[Federal Register Volume 61, Number 97 (Friday, May 17, 1996)]
[Rules and Regulations]
[Pages 24897-24904]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-12217]



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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 64

[GC Docket No. 96-42; FCC 96-205]


Implementation of Section 273(d)(5) of the Communications Act of 
1934, as Amended by the Telecommunications Act of 1996; Dispute 
Resolution Regarding Equipment Standards

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In order to implement a new statutory provision of the 
Telecommunications Act of 1996, the Commission adopts rules 
establishing a default dispute resolution process to be used when 
technical disputes arise between a non-accredited standards development 
organization (NASDO) and any party who funds the activities of the 
NASDO. Under the new rules, disputes will be resolved by a 
recommendation of a three-person expert panel, selected by both the 
disputing party and the NASDO, with the recommendation subject to 
disapproval by a vote of three-fourths of the other funding parties. As 
intended by Congress, this procedure ensures that disputes can be 
resolved in an open, non-discriminatory, and unbiased fashion within 30 
days, and it will be used only when all of the parties are unable to 
agree on a process for resolving their disputes. In addition, persons 
who willfully refer frivolous disputes will be subject to forfeiture 
pursuant to section 503(b) of the Communications Act.

EFFECTIVE DATE: June 17, 1996.

FOR FURTHER INFORMATION CONTACT: Sharon B. Kelley, Office of General 
Counsel, (202) 418-1720.

SUPPLEMENTARY INFORMATION:

    Adopted: May 7, 1996.
    Released: May 7, 1996.

I. Introduction

    1. The Telecommunications Act of 1996,<SUP>1 amended the 
Communications Act by creating new sections 273 (d)(4) and (d)(5), 
which set forth procedures to be followed by non-accredited standards 
development organizations (NASDOs),<SUP>2 such as Bellcore, when these 
organizations promulgate industry-wide <SUP>3 standards and generic 
requirements <SUP>4 for telecommunications equipment. Typically, as in 
the case of Bellcore, carriers fund these voluntary standard setting 
activities in order to assist the carriers in developing standards to 
guide their subsequent purchases of telecommunications equipment.
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    \1\  Pub. L. 104-104, 110 Stat. 56 (1996).
    \2\  As defined in section 273(d)(8)(E), ``[t]he term 
`accredited standards development organization' means any entity 
composed of industry members which have been accredited by an 
institution vested with the responsibility for standards 
accreditation by the industry.'' 47 U.S.C. 273(d)(8)(E). Thus, for 
example, Bell Communications Research, Inc. (Bellcore) would not be 
an accredited standards development organization and is subject to 
the section 273 procedures. H.R. Cong. Rep. No. 230, 104th Cong., 2d 
Sess. 39 (1996).
    \3\  As defined in section 273(d)(8)(C), ``[t]he term `industry-
wide' means activities funded by or performed on behalf of local 
exchange carriers for use in providing wireline telephone exchange 
service whose combined total of deployed access lines in the United 
States constitutes at least 30 percent of all access lines deployed 
by telecommunications carriers in the United States as of the date 
of the enactment of the Telecommunications Act of 1996.'' 47 U.S.C. 
273(d)(8)(C).
    \4\  As defined in section 273(d)(8)(B), ``[t]he term `generic 
requirement' means a description of acceptable product attributes 
for use by local exchange carriers in establishing product 
specification for the purchase of telecommunications equipment, 
customer premises equipment, and software integral thereto.'' 47 
U.S.C. 273(d)(8)(B).
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    2. In this Report and Order, the Commission adopts rules to 
implement new section 273(d)(5), which requires the Commission to 
prescribe a default dispute resolution process when technical disputes 
arise between the NASDO and any parties who fund the standards setting 
activities of the NASDO. In accordance with the statute, this 
``default'' procedure would be used only when all funding parties are 
unable to reach agreement as to a means for resolving technical 
disputes. As described below, we have decided that disputes governed by 
section 273(d)(5) should be resolved in accordance with the 
recommendation of a three-person

[[Page 24898]]

expert panel, selected by both the disputing party and the NASDO, with 
the recommendation subject to disapproval by a vote of three-fourths of 
the other funding parties.

II. Background

    3. As detailed in the Notice of Proposed Rulemaking (NPRM), 61 FR 
9966, March 12, 1996, the purpose of this proceeding is to establish 
dispute resolution procedures in accordance with new section 273(d)(5) 
of the Act.<SUP>5 Section 273(d)(5) was enacted in conjunction with 
other procedures, set forth in section 273(d)(4), that impose new 
procedural requirements on voluntary standards setting activities by 
NASDOs, such as Bellcore, which is owned by the regional Bell operating 
companies (RBOCs). As indicated above, Bellcore sets voluntary 
standards to assist in the carriers' purchase of telecommunications 
equipment. The statutory procedures generally require more openness and 
fairness in the standards setting process, particularly in light of the 
potential that, under other provisions of the Telecommunications Act, 
the BOCs may be permitted to engage in the manufacture of 
telecommunications equipment.<SUP>6
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    \5\  61 FR 9966, at para. 2.
    \6\ 47 U.S.C. 273 (d)(4), (e).
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    4. To foster more open procedures, under new section 273(d)(4), a 
NASDO is required to issue a public invitation to interested industry 
parties to fund and participate in setting any industry-wide standards 
or generic requirements. Further, such funding and participation must 
be allowed ``on a reasonable and nondiscriminatory basis, administered 
in such a manner as not to unreasonably exclude any interested industry 
party.'' <SUP>7 In the event of disputes on technical issues, the 
NASDOs and funding parties must also attempt to develop a dispute 
resolution process.<SUP>8 Section 273(d)(5) requires the Commission to 
prescribe within 90 days of the section's enactment a dispute 
resolution process to be used if the parties cannot agree to a dispute 
resolution process.<SUP>9
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    \7\  Id.
    \8\  Id.
    \9\  47 U.S.C. 273(d)(5).
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    5. Specifically, section 273(d)(5) provides:

    [W]ithin 90 days after the date of enactment of the 
Telecommunications Act of 1996, the Commission shall prescribe a 
dispute resolution process to be utilized in the event that a 
dispute resolution process is not agreed upon by all the parties 
when establishing and publishing any industry-wide standard or 
industry-wide generic requirement for telecommunications equipment 
or customer premises equipment pursuant to paragraph (4)(A)(v). The 
Commission shall not establish itself as a party to the dispute 
resolution process. Such dispute resolution process shall permit any 
funding party to resolve a dispute with the entity conducting the 
activity that significantly affects such funding party's interests, 
in an open, nondiscriminatory, and unbiased fashion, within 30 days 
after the filing of such dispute. Such disputes may be filed within 
15 days after the date the funding party receives a response to its 
comments from the entity conducting the activity. The Commission 
shall establish penalties to be assessed for delays caused by 
referral of frivolous disputes to the dispute resolution process.

    Thus, as described in new section 273(d)(5), the Commission's 
dispute resolution process must be conducted in an open, non-
discriminatory and unbiased fashion and so that disputes are resolved 
within 30 days of the filing of the dispute. The process is triggered 
only if all funding parties fail to agree to a process for resolving 
technical issues. Section 273(d)(5) also requires the Commission to 
establish penalties to be assessed for delays caused by referral of 
frivolous disputes to the dispute resolution process.<SUP>10
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    \10\ Id.
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    6. In the NPRM, we invited members of the public to comment on our 
proposal to require binding arbitration as the dispute resolution 
process.<SUP>11 We asked commenters to address the methods for 
selecting an arbitrator or neutral and whether the Commission should 
make its employees available to serve in that capacity.<SUP>12 In 
addition, we invited commenters to submit alternative proposals to 
implement this statutory provision.<SUP>13 Finally, the NPRM solicited 
proposals or recommendations concerning the types of penalties that 
should be assessed for delays caused by the referral of frivolous 
disputes to the dispute resolution process.<SUP>14
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    \11\  61 FR at 9966-9967, para.3-para.6.
    \12\ Id. at 9967, para.6.
    \13\ Id. at 9966, para.2.
    \14\ Id. at 9967, para.8.
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    7. We received comments from the following entities: (1) Bell 
Atlantic; (2) Bellcore; (3) BellSouth Corporation and BellSouth 
Communications, Inc. (BellSouth); (4) Corning Incorporated (Corning); 
(5) Telecommunications Industry Association (TIA); and (6) U.S. West, 
Inc. (U.S. West). Reply comments were received from: (1) Ameritech; (2) 
American National Standards Institute (ANSI); (3) Alliance for 
Telecommunications Industry Solutions (ATIS); (4) Bellcore; (5) 
BellSouth; (6) Corning; (7) Northern Telecom, Inc. (Nortel); (8) 
Pacific Bell; (9) SBC Communications, Inc. (SBC); (10) SpecTran Corp; 
and (11) TIA. The Commission also received late-filed reply comments 
from MCI and ex parte submissions from Bellcore, Corning and Nortel.

III. Discussion

A. Commission's Binding Arbitration Proposal

    8. In the NPRM, we sought comment on a binding arbitration as a 
method that could be used to satisfy the statutory dispute resolution 
default provision requirement.<SUP>15 We observed that this approach 
appeared consistent with the stated purpose of section 273(d)(5), set 
forth in the Conference Report, to ``enable all interested parties to 
influence the final resolution of the dispute without significantly 
impairing the efficiency, timeliness and technical quality of the 
activity.'' <SUP>16 In addition, the NPRM concluded that binding 
arbitration seemed to be the only feasible dispute resolution process 
in view of the 30 day deadline for completion of the process.<SUP>17
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    \15\  See note 10, supra.
    \16\  Id. at 9967, para.3.
    \17\  Id. at para.4.
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    9. For a variety of reasons, the commenting parties overwhelmingly 
opposed the binding arbitration proposal set forth in the NPRM.<SUP>18 
The parties generally agreed with Corning's view in its initial 
comments that binding arbitration would not adequately take into 
account the broad impact of standards-related disputes on industry 
participants other than the NASDO and the participating party who 
invokes the dispute resolution process.<SUP>19 The commenters also 
indicated it would be difficult to identify a neutral arbitrator to 
resolve these highly technical issues and to arbitrate these issues 
within the 30-day time frame required by the law. TIA also stated that 
the use of arbitrators would lead to ``compromise'' solutions that were 
inappropriate in view of the technical nature of these disputes.<SUP>20 
Others, including Bellcore and U.S. West, believed that imposing 
binding arbitration, without the consent of the parties, was 
inconsistent with the

[[Page 24899]]

voluntary nature of the underlying standards process.<SUP>21
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    \18\ See comments of Corning at ii, 6-7; comments of 
Telecommunications Industry Association (TIA) at 2-3; comments of 
Bellcore at i, 16-18; comments of Bell Atlantic at 2; comments of 
U.S. West at 2-3; comments of BellSouth at 2-3; comments of Nortel 
at 4; reply comments of Pacific Bell at 1; reply comments of 
Alliance for Telecommunications Industry Solutions (ATIS) at 2; 
reply comments of BellSouth at 1; reply comments of SBC at 2; reply 
comments of Corning at 2; reply comments of Bellcore at 1. But see 
late-filed comments of MCI at 1.
    \19\  Comments of Corning at 6.
    \20\  Comments of TIA at 2-3.
    \21\  Comments of Bellcore at i, 16; comments of U.S. West at 3.
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    10. For example, as U.S. West observed, nothing in the 
Telecommunications Act alters the fact that standards setting 
activities by both accredited and non-accredited entities, continue to 
remain voluntary, depending almost entirely on the good faith of the 
individual funding entities for their ultimate success or 
failure.<SUP>22 Bellcore further observed in its comments that generic 
requirements complement standards which by their very nature are not 
binding on anyone, vendors or purchasers.<SUP>23 While noting that 
generic requirements provide valuable technical information to exchange 
carriers, Bellcore underscored the fact that such requirements ``only 
have meaning if exchange carriers choose to use them and if suppliers 
choose to conform their products to them.'' <SUP>24
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    \22\  Comments of U.S. West at 2.
    \23\  Comments of Bellcore at 17.
    \24\  Id. at 5 and 17.
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    11. In late-filed comments, one commenter, MCI, supported the 
Commission's binding arbitration proposal, finding it preferable to 
either of two alternative proposals, discussed more fully below, that 
had been submitted by Corning (Corning I) and Bellcore.<SUP>25 As 
discussed below, however, we conclude that a second proposal submitted 
by Corning (Corning II) resolves many of the defects that had been 
evident in both the Corning I and Bellcore alternatives. This proposal 
also appears to be superior in some respects to the Commission's 
proposal to use binding arbitration. Therefore, as explained below, we 
have decided not to use binding arbitration as the default dispute 
mechanism under section 273(d)(5). We will instead use the alternative 
procedure proposed by Corning, the Corning II proposal, with some 
modifications.
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    \25\  Late-filed reply comments of MCI at 1-3.
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B. Commenters' Alternative Proposals

    12. In addition to proposing the use of binding arbitration, the 
NPRM invited commenters to submit alternative proposals. We noted that 
other methods of alternative dispute resolution included, for example, 
mediation, neutral evaluation, and hybrids of these methods.<SUP>26 In 
response, two very different alternative proposals were initially 
submitted, one by Corning, a manufacturer of fiber optics equipment, 
and another by Bellcore.
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    \26\ 61 FR at 9967,para.5.
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    13. The Corning I proposal involved referral of the technical 
dispute to an accredited standards development organization (SDO). Many 
parties commented on this proposal. Although comment was somewhat 
divided, much of the comment was sharply critical of the proposal. For 
example, Bellcore and many of the BOCs believed that the Corning I 
proposal was inconsistent with congressional intent because it excluded 
the funding parties from participating in resolution of the technical 
dispute, even though the funders played a major role in funding the 
NASDO's work and would be most affected by any dispute 
resolution.<SUP>27 They also pointed out that there was no assurance 
that the SDOs had procedures in place that would enable resolution of 
the dispute within the 30 day statutory time period. They further 
believed that the process would often lead to no resolution at all of 
key technical issues, thereby frustrating the essential purpose of 
NASDOs to create standards that lead to efficiencies and 
interoperability within the communications industry. Similarly, in its 
late filed comments, MCI opposed the Corning I proposal because it was 
unlikely to result in a binding decision.<SUP>28
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    \27\ Comments of Bellcore at 3-4, 7; comments of BellSouth at 4.
    \28\ Late-filed reply comments of MCI at 3.
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    14. The two organizations representing relevant SDOs who commented 
were divided on the Corning I proposal. One of these, TIA, approved the 
proposal, but the other organization, ATIS, strongly criticized the 
proposal as promoting ``forum shopping.'' <SUP>29 ATIS further stated 
that its Committee T1, which develops standards for network interfaces, 
could not accommodate the statutorily mandated 30 day resolution 
period.<SUP>30 Similarly, the two manufacturing companies who commented 
were divided, with one commenter, SpecTran Corp., supporting the 
Corning I proposal, and the other, Nortel, strongly disagreeing with it 
as inviting forum shopping and abuse.<SUP>31
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    \29\ Comments of TIA at 2-3; reply comments of ATIS at 4-5.
    \30\ Reply comments of ATIS at 4.
    \31\ Comments of Nortel at 2-3; comments of SpecTran at 1.
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    15. Bellcore's original proposal is discussed below, in the context 
of modifications to it suggested by Corning. In response to the 
Bellcore proposal, Corning submitted a second proposal, which it 
characterized as a compromise proposal, and which incorporated many 
features of the dispute resolution proposal that had been submitted by 
Bellcore.<SUP>32 For the reasons discussed below, we conclude that 
Corning's latest proposal, which we shall refer to as the Corning II 
proposal, is generally consistent with the dispute resolution procedure 
envisioned by Congress in section 273(d)(5). In addition, we believe 
the Corning II proposal avoids many of the practical and other problems 
associated with both the Corning I and Bellcore proposals. We have 
therefore decided to adopt, with some modifications, the Corning II 
proposal, which is described and discussed below.
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    \32\ Ex Parte submission of Corning at 1.
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C. The Corning II Proposal

    16. As indicated above, the dispute resolution rule we adopt in 
this proceeding is based on a proposal suggested by Bellcore that has 
been modified by Corning. The Corning II proposal retains many 
significant features of the original Bellcore proposal that were 
praised by those commenters who preferred Bellcore's proposal over 
Corning I. Most significantly, unlike the Corning I plan, the Corning 
II variation does not require that technical disputes be resolved in 
forums other than the NASDO. Bellcore's original plan, and the Corning 
II variation adopted here, permit the funding parties to resolve these 
disputes internally. To that extent, we believe that the Corning II 
proposal is consistent with Congress's intent that the process we 
select should enable all interested parties to influence the final 
resolution of the dispute.
    17. Corning, however, suggests several changes to Bellcore's 
proposal that we believe will better enable the resolution of disputes 
in an ``open, non-discriminatory and unbiased fashion,'' consistent 
with section 273(d)(5). For example, some commenters, primarily Corning 
and MCI, expressed concern that the Bellcore proposal afforded too much 
power to the BOCs and Bellcore in controlling resolution of any 
disputes.<SUP>33 The Corning II variation makes five major changes to 
Bellcore's plan. Most of those changes, we believe, better promote the 
statutory objectives of fair, unbiased decisionmaking. In response to 
ex parte comments from Bellcore, however, we have modified some aspects 
of the Corning II proposal to develop the dispute resolution default 
process we now adopt.<SUP>34
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    \33\ Reply comments of Corning at 14-16; late-filed comments of 
MCI at 2.
    \34\ See generally, ex parte submission of Bellcore.
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    18. Tri-Partite Panel. The Corning II proposal permits the 
disputant to select only one dispute resolution approach. Under the 
approach proposed by

[[Page 24900]]

Bellcore, the funding parties could, by majority vote, choose among 
several ``default'' options for resolving disputes. These options 
included ``escalating'' the dispute to higher decisionmaking bodies 
within the NASDO; resolution of the dispute by a majority of those 
funding the standards development effort; or, resolution of the dispute 
based on the recommendation of a three-party expert advisory panel. The 
Corning II variation, in contrast, retains only the option of using a 
three-party expert panel, with one panelist selected by the disputing 
party, another selected by the NASDO, and a third panelist selected 
jointly by the panelists representing the NASDO and disputing party. 
Persons who participated in the generic requirements or standards 
development process, including the disputing party and the NASDO, are 
eligible to serve on the panel. As with Bellcore's proposal, this 
three-member panel, by majority vote, would make a written 
recommendation concerning the dispute.
    19. Several parties, including MCI, criticized some of the dispute 
resolution options permitted under Bellcore's proposal, particularly 
the escalation and majority vote options, because these options 
appeared to give the BOCs undue power in resolving disputes.<SUP>35 We 
agree that the Corning II proposal, which retains only the option of 
using a tri-partite expert panel, is superior in terms of avoiding the 
potential that the BOCs or Bellcore would unduly dominate 
decisionmaking.
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    \35\ Late-filed reply comments of MCI at 2.
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    20. In commenting on the Corning II proposal, however, Bellcore 
continues to believe that, while a tri-partite panel should be 
available as an option and as the fall-back in the event of a deadlock, 
the funding parties should also be able to use escalation and other 
procedures.<SUP>36 We recognize that this variation on Bellcore's plan 
removes some of the flexibility that several commenters had applauded 
in commenting on Bellcore's proposal. We nevertheless conclude that the 
advantage of the Corning II proposal in terms of avoiding possible 
unfairness far outweighs any concern about loss of flexibility.
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    \36\ April 18, 1996, ex parte letter from Bellcore at 1.
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    21. Further, as reflected in Corning's comments and in the Corning 
II proposed rule, disputing parties and Bellcore are also permitted to 
agree to a means of dispute resolution other than the default procedure 
provided for in section 273(d)(5). The statutory dispute provision 
clearly is a remedial measure, which is designed to protect the 
interests of disputing parties. Hence, the statute merely provides that 
a disputing party has the option of using the section 273(d)(5) default 
procedure. Section 273(d)(4) thus states that a disputing party ``may 
utilize the dispute resolution procedures established pursuant to 
[section 273(d)(5)] * * *'' (Emphasis added.) <SUP>37 The default 
procedure therefore is not mandatory if the disputing party and 
Bellcore both agree to select another approach. Accordingly, we believe 
that parties will not be deprived of desirable flexibility even though 
we have decided to limit the default dispute resolution procedure to a 
single approach. We emphasize, as do many of the commenters, that 
funding parties should adopt their own dispute resolution procedures 
whenever possible.
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    \37\ 47 U.S.C. 273(d)(4).
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    22. Override Provision. A second major change to Bellcore's 
proposal involves the Bellcore provision that would have allowed a 
majority of the funding parties to reject the recommendation of the 
tri-partite expert panel. We are sympathetic to the argument that any 
dispute resolution procedure should permit the funding parties to 
participate in dispute resolution by having some final say in how the 
dispute is resolved. Nevertheless, we agree with Corning and other 
parties, such as MCI and Nortel, who believe that allowing 
``overrides'' by a simple majority of funders may afford too much power 
to particular blocks of funding parties, including the regional BOCs 
who currently own Bellcore.<SUP>38
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    \38\ Ex parte submission of Corning at 1, note 1; reply comments 
of Nortel at 7; late-filed comments of MCI at 2.
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    23. To resolve this concern, the Corning II proposal would 
generally permit funding parties to override a panel recommendation by 
a vote of three-fourths of the funding parties, excluding the party who 
invoked the dispute resolution process and the NASDO. Each funding 
party would have one vote. However, when a funding party has an 
indirect equity interest in the NASDO or any ownership interest in 
intellectual property that would be advantaged by the final resolution 
of the dispute, a decision to reject the recommendation must be by a 
unanimous vote of the funding parties, again excluding the party which 
invoked the dispute resolution process and the NASDO.
    24. Presumably, due to the regional BOCs' ownership interests in 
Bellcore, the unanimous vote requirement would apply to Bellcore. 
Bellcore is concerned that requiring a unanimous vote would permit an 
affiliate of a disputing party, or another serving as its proxy, to 
veto the decision of all carriers. Bellcore also believes that Nortel 
has proposed a reasonable compromise in suggesting that a vote of two-
thirds of the funding parties voting be required to reject a panel 
recommendation.<SUP>39
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    \39\ Ex parte submission of Bellcore at 1.
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    25. In contrast to the original Bellcore proposal, we think a more 
stringent ``override'' proposal offers better protection against biased 
decisionmaking. We agree with Bellcore that requiring a unanimous vote 
of funders may be too onerous. However, we think a fair compromise is 
to require a vote by three-fourths of the voting funders both to reject 
a panel's recommendation and to substitute another resolution of the 
dispute. The three-fourths proposal avoids Bellcore's concern that a 
unanimous vote requirement affords the disputing party the power to 
veto the decision of all the carriers. At the same time, the three-
fourths requirement also decreases Corning's fear that a simple 
majority--or possibly even a two-thirds vote--affords too much control 
to the RBOC's.
    26. Standard for Recommended Decision. The Corning II proposal has 
recommended a third change that improves upon the original Bellcore 
proposal. Bellcore proposed that the appropriate issue to be resolved 
by the recommending panel was ``whether there is a sound technical 
basis for the position of the [NASDO] * * *.'' That standard, we 
believe, unfairly disadvantages the disputant by placing upon it an 
undue burden to demonstrate that the NASDO's approach is not based on a 
sound technical basis, instead of focusing more on the relative merits 
of the two approaches. The Corning II proposal, in contrast, focuses 
more on the relative merits of the technical arguments by requiring the 
panel to choose ``the option that provides the most technically sound 
solution that is commercially viable* * *.'' <SUP>40 We recognize that 
the statutory 30-day deadline will create difficulties in resolving the 
technical merits. Bellcore, for example, objects to the standard 
proposed by Corning, believing that the panel will be unable to decide 
within the statutory timeline what is ``the most technically sound 
solution.'' <SUP>41 The statute, however, places no limitation on the 
types of technical disputes that may be raised by funding parties. We 
therefore do not believe that the standard for dispute resolution can 
be

[[Page 24901]]

limited to whether the NASDO's proposal can be reasonably supported by 
technical evidence, as Bellcore proposes.
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    \40\ Ex parte submission of Corning at 3.
    \41\ Ex parte submission of Bellcore at 3.
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    27. For the same reason, we do not agree with Bellcore's view that 
the panel should be precluded from deciding ``that a particular issue 
is not ready for a decision because there is insufficient technical 
evidence to support the soundness of any one proposal over any other 
proposal.'' <SUP>42 Moreover, such a recommendation would not 
necessarily lead to the absence of a decision on a standard, as 
Bellcore claims. As indicated above, even if that were the panel's 
recommendation, the funders would still be able to select a technical 
standard by a two-third's vote.
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    \42\ Id.
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    28. Finally, Bellcore believes that ``commercial viability'' should 
not be part of the decisional basis, claiming that such a basis may go 
beyond the technical matters contemplated by section 273(a)(5).<SUP>43 
Bellcore also believes such a standard may involve economic analysis 
and competitively sensitive business information, data that may be 
difficult for the panel to obtain.<SUP>44
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    \43\ Id. at 4.
    \44\ Id.
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    29. We think that in resolving technical disputes it may well be 
appropriate to consider the complexity and practical feasibility of 
particular technical solutions in some circumstances. However, we also 
believe that the decisional standard proposed by Corning places undue 
emphasis on commercial and cost-related issues not the technical 
issues.<SUP>45 We shall therefore modify the standard to state that a 
panel is not precluded from taking into account the complexity of 
technical approaches and other practical considerations in deciding 
which option is most technically sound.
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    \45\ Ex parte submission of Nortel.
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    30. Disclosure Requirements. The Corning II proposal also includes 
a new disclosure provision requiring that any party in interest 
submitting information for consideration by the panel must disclose its 
ownership of intellectual property that may be advantaged or 
disadvantaged by the final decision, and that the panel must consider 
this information in making its recommendation.<SUP>46 This provision 
seems designed to lead to decisionmaking that is more fully informed 
about the possible biases of commenting parties and to result in 
technical standards that may be met by a broader spectrum of equipment 
manufacturers. Bellcore objects to this proposal. It states that ANSI-
accredited standards development organizations encourage early 
disclosure of intellectual property rights, but do not require it. 
Bellcore also believes that requiring disclosure of intellectual 
property rights would inhibit funding and participation in the 
activities of the NASDO.
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    \46\ Ex parte submission of Corning at 2.
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    31. We believe the disclosure provisions suggested by Corning are 
generally consistent with requirements of ANSI-accredited standards 
organizations. The TIA Engineering Manual, for example, has a policy of 
encouraging early disclosure of essential patents, and requires its 
Committees to ask at the beginning of each meeting where a potential 
standard is being considered whether there is knowledge of essential 
patents, the use of which may be essential to the standard being 
developed. Moreover, the fact that the question was asked will be 
recorded in the meeting report, along with any affirmative responses. 
Similarly, ANSI's patent policy requires that, prior to approval of any 
proposed standard, any licenses will be made available to applicants 
without compensation or ``under reasonable terms and conditions.'' 
<SUP>47
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    \47\ Reply comments of ANSI at 4.
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    32. We think that the Corning II proposal that parties submitting 
information to the panel disclose similar information is generally 
consistent with these ANSI requirements. However, we shall modify the 
Corning II proposal somewhat to make it more consistent with the rule 
followed by the TIA Engineering Manual. Specifically, the rule will 
require that the panel ask commenting parties whether there is 
knowledge of patents, the use of which may be essential to the standard 
or generic requirement being considered. In addition, the fact that the 
question was asked along with any affirmative responses may be recorded 
and considered in the panel's recommendation. We do not believe that 
such a requirement will affect funding and participation in NASDOs. The 
requirement applies only to those who submit comments to the expert 
panel, and moreover, such requirements have apparently not discouraged 
participation in ANSI accredited standards development organizations. 
In addition, Nortel points out that there appears to be no precedent 
for ANSI-accredited bodies to link voting rights to intellectual 
property interests. We see no reason, therefore, to disqualify the 
holders of such interests from voting on the recommendations of the 
tri-partite panel.
    33. Costs of Dispute Resolution. Finally, whereas the Bellcore 
proposal had required the disputing party to bear the entire cost of 
the default dispute resolution procedure, the Corning-Bellcore 
variation requires that the cost of resolving disputes be absorbed by 
all of the funding parties. This modification, in our view, better 
ensures that disputants are not unduly discouraged from raising 
technical issues. In addition, all of the funding parties should 
benefit from the fairer and more open resolution of these technical 
questions. It is therefore fitting that they should all share in the 
cost.
    34. In summary, we believe that the statutory objectives can be 
best fulfilled by the new Corning II approach, with some modifications. 
This approach incorporates the best aspects of the Bellcore proposal 
and modifies them to achieve the goal of unbiased decisionmaking. The 
proposal to utilize a tri-partite expert panel to make recommendations 
resolving disputes, with a provision that allows the funding parties to 
override the recommendation, also ensures that, as Congress intended, 
all of the funding parties are able to participate in influencing the 
final outcome. The approach is set out in detail in the Appendix of the 
Report and Order.

D. Funding Parties

    35. The commenters were divided over the meaning of the term 
``funding party.'' Corning and TIA take the position that Congress 
intended to allow any interested party access to the alternative 
dispute resolution process.<SUP>48 While acknowledging that sections 
273(d)(4) and (d)(5) refer to ``funding parties,'' Corning argues that 
the clear intent of the statute was only to provide a basis for 
determining the legitimacy of parties interested in participating in 
NASDO processes.<SUP>49
---------------------------------------------------------------------------

    \48\  Reply comments of TIA at 2.
    \49\  Reply comments of Corning at 12.
---------------------------------------------------------------------------

    36. To put this in perspective, Corning explained that the direct 
costs of Bellcore's generic requirements were traditionally borne by 
the affected carriers, with vendors generally making some form of ``in-
kind'' contributions, i.e., technical presentation or technical 
support.<SUP>50 Corning also argues that, under the new statute, 
funding levels may not be used as an exclusionary device. In this same 
vein, TIA maintains that a funding party should not be defined by the 
amount that the party contributed to funding the standards

[[Page 24902]]

setting activities but rather, by ``any amount that demonstrates the 
party shows a responsible interest in the proceeding.'' <SUP>51 TIA 
suggests that parties could meet this requirement by posting a 
performance bond.<SUP>52
---------------------------------------------------------------------------

    \50\ Id.
    \51\ Comments of TIA at 3-4.
    \52\ Id.
---------------------------------------------------------------------------

    37. In response, Bellcore and the RBOC's state that, since there 
was no congressional debate on section 273(d), the Commission must look 
to the plain language of the statute. As noted by Bellcore, section 
273(d)(4)(A)(v) provides that ``a funding party may utilize the dispute 
resolution procedures established pursuant to paragraph (5)'' and 
section 273(d)(5) states that ``[s]uch dispute resolution process shall 
permit any funding party to resolve a dispute .''* * * <SUP>53 Bellcore 
thus opposes TIA's performance bond proposal, concluding that if a 
vague genuine interest and not actual funding is to be the standard, 
this could open the door to a variety of ill-motivated though colorable 
``technical'' disputes that the section 273(d)(5) process should not 
promote.<SUP>54
---------------------------------------------------------------------------

    \53\  Reply comments of Bellcore at 10-11.
    \54\  Id. at 7-9.
---------------------------------------------------------------------------

    38. We conclude that the language of the statute clearly supports 
that only a funding party is permitted to invoke the dispute resolution 
process contained in Section 273(d). The statute expressly provides 
that a party may become a funder after a public invitation is issued to 
interested industry parties ``to fund and to participate'' and that 
only a ``funding party'' may invoke dispute resolution. Moreover, 
consistent with the clear language of the statute, we think that only 
parties who are willing to provide actual funding to support the 
standards setting process may utilize the statutory dispute resolution 
process. We thus do not agree with TIA's suggestion that merely by 
posting a performance bond an entity may become a funding party, nor 
with Corning that ``in-kind'' contributions are necessarily adequate.
    39. At the same time, section 273(d)(4)(A)(2) of the statute 
expressly requires that funding and participation be allowed on ``a 
reasonable and nondiscriminatory basis, administered in such a manner 
as not to unreasonably exclude any interested industry party.'' We 
therefore believe that the statute requires that NASDOs must make 
reasonable and nondiscriminatory efforts to ensure that the funding 
requirement is not manipulated so as to unreasonably exclude outside 
participants.

E. Referral of Frivolous Disputes

    40. Section 273(d)(5) directs the Commission to establish penalties 
for delays caused by the referral of frivolous disputes to the 
Commission's default process. Both Bellcore and Corning endorsed the 
proposal made in our NPRM to rely on section 1.52 of the Commission's 
rules to define the term ``frivolous dispute.'' Section 1.52 requires 
that any document filed with the Commission be signed by the party or 
attorney and that such signature certifies that the person has read the 
document, that there is good ground to support it, and thus it is not 
filed for the purpose of delay.
    41. Other commenters either offered alternate suggestions or raised 
concerns with our proposal. For example, we were referred to the 
``sham'' exception to antitrust immunity enjoyed by parties under the 
Noerr-Pennington doctrine.<SUP>55 Another party referred us to the 
standards used by federal courts to determine whether complaints are 
filed in good faith.<SUP>56 Another commenter questioned whether we 
need to assess the motive of the disputant if the claim has no 
legitimate basis.<SUP>57
---------------------------------------------------------------------------

    \55\  Comments of Corning at 13.
    \56\  See Rule 11 of the Federal Rules of Civil Procedure; 
comments of Bellcore at 23.
    \57\  Comments of Corning at 13.
---------------------------------------------------------------------------

    42. We recognize that any attempt to give meaning to the term 
``frivolous'' is inherently difficult, as reflected by attempts the 
courts have made to grapple with similar problems. We have decided, 
however, to be guided by our existing rule which appears to be as 
workable as any of the alternatives suggested. Thus, the party 
responsible for referring a dispute to our process does so with the 
understanding that the dispute, as defined in section 1.52, is not 
frivolous, is supported by good ground, and is not filed for the 
purpose of delay.
    43. In seeking comment on the penalties that should be assessed 
against delaying parties, the NPRM asked whether the Commission should 
rely on its forfeiture authority contained in section 503(b) of the 
Communications Act, or whether other penalties should be imposed ``such 
as barring the party from further participation in the standards 
development processes or the imposition of costs on the complainant if 
its complaint is found to be frivolous.'' <SUP>58 The NPRM also sought 
comment on whether procedural protections were necessary to protect the 
party subject to the dispute.<SUP>59 In this connection, commenters 
were asked to consider whether there should be a citation and 
subsequent misconduct before the assessment of such forfeitures.<SUP>60
---------------------------------------------------------------------------

    \58\  61 FR 9967 at para.8.
    \59\  Id.
    \60\  Id.
---------------------------------------------------------------------------

    44. U.S. West argued that ``punitive actions being taken to prevent 
frivolous invocation of the mediation process'' were unnecessary and 
emphasized that the Commission could later adopt rules if 
necessary.<SUP>61 Bellcore argued against the imposition of penalties 
by the tri-partite panel, emphasizing that the panel's role is a 
``technical one, not a legalistic penalty-imposing one.'' <SUP>62 In 
addition, Bellcore proposes that the remedy of barring further 
participation should ``be reserved to address only a pattern of abuse, 
and not an isolated act'' <SUP>63 and Corning maintains that it ``could 
substantially impair the subject company's ability to compete in the 
manufacture and marketing of products which are the subject of the 
relevant NASDO activities'' and is ``neither required not authorized by 
the statute.'' <SUP>64 Finally, Bellcore advocates that, in cases where 
the Commission determines that a frivolous dispute was referred to the 
dispute resolution process, in addition to imposing forfeitures as 
proposed in the NPRM, we should require ``the party raising a frivolous 
claim to bear all costs of dispute resolution, and compensating the 
funding parties for delay.'' <SUP>65
---------------------------------------------------------------------------

    \61\ Comments of U.S. West at 8.
    \62\ Comments of Bellcore at 23.
    \63\ Id. at 23-24.
    \64\  Comments of Bellcore at 24; comments of Corning at 15.
    \65\  Comments of Bellcore at 23.
---------------------------------------------------------------------------

    45. We have concluded that, in light of the above comments, at this 
time, violations for filing frivolous disputes can be handled best 
pursuant to our forfeiture authority under section 503(b) of the 
Communications Act. While we clearly expect referrals of frivolous 
disputes to be rare occurrences, we will not hesitate to revisit this 
issue, if necessary, to determine whether more severe penalties should 
be imposed.

F. Sunset Provision

    46. In its initial comments, Corning urged the Commission to make 
clear that an applicant seeking removal of the requirements of sections 
273(d)(3) or 273(d)(4) provide appropriate documentary evidence to 
support such a request.<SUP>66 Bellcore, in response, believes 
Corning's request is premature.<SUP>67 We agree that adoption of 
evidentiary requirements at this time appears premature. The statute 
prescribes a public comment period on

[[Page 24903]]

any such application. We believe we will be in a better position to 
evaluate the adequacy of the support for any particular application 
after we have received comment on it.
---------------------------------------------------------------------------

    \66\  Comments of Corning at 16.
    \67\  Comments of Bellcore at 24.
---------------------------------------------------------------------------

IV. Procedural Matters

    47. Final Regulatory Flexibility Analysis. Pursuant to the 
Regulatory Flexibility Act of 1980, the Commission's final analysis is 
as follows:

Reason for Action

    The Telecommunications Act of 1996 permits a Bell Operating 
Company, through a separate subsidiary, to engage in the manufacture of 
telecommunications equipment and customer premises equipment after the 
Commission authorizes the company to provide in-region interLATA 
services. As one of the safeguards for the manufacturing process, the 
Telecommunications Act of 1996 amended the Communications Act by 
creating a new section 273, which sets forth procedures for a ``non-
accredited standards development organization,'' such as Bell 
Communications Research, Inc., to set industry standards for 
manufacturing such equipment. The statutory procedures allow outside 
parties to fund and participate in setting the organization's standards 
and require the organization and the funding parties to attempt to 
develop a process for resolving any technical disputes. Section 
273(d)(5) requires the Commission ``to prescribe a dispute resolution 
process'' to be used in the event that all parties cannot agree to a 
mutually satisfactory dispute resolution process. 47 U.S.C. 273(d)(5). 
The purpose of this Report and Order is to implement Congress's goal by 
prescribing a dispute resolution process which ``enable[s] all 
interested parties to influence the final resolution of the dispute 
without significantly impairing the efficiency, timeliness and 
technical quality of the activity.'' H.R. Conf. Rep. No. 230, 104th 
Cong., 2d Sess. 39 (1996).

Summary of the Issues Raised by the Public Comments in Response to the 
Initial Regulatory Flexibility Analysis

    There were no comments submitted in response to the Initial 
Regulatory Flexibility Analysis.

Significant Alternatives Considered

    The Notice of Proposed Rulemaking in this proceeding offered a 
binding arbitration proposal and solicited alternative proposals from 
the commenters. The commenters overwhelmingly opposed the binding 
arbitration proposal. Alternative proposals were also submitted by the 
commenters. The regulation selected, a tri-partite expert panel, 
fulfills the specific statutory parameters of section 273--that the 
process shall permit resolution ``in an open, non-discriminatory and 
unbiased fashion within 30 days after the filing of such dispute'' and 
that the process will ``enable all interested parties to influence the 
final resolution of the dispute without significantly impairing the 
efficiency, timeliness and technical quality of the activity.''
    48. Accordingly, it is ordered that Subpart Q, Part 64 of the 
Commission's rules is adopted effective June 17, 1996 as set forth 
below.
    49. The action taken herein is taken pursuant to sections 4(i), 
4(j), 273(d)(5), 303(r) and 403 of the Communications Act, 47 U.S.C. 
Secs. 154(i) and (j), 273(d)(5), 303(r) and 403.

List of Subjects in 47 CFR Part 64

    Communications common carriers, Dispute resolution process, 
Manufacturing by Bell Operating Companies, Non-accredited standards 
development organizations, Penalties for delaying parties.

Federal Communications Commission.
William F. Caton,
Acting Secretary.

Rule Changes

    Part 64 of Title 47 of the Code of Federal Regulations is amended 
as follows:

PART 64--MISCELLANEOUS RULES RELATING TO COMMON CARRIERS

    1. The authority citation for Part 64 is revised to read as 
follows:

    Authority: 47 U.S.C. 154, unless otherwise noted. Interpret or 
apply 47 U.S.C. 201, 218, 226, 228, 273(d)(5), unless otherwise 
noted.

    2. A new Subpart Q is added to Part 64 to read as follows:
Subpart Q--Implementation of Section 273(d)(5) of the Communications 
Act: Dispute Resolution Regarding Equipment Standards
Sec.
64.1700  Purpose and scope.
64.1701  Definitions.
64.1702  Procedures.
64.1703  Dispute resolution default process.
64.1704  Frivolous disputes/penalties.

Subpart Q--Implementation of Section 273(d)(5) of the Communiations 
Act: Dispute Resolution Regarding Equipment Standards


Sec. 64.1700  Purpose and scope.

    The purpose of this subpart is to implement the Telecommunications 
Act of 1996 which amended the Communications Act by creating section 
273(d)(5), 47 U.S.C. 273(d)(5). Section 273(d) sets forth procedures to 
be followed by non-accredited standards development organizations when 
these organizations set industry-wide standards and generic 
requirements for telecommunications equipment or customer premises 
equipment. The statutory procedures allow outside parties to fund and 
participate in setting the organization's standards and require the 
organization and the parties to develop a process for resolving any 
technical disputes. In cases where all parties cannot agree to a 
mutually satisfactory dispute resolution process, section 273(d)(5) 
requires the Commission to prescribe a dispute resolution process.


Sec. 64.1701  Definitions.

    For purposes of this subpart, the terms ``accredited standards 
development organization,'' ``funding party,'' ``generic requirement,'' 
and ``industry-wide'' have the same meaning as found in 47 U.S.C. 273.


Sec. 64.1702  Procedures.

    If a non-accredited standards development organization (NASDO) and 
the funding parties are unable to agree unanimously on a dispute 
resolution process prior to publishing a text for comment pursuant to 
47 U.S.C. 273(d)(4)(A)(v), a funding party may use the default dispute 
resolution process set forth in section 64.1703.


Sec. 64.1703  Dispute resolution default process.

    (a) Tri-Partite Panel. Technical disputes governed by this section 
shall be resolved in accordance with the recommendation of a three-
person panel, subject to a vote of the funding parties in accordance 
with paragraph (b) of this section. Persons who participated in the 
generic requirements or standards development process are eligible to 
serve on the panel. The panel shall be selected and operate as follows:
    (1) Within two (2) days of the filing of a dispute with the NASDO 
invoking the dispute resolution default process, both the funding party 
seeking dispute resolution and the NASDO shall select a representative 
to sit on the panel;
    (2) Within four (4) days of their selection, the two panelists 
shall select

[[Page 24904]]

a neutral third panel member to create a tri-partite panel;
    (3) The tri-partite panel shall, at a minimum, review the proposed 
text of the NASDO and any explanatory material provided to the funding 
parties by the NASDO, the comments and any alternative text provided by 
the funding party seeking dispute resolution, any relevant standards 
which have been established or which are under development by an 
accredited-standards development organization, and any comments 
submitted by other funding parties;
    (4) Any party in interest submitting information to the panel for 
consideration (including the NASDO, the party seeking dispute 
resolution and the other funding parties) shall be asked by the panel 
whether there is knowledge of patents, the use of which may be 
essential to the standard or generic requirement being considered. The 
fact that the question was asked along with any affirmative responses 
shall be recorded, and considered, in the panel's recommendation; and
    (5) The tri-partite panel shall, within fifteen (15) days after 
being established, decide by a majority vote, the issue or issues 
raised by the party seeking dispute resolution and produce a report of 
their decision to the funding parties. The tri-partite panel must adopt 
one of the five options listed below:
    (i) The NASDO's proposal on the issue under consideration;
    (ii) The position of the party seeking dispute resolution on the 
issue under consideration;
    (iii) A standard developed by an accredited standards development 
organization that addresses the issue under consideration;
    (iv) A finding that the issue is not ripe for decision due to 
insufficient technical evidence to support the soundness of any one 
proposal over any other proposal; or
    (v) Any other resolution that is consistent with the standard 
described in section 64.1703(a)(6).
    (6) The tri-partite panel must choose, from the five options 
outlined above, the option that they believe provides the most 
technically sound solution and base its recommendation upon the 
substantive evidence presented to the panel. The panel is not precluded 
from taking into account complexity of implementation and other 
practical considerations in deciding which option is most technically 
sound. Neither of the disputants (i.e., the NASDO and the funding party 
which invokes the dispute resolution process) will be permitted to 
participate in any decision to reject the mediation panel's 
recommendation.
    (b) The tri-partite panel's recommendation(s) must be included in 
the final industry-wide standard or industry-wide generic requirement, 
unless three-fourths of the funding parties who vote decide within 
thirty (30) days of the filing of the dispute to reject the 
recommendation and accept one of the options specified in paragraphs 
(a)(5) (i) through (v) of this section. Each funding party shall have 
one vote.
    (c) All costs sustained by the tri-partite panel will be 
incorporated into the cost of producing the industry-wide standard or 
industry-wide generic requirement.


Sec. 64.1704  Frivolous disputes/penalties.

    (a) No person shall willfully refer a dispute to the dispute 
resolution process under this subpart unless to the best of his 
knowledge, information and belief there is good ground to support the 
dispute and the dispute is not interposed for delay.
    (b) Any person who fails to comply with the requirements in 
paragraph (a) of this section, may be subject to forfeiture pursuant to 
section 503(b) of the Communications Act, 47 U.S.C. 503(b).

[FR Doc. 96-12217 Filed 5-16-96; 8:45 am]
BILLING CODE 6712-01-U