Source: http://www.techlawjournal.com/alert/2002/11/18.asp
Timestamp: 2019-04-20 10:32:06+00:00

Document:
TLJ Daily E-Mail Alert No. 551, November 18, 2002.
November 18, 2002, 9:00 AM ET, Alert No. 551.
11/12. The U.S. District Court (SDNY) issued it opinion [32 page PDF scan] in Swedenburg v. Kelly, holding that New York state's ban on the direct shipment of out of state wine is unconstitutional. Small wineries that are prohibited from selling directly to New York customers over the Internet, or by other direct means, brought the challenge.
The Plaintiffs are small winery owners who cannot sell their wines over the Internet, or by direct mail, because of protectionist legislation in states such as New York. Juanita Swedenburg is an owner of the Swedenburg Winery in northern Virginia. David Lucas owns The Lucas Winery in California. Other plaintiffs are New York state residents and wine consumers who joined in the suit.
New York state statute prohibits Swedenburg and Lucas from selling directly to prospective customers in New York state. New York Alco. Bev. Cont. Law § 102(1)(c) provides in part: "No alcoholic beverages shall be shipped into the state unless the same shall be consigned to a person duly licensed hereunder to traffic in alcoholic beverages. This prohibition shall apply to all shipments of alcoholic beverages into New York state and includes importation or distribution for commercial purposes, for personal use, or otherwise, and irrespective of whether such alcoholic beverages were purchased within or without the state ..."
New York Alco. Bev. Cont. Law § 102(1)(d) provides in part: "No common carrier or other person shall bring or carry into the state any alcoholic beverages, unless the same shall be consigned to a person duly licensed hereunder to traffic in alcoholic beverages ..."
New York Alco. Bev. Cont. Law § 102(1)(a) provides that: "No person shall send or cause to be sent into the state any letter, postcard, circular, newspaper, pamphlet, order kit, order form, invitation to order, price list, or publication of any kind containing an advertisement or a solicitation of any order for any alcoholic beverages, irrespective of whether the purchase is made or to be made within or without the state, or whether intended for commercial or personal use or otherwise, unless such person shall be duly licensed hereunder to traffic in alcoholic beverages."
That is, the New York system for alcohol sales requires that alcohol producers must go through licensed wholesalers and distributors who must in turn go through licensed retailers who then may sell to consumers.
The New York statutes provide several exceptions to the ban on direct sales, but they apply only to wineries located within the state of New York.
On February 3, 2000 Swedenburg, Lucas, and their prospective New York customers filed their Original Complaint in the U.S. District Court (SDNY) against Edward Kelly and other Commissioners of the New York State Liquor Authority. The state moved to dismiss. The District Court issued its Decision and Order denying that motion on September 5, 2000. See, TLJ story on the Decision and Order and TLJ story on related cases.
Following discovery, the parties filed cross motions for summary judgment. Plaintiff's asserted that the statutory scheme violates the Commerce Clause and the Privileges and Immunities Clause. New York argued that its scheme is permissible under the 21st Amendment.
The District Court granted plaintiffs' motion for summary judgment, holding that New York's ban on direct wines sales violates the dormant Commerce Clause of the U.S. Constitution. Judge Richard Berman wrote the opinion. He reviewed the legislative history of the statute, and concluded that its purpose was to protect in state wineries.
The Court did not reach the Privileges and Immunities issue. Also, the Court has yet to address remedies. It requested further briefing, and set a hearing for December 5.
Clint Bolick, VP of the Institute for Justice, counsel for the plaintiffs, stated in a release that "This is a decisive victory against the monopolists who would stand between consumers and their wine. It should have widespread ramifications not only for wine but for all Internet commerce. This is an occasion to pop some corks in celebration of an important decision for consumers."
However, the legal precedents on the constitutionality of state barriers to direct wine sales are not uniform. In particular, the U.S. Court of Appeals (7thCir) reached a different conclusion in its opinion in Bridenbaugh v. Wilson. In that case, the plaintiffs challenged the constitutionality of an Indiana statute that made it unlawful for persons in another state to ship an alcoholic beverage directly to an Indiana resident. The District Court held that the Indiana direct shipment regulation was unconstitutional under the Commerce Clause, and granted the plaintiffs' summary judgment motion (Bridenbaugh v. O'Bannon, 78 F. Supp.2d 828 (N.D. Ind. 1999)). Then, the Seventh Circuit reversed, upholding the constitutionality of the state ban.
He rejected arguments that the focus of the 21st Amendment was temperance. Instead, he concluded that the Indiana statute "has one real economic effect on out-of-state sellers who neither have nor seek Indiana permits: it channels their sales through Indiana permit-holders, enabling Indiana to collect its excise tax equally from in-state and out-of-state sellers. As the history of the twenty-first amendment confirms, this is precisely what sec.2 is for."
He also rejected the argument that there was discrimination. He noted that "Wine originating in California, France, Australia, or Indiana passes through the same three tiers and is subjected to the same taxes. Where's the functional discrimination?"
Perhaps the Swedenburg and Bridenbaugh cases are distinguishable on their underlying facts. New York exempted in state wineries from its ban on direct sales.
There are also other cases, including Bainbridge v. Bush, 148 F.Supp.2d 1306 (M.D.Fla. 2001), in which the District Court upheld Florida's ban on direct shipment of wine. However, it was vacated and remanded by the 11th Circuit earlier this month in Bainbridge v. Turner.
Clint Bolick also stated, "This is not the end of the road. We expect an appeal. We fully expect this important decision for consumer freedom will ultimately be decided by the U.S. Supreme Court."
Also, it should be noted that legal challenges to state protectionist statutes that impede electronic commerce in wine products face greater obstacles than other challenges. First, there is the 21st Amendment obstacle. Second, there is the state's interest in limiting sales to minors. As Judge Easterbrook put it, "the twenty-first amendment empowers Indiana to control alcohol in ways that it cannot control cheese".
11/14. The U.S. Court of Appeals (11thCir) issued its opinion in Alabama Power v. FCC, a challenge to the FCC's pole attachment rate under the takings clause of the Fifth Amendment. The Court upheld the FCC.
The petitioners in this consolidated action are Alabama Power Company (APC) and Gulf Power Company. Among the intervenors are other power companies. Other intervenors are cable companies. The respondent is the Federal Communications Commission (FCC), which promulgated the rule that is the subject of these petitions for review.
The Court wrote that in the Pole Attachments Act of 1978, and amendments thereto in the Telecommunications Act of 1996, the Congress "focused on the relationship between cable television companies and electric power companies. Power companies have something that cable companies need: pole networks. Concerned about the monopoly prices power companies could extract from the cable companies, Congress allowed cable companies to force their way onto utility poles at regulated rates."
47 U.S.C. § 224, at subsection (f)(1), states that "A utility shall provide a cable television system or any telecommunications carrier with nondiscriminatory access to any pole, duct, conduit, or right-of-way owned or controlled by it." The Court described this language, which was added in 1996, as a "forced access regime".
The subject of cable companies' access to the poles of electric companies has been the subject of many FCC and court proceedings in the 11th Circuit. In the present proceeding, however, the power companies sought a ruling that the rate imposed by the FCC violates the takings clause of the Fifth Amendment. The Appeals Court rejected the petition for review. Judge Gerald Tjoflat wrote the opinion for the three judge panel.
11/14. Kenneth Dam, Deputy Secretary Department of the Treasury, gave a speech in Washington DC in which he addressed the FSC/ETI issue and corporate inversions.
The World Trade Organization (WTO) has held that the U.S. Foreign Sales Corporation (FSC) tax regime, and its replacement, the Extraterritorial Income Exclusion (ETI), constitute illegal export subsidies. On August 30 the WTO released a Decision of the Arbitrator [46 pages in PDF] that authorizes the EU to impose $4 Billion in countermeasures, or retaliatory tariffs. Retaliatory tariffs by the EU could harm U.S. high tech companies, and other exporters.
Dam stated that "The sad truth is that our international tax rules no longer serve our national interest. In this age of globalization, international transactions generate a large and growing share of our national income. Yet changes to the international provisions of the U.S. corporate tax code in recent decades have ignored this trend, and have oftentimes more impaired than improved American companies’ ability to compete abroad. More often, changes to the tax code have focused on increasing tax revenues rather than assuring the competitiveness of U.S. business operations, and thus, strengthening the health of our economy."
He reiterated President Bush's position. "President Bush decided several months ago that the United States would comply with the WTO ruling. The President made two further decisions. He said that any response to the ruling would have to increase the competitiveness of U.S. business. He also pledged to work with the Congress to create the solution, and we have been working closely with Chairman Thomas and the House Ways and Means Committee. We have begun to work just as closely with the Senate Finance Committee."
He offered a proposal for reforming the tax code. "I believe that legislative changes could be enacted to limit Subpart F to truly passive income – such as portfolio dividends, interest and the like. At the very least we should take a hard look at the so-called active/passive dichotomy in Subpart F rules. We should not preserve tax rules that do not reflect the present realities of international corporate business, in which globalization requires centralization of functions, and in which services are not just a major wealth-creating activity, but one in which U.S. businesses have a comparative advantage."
11/12. The Department of Justice's (DOJ) Antitrust Division and the European Commission announced that both entities have granted antitrust clearance for five patent platforms for third generation (3G) wireless services.
Assistant Attorney General Charles James wrote a letter to Ky Ewing of the law firm of Vinson & Elkins, counsel for the 3G Patent Platform Partnership (3GPPP), explaining the DOJ's decision.
James noted that the 3GPPP had originally proposed a single patent platform, but has since agreed to the separation into five largely independent platforms, one for each competing 3G wireless technology.
James concluded that "it appears likely that the Platform arrangements described are not likely to impede competition and could offer some integrative efficiencies for users of the various 3G interface standards. ... For these reasons, the Department is not presently inclined to initiate antitrust enforcement action against the conduct you have described."
See also, DOJ release and EU release.
11/15. The Federal Communications Commission (FCC) released its Notice of Proposed Rule Making and Order [MS Word] proposing rules for Intelligent Transportation Systems (ITS). It announced the NPRM on November 7, but did not release the NPRM until November 15.
This NPRM seeks comment on licensing and service rules for the 5.850 - 5.925 GHz band for Dedicated Short Range Communications (DSRC) in the ITS Radio Service. ITS provides wireless communications links between moving surface vehicles, and between vehicles and road side units. Its primary applications pertain to public safety, such as avoiding vehicle collisions, emergency vehicle traffic signal preemption, traffic management, and electronic toll collection.
This is WT Docket No. 01-90, ET Docket No. 98-95, and RM-9096. For more information, contact Nancy Zaczek at 202 418-0680 or nzaczek@fcc.gov.
The FCC has yet to publish a notice of this item in the Federal Register. Comments will be due 60 days after publication. Reply comments will be due 90 after publication in the Federal Register.
11/14. The U.S. District Court (SDNY) entered judgments of permanent injunction against David Myers, a former Controller of WorldCom, and Buford Yates, a former Director of General Accounting of WorldCom, in civil enforcement actions brought by the Securities and Exchange Commission (SEC). See, SEC v. Myers, D.C. No. 02 CV 7749, and SEC v. Yates, D.C. No. 02 CV 7958. The injunctions prohibit Myers and Yates from acting as an officer or director of any public company. See, SEC release.
11/15. The FBI's National Infrastructure Protection Center (NIPC) issued an advisory in which it states that "The Internet security community has identified several new vulnerabilities in the Internet Software Consortium's (ISC) Berkeley Internet Name Domain (BIND) software, which is used by many ISPs to provide DNS services."
11/15. Hewitt Pate was named Acting Assistant Attorney General for the Department of Justice's (DOJ) Antitrust Division (ATR). Pate is currently a Deputy Assistant Attorney General (DAAG) at the ATR in charge of regulatory matters. The current Assistant Attorney General (AAG), Charles James, departs on November 22, 2002 to become Vice President and General Counsel of Chevron Texaco Corporation. In addition, William Kolasky, the DAAG at ATR for international matters has announced his return to the law firm of Wilmer Cutler & Pickering. See, ATR release and White House release.
11/15. The Senate confirmed Jonathan Adelstein to be a Commissioner of the Federal Communications Commission (FCC). Commissioner Michael Copps released a statement [MS Word] praising Adelstein, and stating that now the FCC "will be up and running at full complement and in the way intended by the statutes that guide us." Regulated companies and the groups that represent them released statements praising the new Commissioner. See, for examples, statement by CTIA, statement by NCTA, statement by CompTel, statement by NAB, and statement by BellSouth.
11/14. Al Vincent was named Associate Administrator for Telecommunication Sciences and Director of the National Telecommunications and Information Administration's (NTIA) Institute for Telecommunication Sciences (ITS) in Boulder, Colorado. He will serve as the principal advisor on telecommunication sciences to the NTIA Director. See, NTIA release.
11/14. The Senate confirmed Wayne Abernathy to be an Assistant Secretary of the Treasury.
11/14. The Senate confirmed Blanquita Cullum to be a Member of the Broadcasting Board of Governors for a term expiring August 13, 2005.
11/15. The Senate Judiciary Committee approved the nominations of Dennis Shedd to be a judge of the U.S. Court of Appeals for the Fourth Circuit, and Michael McConnell to be a judge of the U.S. Court of Appeals for the Tenth Circuit on November 11. The full Senate confirmed Michael McConnell by a voice vote on November 15. The Senate is scheduled to take up the Shedd nomination on Monday, November 18.
11/14. The Senate confirmed John Rogers to be a judge of the U.S. Court of Appeals for the Sixth Circuit. The Senate also confirmed 17 nominees to be U.S. District Court judges: Stanley Chesler (New Jersey), Rosemary Collyer (District of Columbia), Mark Fuller (Middle District of Alabama), Daniel Hovland (North Dakota), Kent Jordan (Delaware), James Kinkeade (Northern District of Texas), Robert Klausner (Central District of California), Robert Kugler (New Jersey), Ronald Leighton (Western District of Washington), Jose Linares (New Jersey), Alia Ludlum (Western District of Texas), William Martini (District of New Jersey), Thomas Phillips (Eastern District of Tennessee), Linda Reade (Northern District of Iowa), William Smith (Rhode Island), Jeffrey White (Northern District of California), and Freda Wolfson (New Jersey).
11/14. Belinda Anderson was named BellSouth's Vice President policy resolution, for regulatory and external affairs.
11/15. On November 11 the Senate amended and passed HR 4664, the National Science Foundation Authorization Act of 2002, by unanimous consent. The House then passed HR 4664 on November 15 by unanimous consent. The House agreed to the Senate amendments to the bill. The President is expected to sign the bill.
The original HR 4664 was a bill to authorize appropriations for the National Science Foundation. It passed the House by a vote of 397-25 on June 5, 2002. See, Roll Call No. 212. See also, story titled "House Approves NSF Authorization Bill" in TLJ Daily E-Mail Alert No. 445, June 6, 2002. This version of the bill, also known as the "Investing in America's Future Act" authorized the appropriation of $5.5 Billion for FY 2003 for the NSF. It included in the funding authorization $704 Million for networking and information technology research, $238 Million for the Nanoscale Science and Engineering Priority Area, and $60 Million for the Mathematical Sciences Priority Area.
HR 4664, as passed by the House and Senate in November, is a vehicle for the combination and passage of several related bills. House Science Committee stated in a release that "The version of H.R. 4664 approved last night is a House-Senate compromise that includes language from five House-passed Science Committee bills -- H.R. 4664 (the NSF authorization); H.R. 1858 (on K-12 math and science education); H.R. 100 (on master teachers); H.R. 3130 (The Tech Talent Act, on undergraduate education); and H.R. 2051 (on biotechnology research) -- and from the Senate NSF authorization (S. 2817). The compromise was reached in mid-October, but could not come to the Senate floor then because of Administration objections."
The release added that "H.R. 4664 adds language worked out with the Office of Management and Budget (OMB) to satisfy the Administration's objections. The language makes the last two years of authorization (fiscal years 2006 and 2007) contingent on a finding by the Congress that NSF ``has made successful progress toward meeting [specified] management goals,´´ taking into consideration OMB's evaluation on that progress."
The House will meet at 12:00 NOON. The House is nominally still in session. However, most members have left town.
The Senate will meet at 11:00 AM. It is scheduled to begin consideration of the nomination of Dennis Shedd to be a judge of the U.S. Court of Appeals for the 4th Circuit. It may take the bill to create a new Department of Homeland Security.
9:30 AM. The U.S. District Court (DC) will hold a motion hearing in CBS Broadcasting v. Echostar Communications, D.C. No. 1:2002ms0410. Judge Kennedy will preside. Location: Courtroom 14, 333 Constitution Ave. NW.
10:00 - 11:00 AM. The Department of Commerce's (DOC) Technology Administration (TA) will host a media roundtable. The speakers will be Phil Bond (Under Secretary of Commerce for Technology), Ben Wu (Deputy Under Secretary), Bruce Mehlman (Assistant Secretary for Technology Policy), Chris Israel (Deputy Assistant Secretary). In addition, James Leutze and Jane Patterson from North Carolina's Rural Internet Access Authority will discuss spurring broadband demand. See, TA release. For more information, contact Cheryl Mendonsa at 202 482-8321 or cheryl.mendonsa @ta.doc.gov. Location: DOC, Room 4813, 14th and Constitution Ave., NW.
CANCELLED. 12:15 PM. The FCBA's Cable Practice Committee will host a brown bag lunch. The speakers will be John Wong and Michael Lance (Division Chief and Deputy Division Chief of the FCC Media Bureau's Engineering Division). For more information call Lisa Cordell at 202 939-7934. RSVP to Wendy Parish at wendy @fcba.org. Location: NCTA, 1724 Massachusetts Ave., NW.
6:30 - 10:00 PM. The FCBA will host a charity auction. For more information, contact Heidi Kurtz (FCBA) at 202 293-4000. Admission is free, and it is open to the public. The event features a live auction, silent auctions, raffles, hours d’oeuvres and a cash bar. Location: Capitol Hilton Hotel, 16th and K Streets, NW.
11/15. The Copyright Office published a notice in the Federal Register stating that it has adopted a "final rule amending its regulation governing notices of termination of transfers and licenses covering the extended renewal term. The current regulation is limited to notices of termination made under section 304(c) of the copyright law. The Sonny Bono Copyright Term Extension Act created a separate termination right under section 304(d). The final rule establishes procedures governing notices of termination of the extended renewal term under either section 304(c) or section 304(d)." For more information, contact Kent Dunlap at 202 707-8380. See, Federal Register, November 15, 2002, Vol. 67, No. 221, at Pages 69134 - 69137.
11/15. SpectraSite Holdings, a wireless tower operator, filed a Chapter 11 petition for bankruptcy in the U.S. Bankruptcy Court (EDNC). See, release.
11/13. The U.S. Patent and Trademark Office (USPTO) announced that the National Intellectual Property Law Enforcement Coordination Council (NIPLECC) has released its annual report. See, USPTO release. However, the USPTO has not published the report in its web site.

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