every network element to which
the carrier requests access.[^12] According to MCI, at the time it filed
its petition in 1997, at least one incumbent LEC, Southwestern Bell
Telephone Company (\"SWBT\"), has inserted this requirement in its
Statements of Generally Available Terms, and has included this as an
issue in the arbitration and negotiation process.[^13] MCI further
states that the Texas Public Utility Commission (\"Texas Commission")
has adopted a requirement that SWBT provide a list of all known and
necessary license or right-to-use agreements applicable to an unbundled
network element requested by a competing carrier, and a requirement that
the competing carrier obtain any license or right-to-use agreement
associated with a network element purchased from SWBT.[^14] Pursuant to
this provision, SWBT, in response to a request by AT&T, identified 78
different contracts with approximately 42 different vendors.[^15]

**III. DISCUSSION**

**A. Jurisdiction**

6\. As an initial matter, we reject the argument, made by certain
commenters, that we lack jurisdiction in the present matter because we
have no jurisdiction over state decisions regarding statements of
generally available terms and conditions or arbitration decisions.[^16]
The Supreme Court held that \"the FCC has rulemaking authority to carry
out the \'provisions of \[the Communications Act\],\' which include §§
251 and 252, added by the Telecommunications Act of 1996\"[^17] Our
holding below requires us only to interpret section 251(c)(3) and
section 251(c)(1) pursuant to our general rulemaking authority.
Moreover, as noted above, the Texas District Court has referred primary
jurisdiction to this Commission to resolve this matter.

**B. Implication of Intellectual Property Rights**

7\. We deny MCI\'s petition to the extent it requests that we declare
generally that intellectual property rights are never implicated in the
purchase of unbundled network elements.[^18] Determining whether
intellectual property rights are implicated in the purchase of a
particular unbundled network element must be determined on an individual
case basis and depends upon a number of factors including: the scope of
the use restrictions placed on the intellectual property by the vendor
upon sale of equipment or licensing of software; the nature of the
access and use contemplated by the requesting carrier when it purchases
access to the element; the nature of the intellectual property included
in the network element; and the applicable intellectual property or
contract law.[^19] We, therefore, agree with commenters that contend
that physical control of network elements is irrelevant to the question
of whether intellectual property rights are implicated.[^20] Moreover,
we agree with those commenters asserting that nothing in the 1996 Act
permits us to nullify patent or other intellectual property rights.[^21]
Because the determination of whether intellectual property rights are
implicated can vary greatly depending upon the individual contract terms
negotiated by the vendor and incumbent LEC, we decline to make the
comprehensive declaration requested by MCI.[^22]

8\. At the same time, however, we expect that, in nearly all cases,
requesting carriers will be able to access unbundled network elements
without the need for additional licenses. For example, many parties,
including large equipment vendors such as Lucent and Nortel state that,
generally, no additional licenses or fees should be required when a
competing carrier obtains access to unbundled network elements under
current contracts for a use that is within the scope of the original
license.[^23] Even BellSouth acknowledges that the \"magnitude of
occurrence of the need for direct licenses is much more nominal\" than
other commenters suggest.[^24] Similarly, Sprint observes that, where
these intellectual property rights are implicated, the issue will be the
scope of the rights granted in the original software license.[^25] Some
commenters opine that this situation may explain why certain incumbent
LECs have not raised the issue of third party intellectual property
rights.[^26] We are optimistic, therefore, that incumbent LECs will not
raise the issue of intellectual property as a barrier to entry. In the
unlikely event that this should become an issue, however, we seek to
clarify incumbent LECs\' obligations under section 251(c)(3) to provide
nondiscriminatory access to network elements.

**C. Incumbent LEC Obligations Under Section 251(c)(3)**

9\. We conclude that the \"nondiscriminatory access\" obligation in
section 251(c)(3) requires incumbent LECs to use their best efforts to
provide all features and functionalities of each unbundled network
element they provide, including any associated intellectual property
rights that are necessary for the requesting carrier to use the network
element in the same manner as the incumbent LEC. In particular,
incumbent LECs must exercise their best efforts to obtain co-extensive
rights for competing carriers purchasing unbundled network elements. We
further find that the nondiscriminatory access obligation requires
incumbent LECs to allocate any costs associated with acquiring the
necessary intellectual property rights among all requesting carriers,
including themselves.[^27] We do not mandate a particular method of
satisfying these obligations. In fact, we believe that, through
negotiation, third party vendors, incumbent LECs and requesting carriers
can best determine how to ensure that an incumbent LEC lawfully provides
access to unbundled network elements to requesting carriers without
infringing upon the rights of third party vendors. As noted above, in
most cases, the incumbent LEC's contract with a vendor already permits
it to provide access to competing carriers, but in others, it may be
necessary to negotiate for additional licenses.

10\. We reach this conclusion in view of the fact that incumbent LECs
control the choice of third party vendors, the scope of contracts with
those vendors, and, along with the vendors, are well-situated to
interpret ambiguous portions of those contracts. Given this, they are in
the best position to determine whether existing contracts permit
requesting carriers to use unbundled elements without modifying the
contract to permit an extension of the right to use the intellectual
property, to renegotiate the existing contracts if an extension is
required, and to negotiate future contracts to ensure that competing
carriers\' use of intellectual property present in an element is
contemplated. If incumbent LECs were not required to obtain the right
for requesting carriers to use the network elements, they would likely
have an incentive to interpret their licenses with these providers as
narrowly as possible to make it more difficult for competing carriers to
obtain access to the elements. Confidentiality agreements precluding the
disclosure of the terms of these contracts exacerbate the incentives of
incumbents to interpret contractual provisions to exclude use by
requesting carriers. Requesting carriers, without access to the actual
contracts, would be unable to determine which additional rights need to
be obtained.[^28] Moreover, the record suggests that, because incumbent
LECs have pre-existing relationships with the vendors, they typically
have more bargaining power with these parties.[^29]

11\. We further conclude that incumbent LECs must recover the reasonable
cost associated with renegotiating and extending rights to use
intellectual property rights among all requesting carriers, including
themselves.[^30] We thus disagree with commenters that suggest that
costs should be recovered entirely from the competing carriers under
cost causation principles.[^31] Section 251(c)(3) imposes an obligation
on incumbent LECs to provide access to unbundled network elements on
terms and conditions that are \"just, reasonable, and
nondiscriminatory.\" Moreover, section 252(d)(1)(A) requires that rates
for unbundled network elements be based on the cost of providing the
network element. These sections reflect Congress\' intent to ensure that
competing carriers are able to share in the economies of scale and
economies of scope of the incumbent. As the Commission stated in the
*Local Competition First Report and Order*, incumbent LECs\' rates for
network elements must recover costs in a manner that reflects the way
they are incurred, and therefore, prices should be based on costs
similar to those incurred by the incumbents.[^32] Moreover, the
Commission stated that, \"\[t\]he costs of shared facilities . . .
should be recovered in a manner that efficiently apportions costs among
users.\"[^33] We find that the cost of co-extensive intellectual
property rights is analogous to the shared use of network elements, and
thus, must be shared by the incumbent and competitors, ensuring that all
parties bear the same proportionate and reasonable costs associated with
unbundled network elements.[^34] We note that the price of an unbundled
network element already includes the cost of the license for the
incumbent to use it. Accordingly, charging the entire cost of any
license extension to requesting carriers, without the incumbent sharing
in that cost, results in an overcharge to the requesting carriers.

12\. This holding best satisfies the \"nondiscriminatory access\"
requirement of section 251(c)(3). Specifically, we find that this
holding reflects Congress' intent in drafting the 1996 Act, and is
consistent with the text, structure, history, and purpose of that
legislation.[^35] The Commission has previously determined that the 1996
Act\'s goal of promoting local competition would not be achieved if the
quality of the access to unbundled elements provided by incumbent LECs
to new entrants were lower than what the incumbent LECs provide to
themselves. Thus, the Commission determined that the phrase
\"nondiscriminatory access\" means at least two things: \"first, the
quality of an unbundled network element that an incumbent LEC provides,
as well as the access provided to that element, must be equal between
all carriers requesting access to that element; second, where
technically feasible, the access and unbundled network element provided
by an incumbent LEC must be at least equal-in-quality to that which the
incumbent LEC provides to itself.\" [^36] Moreover we note that this
holding is consistent with a recent decision of the United States Court
of Appeals for the Fourth Circuit wherein the court held that section
251(c)(3) imposes an obligation on incumbent LECs to use their best
efforts to renegotiate modifications to intellectual property licenses
to provide nondiscriminatory access to network elements on the same
terms and conditions that an incumbent LEC enjoys.[^37]

13\. Several commenters have questioned the soundness of a policy that
would penalize incumbent LECs for an unregulated vendor\'s refusal to
extend an existing contract to a competing carrier.[^38] Although we
expect that incumbent LECs will obtain any necessary intellectual
property rights for competing carriers in keeping with their statutory
obligation under section 251(c)(3), we do not in this order specify the
means by which they must do so.[^39] Rather, we expect that incumbent
LECs will exercise their best efforts to obtain, at the lowest
reasonable cost, licensing for requesting carriers on the terms that it
has obtained for itself to ensure that competing carriers obtain
nondiscriminatory access to unbundled network elements. We are highly
skeptical that incumbent LECs will not succeed in meeting their
nondiscrimination obligations pursuant to section 251(c)(3) through the
use of their best efforts.

14\. We find that, by including the necessary intellectual property
license associated with an unbundled network element, an incumbent LEC
can fulfill the requirement of section 251(c)(3) of allowing a
requesting carrier to provide telecommunications services.[^40] To
conclude otherwise would be inconsistent with the intent of Congress to
dismantle significant economic and legal barriers to competition.
Specifically, requiring a competing carrier to negotiate intellectual
property licenses individually with multiple vendors with whom they may
have no other business relationship could potentially pose a significant
economic barrier to competition. For example, competing carriers could
incur tremendous transaction costs and delays in attempting to obtain
licenses as preconditions of entry. Such a requirement would
disproportionately threaten smaller carriers whose participation in the
local exchange market Congress sought to encourage.

15\. We recognize, as Ameritech maintains, that incumbent LECs cannot
unilaterally extend third-party intellectual property rights to
competing carriers.[^41] Furthermore, we agree with Ameritech and other
commenters that we do not have jurisdiction to alter the intellectual
property rights of third-party vendors.[^42] Our decision does not
infringe upon the rights of these third parties. Rather, it requires
incumbent LECs to use their best efforts to ensure that their
intellectual property rights are lawfully extended to competing
carriers. We are not convinced by claims that section 251(c)(3)\'s
\"nondiscriminatory access\" requirement applies only to incumbent
LECs\' property and not to property that they do not own, such as
intellectual property.[^43] We find no basis in the statute for this
distinction, and we are concerned that reading such a distinction into
our rules would be difficult, if not impossible, to administer as
incumbents could engage in lease-back arrangements designed solely to
evade the obligations imposed by the Act.

16\. Moreover, we are not persuaded that incumbent LECs\' lack of
knowledge about a requesting carrier\'s intended use of the unbundled
element justifies requiring new entrants themselves to obtain
intellectual property rights from third-party vendors. Section 251(c)(3)
requires only that the intellectual property rights provided to a
requesting carrier will entitle that carrier to use the element for the
same uses as the incumbent LEC. To the extent the requesting carrier
intends to use the element in a different manner (*e.g.*, in combination
with some other element not contemplated by the incumbent LEC\'s
particular license), the requesting carrier is solely responsible for
obtaining this right from the vendor.[^44]

17\. Nevertheless, we recognize that, in order to limit its use to that
contemplated by the contract, a competing carrier will need to know the
extent to which the incumbent LEC is entitled to use a particular
element. At a minimum, we believe that incumbent LECs should detail the
name of specific third-party vendors, the subject intellectual property,
and the relevant contracts which govern the providing incumbent LEC\'s
use of that intellectual property. Failure of an incumbent LEC to
satisfy these minimal requirements could constitute a violation of
section 251(c)(3) as well as section 251(c)(1), which requires incumbent
LECs to negotiate in good faith. We also recognize that many of these
contracts are subject to non-disclosure provisions. Although the
extension of rights to competing carriers will necessitate that
competing carriers review these contracts to determine which uses are
contemplated, we leave to the parties to negotiate a reasonable means of
conveying this information in a manner that does not violate the terms
of the confidentiality agreement.[^45] For example, the vendor and the
incumbent LEC will have to determine which provisions in the contract
are entitled to confidentiality. Because there are certain terms, such
as the cost of the intellectual property, that a competing carrier will
have no need to examine, we expect that a redacted version of the
contract could be made available to competing carriers in order to
assist them in ascertaining the permissible uses of the elements at
issue.

18\. We reiterate that throughout the process of evaluating the
intellectual property rights of third parties, incumbent LECs are under
a rigorious and continuing obligation to negotiate in good faith with
requesting carriers seeking access to unbundled network elements
pursuant to section 251(c)(1). For example, an incumbent LEC's
obligation to negotiate in good faith is violated if the incumbent LECs
uses confidentiality provisions in vendor contracts in an
anticompetitive manner or otherwise frustrates the ability of a
requesting carrier to obtain co-extensive rights to use unbundled
network elements. Incumbent LEC confidentiality provisions that impair
the ability of a requesting carrier to obtain nondiscriminatory access
to unbundled network elements could constitute a violation of the
requirements of section 251(c)(1) and (c)(3). We intend to ensure that
the renegotiation process, where necessary, does not unreasonably delay
a requesting carrier's access to unbundled network elements.

19\. We emphasize that in this Order we are not extending our rules to
regulate third-party vendors. We recognize that intellectual property
rights are among the most valuable assets these companies own.[^46] We
agree with commenters that Congress did not intend to open the local
telecommunications market by trampling the intellectual property rights
of third parties, and nothing in section 251(c)(3) requires a third
party to grant a compulsory, royalty-free license to its intellectual
property.[^47] As the Texas Commission noted, the challenge posed by
this issue is to interpret the statute in a manner that promotes
competition in local telecommunications markets, while at the same time
preserves the rights of third parties.[^48] We have thus endeavored to
ensure that our action preserves vendors\' rights in their intellectual
property.[^49] Protecting a vendor\'s rights to its intellectual
property is vital to the encouragement of innovation that can advance
telecommunications services to all consumers. We are confident that the
goal of promoting local competition can be achieved while simultaneously
protecting a vendor\'s rights to its intellectual property.

20\. Although our holding requires incumbent LECs to use their best
efforts to ensure that a competing carrier purchasing unbundled network
elements is able to obtain co-extensive intellectual property rights,
third party vendors are nevertheless entitled to privity of contract
with a requesting carrier.[^50] Because we do not regulate these
parties, we conclude that we may not limit their ability to require such
an arrangement. We do not expect, however, that in those instances where
an intellectual property holder seeks to establish privity with a
requesting carrier, this will erect a significant barrier to providing
the services a requesting carrier seek to offer. We expect that privity
could be established with straightforward amendments to incumbent LEC
license agreements and requesting carrier intellectual property
licenses.

21\. We disagree with GTE\'s contention that our holding is inconsistent
with the Commission\'s treatment of proprietary network information in
the *Local Competition Second Report and Order*.[^51] We agree with AT&T
that this interpretation \"distorts the Commission\'s reasoning and thus
obscures the fundamental distinction between the situation here and the
issues *\[the Local Competition Second Report*\] order resolved.\"[^52]
In that proceeding, the Commission found that in interpreting the
section 251(c)(5) network disclosure requirement, there may be instances
in which incumbent LECs are permitted to refer requesting carriers to
negotiate with third parties for the release of any necessary
proprietary information associated with the incumbent LEC\'s network
disclosure obligations.[^53] That is not the situation at hand here. In
the instant proceeding we are clarifying incumbent LECs\' obligations
under section 251(c)(3) to provide \"nondiscriminatory access\" to
unbundled network elements. Given this standard, we find it is
reasonable to require incumbent LECs to use their best efforts to obtain
coextensive intellectual property rights from the vendor on terms and
conditions that are equal in quality to the terms and conditions under
which the incumbent LEC has obtained these rights. Moreover, GTE\'s
selective discussion omits the Commission\'s statement two paragraphs
later which clarified that \"incumbent LECs are required \[under section
251(c)(5)\] to provide adequate access to even proprietary information
if a competing service provider needs that information to . . . maintain
interconnection and interoperation.\"[^54]

IV\. ORDERING CLAUSE

22\. Accordingly, IT IS ORDERED pursuant to sections 1, 3,4, 251(c)(1),
251(c)(3) and 303(r) of the Communications Act of 1934, as amended, 47
U.S.C. §§ 151, 153, 154, 251(c)(1), 251(c)(3), 303(r), 47 C.F.R. § 1.2
that the Petition for Declaratory ruling filed by MCI IS GRANTED IN PART
and IS DENIED IN PART to the extent indicated herein.

FEDERAL COMMUNICATIONS COMMISSION

Magalie Roman Salas

Secretary

APPENDIX

MCI\'s Petition for Declaratory Ruling

CC Docket No. 96-98

List of Commenters

1\. Ad Hoc Coalition of Telecommunications Manufacturing Companies

2\. AT&T Corp.

3\. Ameritech

4\. Bell Atlantic and NYNEX

5\. Bell Communications Research (Bellcore)

6\. BellSouth Corporation

7\. Competitive Telecommunications Association

8\. GTE Service Corporation

9\. LCI International Telecom. Corp.

10\. Lucent Technologies

11\. SBC Communications Inc.

12\. Northern Telecom. Inc.

13\. Public Utility Commission of Texas

14\. Sprint

15\. Telecommunications Resellers Association

[^1]: Petition of MCI for Declaratory Ruling, CC Docket No. 96-98, CCB
    Pol. 97-4 (filed Mar. 11, 1997) (\"Petition\"). On March 14, 1997,
    the Common Carrier Bureau issued a Public Notice requesting
    interested parties to file comments concerning MCI\'s Petition.
    *See* Public Notice, Common Carrier Bureau, DA 97‑557 (rel. Mar 14,
    1997). A list of commenters appears in the Appendix to this Order.
    In an *ex parte* dated March 4, 1999, MCI withdrew the section 253
    preemption portion of its petition. *See* Letter from Keith L. Seat,
    Senior Counsel for Competitive Strategies, Federal Law and Public
    Policy, MCI to Michelle M. Carey, FCC (Mar. 4, 1999).

[^2]: Petition at 2.

[^3]: *Id.* at 7.

[^4]: Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56,
    *codified at* 47 U.S.C. §§ 151 *et seq.* The 1996 Act amended the
    Communications Act of 1934.

[^5]: On August 17, 1998, the Texas District Court issued an order
    referring the intellectual property dispute to this Commission. AT&T
    sought review before the Texas District Court seeking judicial
    review of an interconnection agreement that was arbitrated and
    approved by the Texas Commission The court found that \"the
    relationship of \[section\] 251(c)(3) to the intellectual property
    rights of third parties who have licensed their intellectual
    property to incumbent LECs for use in the LECs\' physical facilities
    is precisely the type of issue within the FCC\'s special
    competence.\" *See* *AT&T v. Southwestern Bell Telephone Company*,
    No. A‑97‑CA‑029‑SS, slip. op. at 6 (W.D. Tex. filed Aug. 17, 1998)
    (\"*Texas Court Referral*\").

[^6]: The Supreme Court has affirmed our application of the term
    \"network element\" to include such \"features, functions, and
    capabilities\" as operator services and directory assistance,
    operational support systems (\"OSS\"), and vertical switching
    functions such as caller I.D., call forwarding, and call waiting.
    *See AT&T Corp. v. Iowa Utilities Board*, 119 S.Ct. 721, 733-734
    (1999) (\"*Iowa Utilities Board\"*).

[^7]: *Iowa Utilities Board*, 119 S.Ct. 721 (1999).

[^8]: *Iowa Utilities Board*, 119 S.Ct. at 733-36.

[^9]: *Implementation of the Local Competition Provisions of the
    Telecommunications Act of 1996*, CC Docket No. 96-98, Third Report
    and Order and Fourth Further Notice of Proposed Rulemaking, FCC
    99-238 (rel. Nov. 5, 1999) (*UNE Remand*).

[^10]: In the *UNE Remand*, we adopted a definition of proprietary
    network elements that track the intellectual property categories of
    patent, copyright and trade secret law. *See UNE Remand* at para.
    34.

[^11]: In the instant Order we determine that section 251 imposes
    certain obligations on incumbent LECs in connection with the
    intellectual property rights of third parties. Concurrently today,
    by an *Order on Reconsideration* in CC Docket No. 96-237, we
    determine that different obligations affecting third party
    intellectual property rights are imposed on incumbent LECs by
    section 259. *See* Order on Reconsideration, CC Docket No. 96-237,
    FCC No. 00-140, (rel. April 27, 2000*)*(*"Infrastructure Sharing
    Reconsideration Order*"). This dissimilar treatment is mandated by
    the different requirements and operational contexts of the two
    statutory provisions. Section 251 governs interconnection and
    unbundled access requests, including requests made by carriers
    competing with the incumbent LEC. Pursuant to section 251(c),
    incumbent LECs must provide interconnection and unbundled access,
    *inter alia*, on a non-discriminatory basis. *See* 47 U.S.C. §§
    251(c)(2)(D); (c)(3). Construing this non-discrimination
    requirement, we find that incumbent LECs must exercise "best
    efforts" to obtain co-extensive rights on behalf of competing LECs
    obtaining unbundled access pursuant to section 251 where such access
    implicates third party intellectual property rights. We do not adopt
    the same "best efforts" standard in section 259 cases because
    section 259 applies only where *non-competing* carriers share access
    to an incumbent LEC's "public switched network infrastructure,
    technology, information, and telecommunications facilities and
    functions." 47 U.S.C. § 259(a). As the Commission recognized in the
    *Infrastructure Sharing Order*, incumbent LECs in section 259 cases
    have less incentive to deny non-competing carriers the full benefit
    of infrastructure sharing agreements than they would competing
    carrier interconnection requests made pursuant to section 251. *See
    Infrastructure Sharing Order*, 12 FCC Rcd at 5528, 5530-31, ¶ 116.
    Also in contrast to section 251, section 259 contains no explicit
    non-discrimination requirement. Given these differences, we see no
    compelling reason to impose upon incumbent LECs in section 259
    sharing cases the same "best efforts" requirement that we find is
    necessary in the very different context of section 251. We note also
    that pursuant to section 251, incumbent LECs are under a continuing
    and rigorous obligation to negotiate in good faith.

[^12]: MCI Petition at 3.

[^13]: *Id*. at 4.

[^14]: *Id.*

[^15]: *Id.* at 5.

[^16]: *See* Bell Atlantic Comments at 1; BellSouth Comments at 2-3; GTE
    Comments at 1-3; Texas Commission Comments at 1-2.

[^17]: *Iowa Utilities Board*, 119 S.Ct. at 729.

[^18]: MCI Petition at 6.

[^19]: *See* Lucent Comments at 3; Lucent Reply Comments at 2; *see
    also* TIA Reply Comments at 2.

[^20]: *See* BellSouth at 4-5; BellCore at 2-3; SWBT Comments at 9-10.

[^21]: BellCore Comments at 3; SWBT Comments at 16.

[^22]: Likewise, we reject LCI\'s suggestion that we declare that
    intellectual property rights are not implicated unless an incumbent
    LEC proves by clear and convincing evidence that they are
    implicated. *See* LCI Comments at 1.

[^23]: Lucent Comments at 2, 5-6; Nortel Comments at 6-7.

[^24]: BellSouth Reply Comments at 8.

[^25]: *See* Sprint Comments at 4-5.

[^26]: *See* MCI Petition at 7; AT&T Comments at 2,6, 18-26; Competitive
    Telecommunications Association (\"CompTel\") Comments at 4.

[^27]: The costs allocated to intellectual property rights will be
    considered with all the other costs that go into determining the
    unbundled network price.

[^28]: MCI notes that even SWBT recognizes that \"determining whether
    there is potential infringement requires a close examination of the
    particular patents at issue and the nature of the use.\" MCI Reply
    Comments at 8 (citing SWBT Comments at 5).

[^29]: *See, e.g.,* TRA Comments at 9; AT&T Comments at 1-3, 13. *But
    see* Ad Hoc Comments at 4; BellSouth Comments at 6; SWBT Comments at
    28.

[^30]: The Supreme Court has affirmed our jurisdiction to design pricing
    methodology to carry out the provisions of the 1996 Act. *See Iowa
    Utilities Board*, 119 S.Ct. 721, 733 (1999).

[^31]: *See* Ad Hoc Comments at 4; Bell Atlantic Comments at 4; GTE
    Reply Comments at 5-6; US West Reply Comments at 15.

[^32]: *Local Competition First Report and Order* at para. 743.

[^33]: *Local Competition First Report and Order* at para. 755.

[^34]: *See* AT&T Comments at 12. *But c.f. Implementation of
    Infrastructure Sharing Provisions of the Telecommunications Act of
    1996*, Report and Order, FCC 97-36, 12 FCC Rcd 5470 (1997)
    (addressing terms for use of shared network infrastructure pursuant
    to section 259 of the Act), *recon. pending*. Qualifying carriers
    that request sharing pursuant to section 259 may not, pursuant to
    section 259(b)(6), use an incumbent LEC\'s facilities to compete in
    the incumbent LEC\'s telephone exchange area. The Commission,
    therefore, concluded that incumbents in section 259 sharing cases
    lack incentives to deny otherwise valid sharing requests pursuant to
    the terms of section 259. Based on these unique circumstances, the
    Commission allowed the parties to section 259 sharing arrangements
    to negotiate the terms for such sharing arrangements without
    mandating, for example, pricing guidelines or specific requirements
    controlling how requesting carriers would share in the economies of
    scale and scope of the incumbent. *Id.* at ¶¶ 95, 116. Such an
    approach is unique to section 259 cases.

[^35]: The language of the statute indicates that Congress recognized
    that incumbent LECs enjoy such overwhelming economies of scale and
    scope due to their historic monopolies that, to ensure competition,
    competitors must be permitted to share the benefits of these
    economies. *See* *Local Competition First Report and Order* at para.
    11, 316; MCI Petition at 8; AT&T Comments at 13.

[^36]: *See* *Local Competition First Report and Order* at para. 312.

[^37]: *See AT&T v. Bell Atlantic*, Nos. 98-2131, 98-2147, 98-2196
    (decided December 15, 1999) (1999 WL 1186253 (4^th^ Cir. Va.)).

[^38]: *See, e.g.,* Sprint Comments at 10; Bell Atlantic Comments at
    4-5; GTE Comments at 8.

[^39]: The Fourth Circuit reached the same conclusion when it held that
    "we recognize that negotiations might not be successful in every
    instance. If negotiations fail, we do not interpret § 251(c)(3) to
    impose an absolute duty to provide identical licensing terms in the
    case of existing agreements. \[citations omitted\]. Still, there
    must be a duty to negotiate. Otherwise, the Act's goal --
    competition in local telephone markets -- would be ignored." *See
    AT&T v. Bell Atlantic*, at \*6.

[^40]: *See* MCI Petition at 8; AT&T Comments at 9; CompTel Comments at
    2-3;

[^41]: *See* Ameritech Comments at 3-6.

[^42]: *See* Ameritech Comments at 4-5; BellSouth Comments at 2-3; SWBT
    Comments at 27.

[^43]: *See* Ad Hoc Coalition Comments at 3; BellSouth Reply Comments at
    6.

[^44]: *See* Lucent Comments at 6 (\"Clearly in situations where a
    CLEC\'s use \... is beyond the scope of the original license or
    causes the originally intended license restrictions to be violated,
    an expanded or separate license would be required\"); *see also*
    Lucent Reply Comments at 10; Nortel Comments at 6; SWBT Comments at
    11.

[^45]: TRA Comments at 6; AT&T Reply Comments at 9-12. We note that at
    least one vendor, Lucent, indicates that it stands ready to work
    with incumbent LECs to identify, pursuant to reasonable
    non-disclosure terms, the portions of agreements which may be
    necessary for competing carriers to assess their extent of
    intellectual property rights. Lucent Comments at 13.

[^46]: Lucent Comments at 1.

[^47]: *See *Texas Commission Comments at 3; BellCore Comments at 2.

[^48]: Texas Commission Comments at 3.

[^49]: Northern Telecom (\"Nortel\") Comments at 2; Telecommunications
    Industry Association (\"TIA\") Reply Comments at 2; Lucent Comments
    at 2.

[^50]: Several commenters contend that third party vendors must be able
    to require privity of contract with individual carriers. *See*
    BellCore Comments at 3; SWBT Comments at 26; *but see* Nortel at 8-9
    (\"Nortel takes no position regarding whether the Commission should
    mandate that the agreements be established directly between the
    vendor and the requesting telecommunications carrier or between the
    requesting carrier and the \[incumbent LEC\] in accordance with the
    rights granted by the vendor to the \[incumbent LEC\]\").

[^51]: *See* GTE Comments at 7; citing *Second Report and Order and
    Memorandum Opinion and Order, Implementation of the Local
    Competition Provisions of the Telecommunications Act of 1996*, CC
    Docket No. 96-98 (rel. Aug. 8, 1996) (\"*Local Competition Second
    Report and Order*\").

[^52]: AT&T Reply Comments at 13.

[^53]: *Local Competition Second Report and Order* at para. 257.

[^54]: *Id*. at para. 259.