FCC Releases Anticipated National Broadband Plan

Tue, 16 Mar 2010 22:36:11 GMT

On March 16, 2010, the Federal Communications Commission (“FCC”) announced the release of the National Broadband Plan (the “Plan”). The Plan outlines sweeping proposals intended to accelerate broadband access and adoption throughout the United States that will be implemented over the coming years. Over the coming months, the FCC will launch a series of rulemakings to seek public comment and adopt rules to implement these proposals. Broadband and telecommunications providers should expect these proceedings will be a key focus of the FCC for the next several years.

Among the Plan’s chief recommendations are proposals that would give the FCC and other policymakers an enhanced role in establishing and enforcing pro-consumer policies, including mandating heightened disclosure requirements for broadband service providers, publishing market-by-market analyses of broadband pricing and competition, and enhancing online privacy protections. The Plan also calls for the FCC to: increase the amount of spectrum available for allocation through the use of incentive auctions; expand the amount of spectrum available for unlicensed use; and increase the transparency of spectrum allocation in general. Further, the Plan includes recommendations to speed the development and adoption of technologies that touch on a wide range of policy objectives from health care to public safety to energy efficiency.

The FCC also set forth relatively detailed proposals calling for reforms to the Universal Service Fund (“USF”) and to intercarrier compensation (“ICC”). Regarding the Universal Service Fund, the Plan calls for the broadening of the USF contribution base over time in order to contain USF assessments. Further, the Plan calls for the FCC to shift $15.5 billion from the USF program to a new Connect America Fund (“CAF”) designed to support the provision of affordable broadband and eventually replace the USF’s “legacy” High-Cost component. The FCC also seeks to reform intercarrier compensation by eliminating per-minute charges over the next decade, and replacing those revenues with an “adequate cost recovery” provisioned through the CAF.

For more detail on the FCC’s National Broadband plan, please click here to view the Plan’s Executive Summary. To access the National Broadband Plan in its entirety, please click here.

A Blockbuster Sentence for Movie Piracy in Canada

Tue, 16 Mar 2010 20:36:00 GMT

A Canadian man has been sentenced to jail time for recording movies via camcorder ("camming") in Montreal theatres and subsequently distributing the material for sale and/or rental over the internet. Following a guilty plea, Geremi Adam, who operated online as MaVen, was sentenced to 2 1/2 months in prison along with 100 hours of community service and a two-year suspended sentence.

The notorious activities of MaVen attracted the attention of both the FBI and the RCMP and, along with other acts of movie piracy, resulted in maligning the reputation of Canada as a hotbed of movie piracy due to purportedly weak copyright protections and enforcement. Indeed during 2006, prolific camming, music and movie piracy and the lack of consistency between United States and Canadian copyright laws resulted in Hollywood studios threatening to boycott Canadian distribution altogether.

As a result, the federal government amended the Criminal Code in 2007 (Bill C-59) to provide harsher sentencing for recording, selling or renting illegal recordings of movies, including sentences of up to five years for camming movies for future sale or rental, while pursuing wide-ranging amendments to the Copyright Act (Bill C-32) . While the MaVen case pre-dates the Criminal Code amendments, the former maximum sanctions contained in the Criminal Code included a maximum of six months in jail and a $25,000 fine for distributing copyright material over the internet without permission.

CO: Legislature asks for Supreme Court opinion on Citizens United

wraftery@ncsc.org (Bill Raftery) — Tue, 16 Mar 2010 16:50:08 GMT

While generally courts are permitted to entertain only cases and controversies, several states allow their Supreme Court to issue advisory opinions. Colorado’s Constitution gives its Supreme Court the power to weigh in “upon important questions upon solemn occasions when required by the governor, the senate, or the house of representatives”. Colorado’s Governor made such a request [...]

Colorado’s Governor made such a request on February 9 in response to the U.S. Supreme Court’s decision in Citizens United. The request paid specific attention to a provision in Colorado’s constitution that states “it shall be unlawful for a corporation or labor organization to provide funding for an electioneering communication; except that any political committee or small donor committee established by such corporation or labor organization may provide funding for an electioneering communication.”

Although the governor alone could have asked for a Supreme Court advisory opinion, both chambers of the state’s legislature added their request through HJR 1011 on February 10. The joint resolution found the questions posed by the governor of “extreme importance and public interest [and] that it is essential that an immediate determination be secured…”

Is a third party arbitrator binding?

Tue, 16 Mar 2010 14:46:46 GMT

Legal Times

The U.S. Court of Appeals for the D.C. Circuit last week affirmed a decision by the U.S. District Court to dismiss a case brought by four plaintiffs, who each own or lease property in the shopping center. The plaintiffs argued that the city took the property to benefit a private developer, violating the takings clause of the Fifth Amendment.

The D.C. Circuit said the federal courts should for now defer to the D.C. Superior Court, where multiple similar cases, many involving the same people, are pending. In Superior Court, the shop owners and tenants are the defendants in condemnation actions filed by the city.

This article relates to the process by which a third party decision maker proceeds. Further, is the Court arbitrator binding or non-binding?

At least the legislators have an understanding that there is a problem because the arbitrator likely is someone so well learned in the issues, since the arbitrator was probably a former or continuing employee of either the gas companies or companies so similar that the owner may not feel they receive a fair trial. This is a very difficult question.

Lickliter Ousted for $2.4 Million

Tue, 16 Mar 2010 13:38:56 GMT

The University of Iowa fired men’s basketball coach Todd Lickliter yesterday. Lickliter was terminated after leading the Hawkeyes through three disappointing, losing seasons. What is shocking to most people is not that he was terminated, but that the University is paying him $2.4 million to leave. Many see it as a reward for doing a terrible job. Lickliter, however, is one of very few employees that was employed pursuant to a contract. The University cannot just terminate him like an at-will employee (see my previous post about at-will employment). When the University hired Lickliter they promised to employ him for 7 years at $1.2 million per year. The University decided yesterday that 7 years was too long and terminated him after only 3. Thankfully, the University had a termination clause in the contract that allowed them to terminate him at a buyout of only half of his contract rate ($600,000 per year). Otherwise Hawk fans may have been looking at $4.8 million to get rid of Lickliter and bring in a winning coach hopefully… Keno Davis anyone?

Patty Salkin

psalk@albanylaw.edu (Patricia E. Salkin) — Tue, 16 Mar 2010 05:32:17 GMT

In determining whether a deposition of a Board member should be allowed, a Connecticut Court found that one should be allowed to determine whether a board member had a personal interest in the outcome of a matter before the board. The Court notes that it is extremely hard to prove bias, but that “. . .the mere fact that there may be difficulties of proof at trial do not justify barring a litigant from having the ability to raise the issue which is often dependant on discovery procedures by ruling out discovery.” Furthermore, “there is a need to have this deposition to assure that citizen litigants, in matters important to their lives and businesses, are allowed to explore the possibility of bias where there is a reasonable need to make the inquiry.”

This case is interesting when compared to a recent California case holding that applicants cannot take depositions to prove prejudice. (See, San Joaquin Local Agency Formation Com’n v Superior Court, 162 Cal. App. 4^th 159, 76 Cal. Rptr. 3d 93 (3d Dist. 2008)). The Court said that a “disappointed” applicant could not take depositions of commission members or staff to learn what information outside of the record the commissioners had when they denied the application.

Caruso v. Meriden Zoning Bd. of Appeals , 2009 WL 2453834 (Superior Ct. 7/14/2009).

Filed under: Current Caselaw, Ethics Tagged: Connecticut

Recession Destroys Development

Mon, 15 Mar 2010 22:14:41 GMT

KMOX

WASHINGTON (AP) Women's rights advanced in 15 of the 18 countries in the Middle East and North Africa over the past five years, the democracy watchdog group Freedom House reported Wednesday.

The progress in jobs, education and politics, described as modest, overcame continuing resistance from religious and cultural elites, the study said.


What happens when the recession destroys development?

In St. Louis, the Paul McKee N. St. Louis plan has been ongoing in excess of a year. The economic study contemplated development based upon 2007, rather than 2010 economics.

The issue will be whether the economics really support this project. The answer may be if it was not for obtaining the government benefits, would someone look at a present development under its present terms? In the alternative and in response, Mr. McKee may argue that he would have had money tied up for any development he was doing in 2007 to such an extent that the money would have been there now. However, that may not be the reality of the present day economic marketplace.

Wait 120 Days For SEC Review To Do A Reg D Offering?

Mon, 15 Mar 2010 19:42:45 GMT

Senator Dodd's new financial regulatory reform bill is out.

As written in TechFlash today, the bill is not a good and helpful development for startups. The concept of waiting 120 days for the SEC to clear an all accredited investor offering is truly an amazing things to ponder.

Election fight to prohibit federal funding of eminent domain

Mon, 15 Mar 2010 15:27:13 GMT

Star Telegram

Basham, who finished fourth in a four-candidate race in 2008, couldn't be reached for comment. But he said in a news release that out-of-control spending is unacceptable at all levels of government.

"Accepting earmarks and using eminent domain locally are far more pervasive to our communities than anything coming out of Washington," Basham said.

The future fights over water district elections will be consumed by: 1) whether to use Federal funds that are available for water conservation; 2)whether there should even be water conservation and; 3) how the eminent domain power will be exercised. These water disputes will be held at the local level, or will involve a national issue for many years to come.

Fort Worth Star Telegram/Water District Election Fight

Mon, 15 Mar 2010 15:27:13 GMT

Star Telegram

Patty Salkin

psalk@albanylaw.edu (Patricia E. Salkin) — Mon, 15 Mar 2010 05:24:42 GMT

In 1985, the Newton County Board of Commissioners adopted a “new zoning ordinance” and in 1997 East Georgia Land and Development Company LLC (EGL) requested a letter verifying that its proposed landfill complied with the local zoning ordinance. The County refused EGL’s request though holding the landfill was not a permitted use under the 1985 ordinance and as a result, EGL sought to compel the County to issue the letter. During the mandamus proceedings, the 1985 ordinance was neither clearly identified in nor attached to the Board’s minutes, and the Court held that the County could not rely on parole evidence to prove the contents of the ordinance.

Following the county attorney’s request, the probate court judge filed a petition to establish a copy of the 1985 ordinance since the original had been lost. The superior court permitted EGL to intervene. The court held the 1985 ordinance to be a public record as required by statute to establish a copy and ordered a copy be established holding that as a “correct duplicate was found in the zoning office in 1999 . . . then attached to the minutes” and “currently maintained in the office of the Clerk of the Board of Commissioners.” The court in doing so rejected EGL’s claims that to order a copy “would violate the doctrine of separation of powers” and would thus “constitute a taking.” EGL appealed the order establishing a copy of the ordinance.

The court first considered EGL’s claim that the “superior court erred by holding that the Act allows superior courts to establish copies of ordinances . . . and by admitting parole evidence of the contents of [the] alleged legislation.” EGL relying on the preamble of the Act which referred to allowing copies of “public records in any courts of the state,” argued that public records, includes “court records such as case filings and real estate records, but not ordinances.” The court rejected this argument holding that the preamble could not control the meaning of the Act and thus the preamble could not limit the copying of the ordinance. It further held that “[f]or many years, [it] ha[d] described ordinances and documents incorporated by reference therein as public records.” In addition the court recognized that the “need for . . . a remedy for the loss or destruction of an ordinance” has been recognized in the past by the court. The court determined that as an “ordinance affects all citizens of a county, the need for a remedy . . . is no less important than when a particular case or real estate record is missing.”

The court further held that parole evidence could be used to make a copy as it was not a proceeding to enforce a zoning ordinance, but instead to establish the copy of a lost record. In addition as the court held circumstantial evidence could be used to establish a public record lost for many years, the “establishment of a lost record is necessar[y] by parole evidence.” The court said that the superior court’s use of evidence “including the testimony of EGL’s forensic expert, . . . several witnesses who were county officials in 1985 and their successors, . . . [and] subsequent amendments to the sections and subsections of the proffered copy” justified its determination to dismiss the involuntary dismissal and order the copy be made. The Georgia Supreme Court based this determination following Georgia statutory law which required appellate courts to not disturb a trial court’s ruling on a “motion for involuntary dismissal” if there was any evidence to support the trial court’s determination.

EGL also argued that the Act’s application in the present case violated “the constitutional doctrine of separation of powers” as well as Georgia’s Zoning Procedures Law. It argued as the “copy established by the superior court [was] not the exact ordinance adopted in 1985” the copy was thus “judicial enactment of legislation that w[ould] adversely affect property rights.” The court disagreed, noting that there was a difference in making a copy of the ordinance and adopting or amending the ordinance. The court said that “a proceeding to establish a lost or destroyed ordinance is more akin to the interpretation of legislation which had already become effective. Thus the court held according to the “doctrine of separation of powers” the courts had the right of statutory construction, while the legislature was reserved the right to legislate. The court further held it was not legislating as the ordinance was already law and the court had authority to “reestablish a previously adopted ordinance,” just like it had the power to construe the meaning of statutes. Furthermore the court affirmed the trial court’s determination that “an establishment decree does not violate the doctrine of separation of powers, since its effect is not ‘the enactment’ of the ordinance or alteration of the ordinance as enacted by the Board [as it] . . . merely re-establishes the ordinances as always having been in effect.”

The court also considered EGL’s claim that “the trial court’s final order retroactively establish[ed] a ‘substantial copy’ as a zoning law and therefore . . . amend[ed] the zoning ordinance without the published notice and public hearings required by the Zoning Procedures Law.” The court repeated its determination that the “trial court’s decree did not have the effect of either adopting or amending any zoning ordinance” as the decree “did not constitute [any] ‘final legislative action by a local government.’” As a result it was not a “’zoning decision’ to which the [Zoning Procedures Law] applie[d].”

EGL also argued that the copying of the ordinance and the order resulting from it led to “an unconstitutional taking of its property rights without just compensation by establishing a zoning ordinance which did not exist in the public records of the County when EGL’s rights vested in 1997.” The court again noted that the trial court had only “established a copy of an ordinance which ha[d] existed since 1985, prior to the vesting of the EGL’s property rights.” As a result the copy only established what should have been in the original records, but was missing. As a result the court affirmed the trial court’s determination that the establishment of the copy did “not constitute a taking.”

East Ga. Land & Development Co., LLC v. Baker, 2010 WL 245551 (1/25/2010)

The opinion can be accessed at: http://www.gasupreme.us/sc-op/pdf/s09a1935.pdf

Filed under: Current Caselaw, Records, Takings Tagged: Georgia, Parole Evidence

Patty Salkin

psalk@albanylaw.edu (Patricia E. Salkin) — Sun, 14 Mar 2010 05:10:54 GMT

After the defendant was cited for violating the town code by maintaining more than one mobile home on his property, he appealed, claiming that at the time the town code was adopted, he had maintained two mobile homes on his property for approximately seven years. Further, at the time the town adopted the Code, it specifically provided that lawfully existing mobile homes prior to enactment of the law would be allowed to continue to be used as residence so long as they are compliant with certain code provisions including safety and aesthetics. Furthermore, the local law allows for the replacement or improvement of preexisting mobile homes so long as the owner applies for and obtains a permit. The record established that the mobiles homes were compliant with the code and that the defendant had never been cited for a violation. Further, when the defendant replaced one of the mobile home after the enactment of the law, he applied for and was granted a permit based on a truthful application. Therefore, the Court held that the maintenance of the mobile homes on the property was not in violation of the law.

Town of Broadalbin v. Van Curen, 893 N.Y.S.2d 718 (N.Y.A.D. 3 Dept. 2/2/2010).

The opinion can be accessed at: http://decisions.courts.state.ny.us/ad3/Decisions/2010/507438.pdf

Filed under: Current Caselaw - New York, Mobile Homes, Non-Conforming Uses

Patty Salkin

psalk@albanylaw.edu (Patricia E. Salkin) — Sat, 13 Mar 2010 05:10:26 GMT

In a suit for declaratory and injunctive relief against enforcement of a city zoning ordinance on the grounds that it exceeded city authority in violation of Virginia law and Dillon’s rule, The Virginia Supreme Court concluded that the ordinance, which makes inclusion in the federal Coastal Barrier Resources System a criterion for designating lands to be part of a Resource Protection Area under the Chesapeake Bay Preservation Act, violates the General Assembly’s express mandate that a locality use the criteria developed by the Chesapeake Bay Local Assistance Board to determine the extent of the Chesapeake Bay Preservation Area within its jurisdiction. Since the locality was neither expressly nor impliedly authorized to use the federal criteria, the Court held that the zoning provisions challenged are void insofar as they include lands in protection areas on the basis of the federal Coastal Barrier Resources Act’s applicability.

Marble Technologies v. City of Hampton 2010 WL 653141 (Va. 02/25/2010).

The opinion can be accessed at: http://www.courts.state.va.us/opinions/opnscvwp/1090043.pdf

Filed under: Authority, Current Caselaw Tagged: Virginia

Are You a Digital Media Company that Licenses Music?

Fri, 12 Mar 2010 23:24:20 GMT

Are you a digital media company that licenses music? If so, some fundamental considerations are described by our partners David D. Oxenford and Robert J. Driscoll here.

State Regulators Distrust FERC Siting

Fri, 12 Mar 2010 21:36:32 GMT

Eenews

The nine-month survey of 11 state regulatory commissions and major national environmental organizations found that while both groups admit that the U.S. transmission system should be improved both for reliability and environmental purposes, they believe placing that power in the hands of the Federal Energy Regulatory Commission will lead to overly expensive lines that are not all necessarily needed.

Many of the state regulators surveyed said they do not believe FERC could adequately balance local costs and needs versus the needs of a few states, the report says.

"State regulators believe almost unanimously that FERC-sited lines will be too expensive. The problem is that FERC is looking at a grand design, the transmission superhighway, which will benefit a few states at the expense of others," the report says. "And state authorities have little confidence that federal regulators can successfully balance competing needs. As one commissioner simply put it, 'The feds will bigfoot you.'"

It is not surprising that the local authorities are bothered by the FERC siting of electric transmission. The underlying problem of the situation is that the State regulators must deal with the local attitudes to such an extent that siting sometimes becomes impossible. However, this federal process makes it even less attractive for local jurisdictions.

An Important Action Alert From the WTIA

Fri, 12 Mar 2010 19:48:52 GMT

Dear technology executive,

Take Action - Your Voice Needed to Oppose New Software Tax System

Please contact your state Senator today and tell them to reject the new custom software tax included in the House Version of Senate Bill 6143!

In the past 24 hours, the state House of Representatives has passed a bill that will create a new tax on a whole range of innovative software companies that are at the center of our technology industry. Without any input from industry, the House passed a version of Senate Bill 6143 that includes a new tax on custom software development-a fundamental shift in tax policy that could lead to job losses, business closures and new taxes on other professional services.

There are over 2,500 custom software businesses in our state and most of these are small companies-and many are independent and freelance consultants. These companies and their employees already pay over $150 million in state and local taxes and are held up as the kind of innovation businesses we want to encourage in Washington.

Yet this new tax scheme does just the opposite of encourage.

The challenge before the Governor and our Legislators is not an easy one, but this new tax is not the answer. If you agree with us, then please contact your state Senator today and tell them to reject the new custom software tax included in the House Version of Senate Bill 6143.

We have already drafted a message for you to send, please click on the take action now link below to be redirected to our grass roots government affairs mobilization tool. Thank you.

TAKE ACTION NOW

If you have any questions or concerns, please contact Lew McMurran, our Vice President of Government & External Affairs at Lmcmurran@washingtontechnology.org. Want to learn more about this topic? Visit Lew's Government Affairs Blog.

Sincerely,

Ken Myer
President & CEO
Washington Technology Industry Association (WTIA

Six Questions To Ask In Figuring Out Whether The Recovery Act Buy American Requirement Applies To You

Fri, 12 Mar 2010 19:44:14 GMT

Nearly one year ago on February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (Pub. L. No. 111-5), more commonly known as the Stimulus Act, the Recovery Act, or ARRA. One of the key features of the Act included a "Buy American" requirement, requiring domestically manufactured "iron, steel, or manufactured goods" to be used in Recovery Act funded projects (located at Section 1605 of the Act). This requirement has proven to be a collossal headache for vendors supporting Recovery Act projects and has also proven to be immensely complicated for the good men and women in Government (including those at the State and local levels), who are faced with the task of figuring out how, where, and when the Recovery Act Buy American requirement applies.

There are two sets of ARRA Buy American regulations: (1) regulations at FAR Subpart 25.6, relating to contracts directly with the U.S. Government and its agencies (such as the General Services Administration); and (2) regulations issued by the Office of Management and Budget (OMB) at 2 C.F.R. Part 176, Subpart B, relating to grants from the U.S. Government, as well as contracts with State and local governments that receive stimulus funds from the U.S. Government via grants. While these two sets of regulations are not identical, the structure and language in the regulations do identify at least six basic questions that should help you answer the threshold question of "Does the Recovery Act Buy American requirement apply to me?" The answer may surprise you. Unfortunately, it is not an easy question to answer.

Question 1: Are ARRA funds being used to purchase your products?

o If "yes," then Section 1605 may apply to your purchase. Typically, the person placing the order (whether a Government or prime contractor employee) should know whether an order is funded by the Stimulus Act. Moreover, the question of whether ARRA funds are being used may be painfully obvious if you are being asked to agree to the boiler-plate ARRA terms and conditions – particularly those relating to ARRA whistleblower rights, ARRA audit rights, and ARRA reporting requirements (discussed previously here and here). Or, if you think that your would-be buyer is being overly cautious in its use of ARRA clauses because it is not sure of the source of funding, there is always the ARRA web site (www.recovery.gov), which can help identify the funding source. (Just click on the tab "Where is the Money Going").

o If "no," then Section 1605 will not apply, because the ARRA Buy American requirement applies only to funds appropriated under the Recovery Act. However, be aware that other country of origin requirements may still apply if federally appropriated funds are being spent, because other statutes like the Buy American Act, the Trade Agreements Act, or the Buy America Act (applicable to Department of Transportation construction projects) could still apply. (The interplay of these various statutes is discussed here).

Question 2: Is the main project for which goods are being procured a "construction project?"

o If "yes," then Section 1605 may apply to your purchase. FAR Part 25 distinguishes between purchases of "supplies" and purchases of "construction materials" (with both "construction" and "supplies" defined at FAR 2.101). In implementing Section 1605 through the FAR rules, the U.S. Government has embraced this "supply" vs. "construction materials" distinction, indicating that the ARRA Buy American requirement applies only to construction projects. While the OMB regulations do not necessarily enshrine this same rubric of "supply" vs. "construction material" that is contained in the FAR, all of the guidance issued to date by the U.S. Government seems to recognize that whether the core project is a "construction project" is a key threshold question.

o If "no," then Section 1605 will not apply. While there may be some who argue that the language of Section 1605 broadly applies to "construction, alteration, maintenance and repair" – not merely to "construction projects" – the Government has (thus far) consistently applied Section 1605 only to construction projects. Moreover, most authorities seem to be applying Section 1605 co-extensively with Section 1606, which imposes a "minimum wage"-style requirement for construction contracts under the Davis-Bacon Act. Since the Davis-Bacon Act applies exclusively to construction projects, this seems to further support the conclusion that the ARRA Buy American requirement does not extend to the mere purchase of "supplies," when those "supplies" are not "construction materials" under the regulations.

Question 3: Is the project for a "public building and public work?"

o If "yes," then Section 1605 may apply.

o If "no," then Section 1605 should not apply. Note that the two sets of regulations include two different definitions of "public building and public work." FAR 22.401 defines this term broadly to include virtually any project funded with federal money. It does not require ownership by the U.S. Government as a precedent. If your project is covered by the FAR, then answering Question 3 is easy – if federal funds are involved, it is a public work. However, the OMB regulations (2 C.F.R. 176.140(a)) define "public building and public work" more narrowly, recursively referring to "a public building of, and a public work of, a government entity." At least with regard to public buildings, this different definition seems to indicate that it needs to be "of" a governmental entity and government ownership may be required.

Question 4: What is being delivered to the construction site?

o The FAR rules define the ARRA Buy American restriction in terms of the "construction materials" (both manufactured and unmanfactured) that are brought to the construction site. See FAR 25.003 and 25.601. The product that is actually delivered to the construction site is, under the definitions in the regulations, the "construction material" covered by the Buy American restriction. Materials purchased directly by the Government and delivered as such to the work site are "supplies," not "construction materials." See FAR 25.003. Ostensibly, where component parts are delivered off-site and manufactured into a product that is subsequently delivered to the construction site, it is the later-manufactured module that should qualify as the delivered "construction material" subject to the ARRA restrictions.

o While the OMB rules also consider what is being delivered to the construction site, they do not use the exact same terminology as in the FAR rules. The OMB rules define the Buy American restriction in terms of "manufactured goods," not "construction materials," which could arguably mean that the OMB rules impose a broader obligation on contractors. While we hope that the two requriements would be applied consistently across all Recovery Act projects, we would not be surprised to find contracting officers applying the OMB regulations slightly differently based on the different language.

o An additional point worth emphasizing is that the ARRA Buy American requirement looks only at the country of origin of the "construction material" or "manufactured good" delivered to the construction site. ARRA does not concern itself with the country of origin of the various components of the end-product delivered to the construction site – only the final construction material or manufactured good.

Question 5: What is the dollar value for the main construction project?

o If the prime-level project is valued at $7.443 million or more, then the ARRA-funded contract may recognize an exception for iron, steel, or manfuactured goods manufactured either in the U.S. or in a free trade agreement (FTA) country. (The interplay of FTA exception was previously discussed here). Under the regulations, if the FTA exception is satisfied, then products from a FTA country are considered the same as U.S.-origin alternatives.

o If the prime-level project is valued at less than $7.443 million, then domestic manufactured goods must be supplied for the project, absent an exception. The three exceptions to this rule are: (1) that requiring domestic goods would not be in the public interest (as determined solely by the U.S. Government); (2) that a domestic alternative to the foreign-made project is not available (through Domestic Nonavailability Determinations or DNADs); or (3) that the inclusion of exclusively domestic-made products increases the cost of the overall procurement by at least 25%. The regulations outline complicated waiver requirements that must be satisfied if any of these exceptions are invoked.

Question 6: Who is the ultimate customer?

o If the ultimate customer is a State or local government, then the FTA exception discussed above with Question 5 may not be available. Typically, FTAs apply only at the federal level, with limited applicability at the State or local level (as we previously discussed here). (A complete list of covered State and local governments is available at 2 C.F.R. Part 176, Appendix to Subpart B).

o Consequently, even if a project is over $7.443 million, if a State or local government is not covered under the FTA, then the FTA exception will probably not apply – even if the State or local government would love nothing more than to have the FTA exception available. The other three exceptions discussed above, may still be available to allow use of certain foreign-made products, but these exceptions are narrow and difficult to satisfy.

Applying the ARRA Buy American requirement in actual practice is complicated and difficult. Many in Congress and in the U.S. Chamber of Commerce have criticized the requirement as counterintuitive, disruptive and unnecessary. A recent report from the Government Accountability Office indicated that the difficulties in applying the Buy American requirement have complicated and delayed some of the critical stimulus projects for at least five federal agencies. Moreover, the requirement also quite nearly sparked off a trade war between the U.S. and Canada, one that only recently seems to be nearing a point of resolution as the U.S. and Canada negotiate revisions to their FTAs, allowing both Canadian and U.S. companies access to State, Provincial and local government procurements.

Still, regardless of whether the Buy American requirement is "workable," "bad policy," or even just plain "wrong," the fact remains that the domestic preference requirement is a fact of life for anyone performing work on a Stimulus project. Before you agree to perform on a contract including the ARRA Buy American requirement, you should be fully aware of what obligations you will be required to meet, including whether any of the statutory exceptions may also be available.

For additional discussion in this blog about the ARRA Buy American requirement, click here, here and here.For discussion of ARRA generally, click here.

Authored by:

David S. Gallacher
(202) 218-0033
dgallacher@sheppardmullin.com

USF Contribution Factor - 15.3%

Fri, 12 Mar 2010 19:38:14 GMT

Today, the FCC released its proposed Universal Service contribution factor for the second quarter of 2010. As predicted, it is 15.3% The new rate will go into effect starting April 1, 2010.

Government Oversight of ARRA Dollars -- A True Faustian Bargain

Fri, 12 Mar 2010 19:33:56 GMT

The intrusive nature of the oversight mechanisms that are available to the Government under the Recovery Act is unprecedented in federal contracting. It is a subject that has been dealt with previously in this blog (click here, here, here and here). For a useful PowerPoint summary of these mechanisms, click here. This link was used as the basis for a presentation at the recent 16th Annual Procurement Institute in which the acceptance of ARRA dollars was said to evoke memories of a 1959 movie starring James Cagney and Don Murray entitled "Shake Hands With the Devil." We leave it to you to decide if the title is apt.

Authored by:

John W. Chierichella
(202) 218-6878
jchierichella@sheppardmullin.com

and

Anne B. Perry
(202) 218-6875
aperry@sheppardmullin.com

Stay Tuned for Implementation of Ancillary Cryptography Changes Adopted by December 2009 Wassenaar Plenary Session

Fri, 12 Mar 2010 19:26:20 GMT

At their December 2009 Plenary Session, the member countries of the Wassenaar Arrangement on dual-use export controls adopted a new Note 4 to Category 5 - Part 2 of the Dual-Use List covering information security and encryption.

The new note provides that Category 5–Part 2 does not apply to items incorporating or using "cryptography" if:

a. The primary function or set of functions is not any of the following:

1. "Information security";

2. A computer, including operating systems, parts and components therefor;

3. Sending, receiving or storing information (except in support of entertainment, mass commercial broadcasts, digital rights management or medical records management); or

4. Networking (includes operation, administration, management and provisioning);

b. The cryptographic functionality is limited to supporting their primary function or set of functions; and

c. When necessary, details of the items are accessible and will be provided, upon request, to the appropriate authority in the exporter’s country in order to ascertain compliance with conditions described in paragraphs a. and b. above.

This change will soon be implemented in the United States, and it represents an interesting variation on the "ancillary cryptography" exception published by the Commerce Department's Bureau of Security in October 2008. See Encryption Simplification, 73 Fed. Reg. 57,495 et seq. (Oct. 3, 2008). That action eliminated the requirement of a review request filing and twice-a-year reporting under the ENC license exception, 15 C.F.R. sec. 740.17 (2009), but retained the 5D002 classification for items with ancillary cryptography.

The 2008 U.S. action introduced the following definition of ancillary cryptography which included a Nota Bene with a laundry list of examples to illustrate products that qualify for self-classification as ancillary:

Ancillary Cryptography. The incorporation or application of ‘‘cryptography’’ by items that are not primarily useful for computing (including the operation of ‘‘digital computers’’), communications, networking (includes operation, administration, management and provisioning) or ‘‘information security’’. N.B. Commodities and software that perform ‘‘ancillary cryptography’’ (e.g., are specially designed and limited to: piracy and theft prevention for software, music, etc.; games and gaming; household utilities and appliances; printing, reproduction, imaging and video recording or playback (but not videoconferencing); business process modeling and automation (e.g., supply chain management, inventory, scheduling and delivery); industrial, manufacturing or mechanical systems (including robotics, other factory or heavy equipment, facilities systems controllers including fire alarms and HVAC); automotive, aviation and other transportation systems). Commodities and software included in this description are not limited to wireless communication and are not limited by range or key length.

Note 4 as adopted by the Wassenaar Plenary carries forward the U.S. definition of products with "ancillary cryptography" as those whose primary purpose is not information security, computing, communications or networking, but it goes further by removing them entirely from Category 5 – Part 2. In this respect, they become like "[c]ommodities and software specially designed for medical end-use," which are excluded from Category 5 – Part 2 by current Note 1. See 15 C.F.R. pt. 774, supp. 1 at page 754 (2009).

Unlike the U.S. rule from 2008, however, the Wassenaar Note 4 omits the list of examples in the Nota Bene published by the Commerce Department in October 2008. It is not clear at this time whether some Wassenaar members will implement Note 4 in a manner that differs from these examples previously published in the United States.

What is clear is that a new regulation can be expected this year to implement this change in the United States. Commerce officials foreshadowed this in public statements at their Update 2009 Conference Encryption Workshop on October 2, 2009. See here, at page 29 ("As you probably know, the Wassenaar meets in plenary in December, and we anticipate that the note four will be implemented and published soon after the December plenary in the Wassenaar lists, and we thought it was an important enough development to mention it here today").

The 2008 Wassenaar Plenary changes were not published in the Federal Register until December 2009, 74 Fed. Reg. 65,999 et seq. (Dec. 11, 2009), so the publication of Note 4 may not occur very soon, but when it does exporters will be spared the task of remembering that their decontrolled items containing encryption for ancillary purposes remain classified as 002 and require reliance on the ENC license exception. An interesting further consequence of the change will be that many items with ancillary cryptography will end up becoming EAR99. This will have an impact on some reexport scenarios.

One must wonder about the logic of excluding ancillary cryptography in this manner while items with encryption limited to password protection and user authentication remain in 992. Heretofore, exporters have done well to consider first whether an encryption function is limited to password protection or user authentication. Under Note 4, they will want to retool their decision trees to start with the ancillary exception since it will take items outside of Category 5, Part 2 altogether.

Authored by:

Curtis Dombek
(213) 617-5595
cdombek@sheppardmullin.com

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