Current Telecom Developments

*Special New Year Edition* December 28, 2012

FTC Approves Updates to Child Online Privacy Law

As expected, the Federal Trade Commission (FTC) has updated rules enforcing the 1998 Children’s Online Privacy Protection Act (COPPA) to require developers of mobile wireless apps, as well as websites aimed at children, to obtain parental consent before personal data on young users is collected and shared with other parties. To the relief of app store owners such as Apple and Google, however, the FTC declined to enact proposed rules that would have required online stores to ensure that marketed apps comply with the tenets of COPPA. Announced last week, the new rules follow on the release of an FTC report last week showing that nearly 60% of popular wireless apps marketed to children share user data with mobile app developers and with third parties, such as ad networks, without parental consent. While COPPA, as originally enacted, requires children’s websites to obtain parental permission before collecting names, phone numbers, home addresses, e-mail addresses and similar data from children under age 13, the rev ised FTC rules go farther by expanding COPPA’s reach to photos, v ideos, audio recordings, and geographic location data transmitted through wireless devices. The new rules also expand the definition of personal data to cover “persistent IDs” that include customer code numbers, smart phone serial numbers, and IP addresses. Operators of ad networks, social networks and similar third party plug-ins will be required to adhere to parental notification requirements if they have “actual knowledge” that they are collecting data through websites or apps that are targeted to children. (Bowing to industry pressure, the FTC backed off of its earlier proposal to require compliance if third parties “had reason to know” that data was being collected on children.) Although apps sold through platforms such as the Apple App store and Google Play are required to comply with the rules, owners of online app stores are exempt. In remarks to the press, FTC Chairman Jon Leibowitz voiced confidence that the new rules will “strike the right balance between protecting innovation that will provide rich and engaging content for children and ensuring that parents are informed and involved in their children’s online activ ities.”

US Telecom Petition Says FCC Should Declare ILECs Non-Dominant

Citing the market-wide shift to wireless and IP-based calling platforms over the past decade, the U.S. Telecom Association (USTA) urged the FCC to rule that incumbent local exchange carriers (ILECs) are no longer subject to dominant

In This Issue:

FT C Approves Updates to Child Online Privacy Law m or e

US T elecom Petition Says FCC Sh ou ld Declare ILECs Non-Dom inant more

FCC, T elecom Ca rriers Voice Opposin g V iewpoints on Ch evron Deference more

Key A pple Patent Invalidated by U.S. Pa tent Office more

Google Divests Motorola Set T op Box Unit for $2.35 Billion more

Deutsche Telekom Chief to Step Down more

©2012 Paul, We iss, Rifkind, Wharton & Garrison LLP. In some jurisdictions, this brochure may be considered attorney adve rtising. Past representations are no guarante e of future outcomes.

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carrier regulation. In a petition for declaratory ruling filed last week, USTA pointed to the “technological and societal shift” away from traditional landline voice services offered over legacy public switched networks, noting that the number of ILEC switched access lines has dropped by more than 50% since its peak level in 2000. At the same time, usage of wireless, voice over Internet protocol (VoIP) and similar IP-based calling platforms has expanded drastically . As such, USTA told the FCC that, “today, there are likely more households that have chosen to ‘cut the cord’ and subscribe only to wireless services than there are households that subscribe to a switched-access serv ice prov ided by an ILEC.” USTA further advised the agency that, “within the next year, the number of households being served by an interconnected VoIP service will surpass the number of households subscribed to an ILEC switched access service.” In such an environment, USTA argued that subjecting ILECs to dominant carrier regulation “no longer makes sense,” as the organization maintained that “continued failure to adjust outdated regulatory models to reflect the rapidly-changing communications landscape is inhibiting the transition to all-IP networks.” Speaking to reporters, USTA President Walter McCormick remarked that a grant of the petition would relieve ILECs “of certain extra tariffing obligations and move [ILECs] somewhat closer to regulatory equivalence with their closest competitors.” Voicing support for the petition, an AT&T executive said, “it is time for our nation’s voice services regulatory regime to catch up with the dramatic changes that have shaped the communications landscape.”

FCC, Telecom Carriers Voice Opposing Viewpoints on Chevron Deference

In briefs filed late last week with the U.S. Supreme Court, the FCC stood opposed to Verizon Wireless, AT&T and the U.S. Telecom Association on the question of whether the FCC and other federal agencies should be accorded Chevron deference when deciding the extent of their own regulatory or rulemaking jurisdiction. At the request of several local government jurisdictions, the high court agreed last October to accept two separate cases seeking review of a Fifth Circuit Court ruling that upheld the tower siting shot clock rules adopted by the FCC in 2009. Granting certiorari, the Supreme Court noted that it would assess just one issue raised in the consolidated cases, namely the question of whether “a court should apply Chevron to review an agency’s determination of its own jurisdiction.” Under the Chevron standard, the right of any agency to exercise legally its rulemaking or regulatory jurisdiction rests upon a determination of the intent of Congress. If the intent of Congress is clear, then the intent of Congress governs the extent of agency jurisdiction. If congressional intent is unclear or ambiguous, the courts must defer to the agency’s reasonable interpretation of the law. In its brief, the FCC advised the Supreme Court that Chevron deference “is appropriate whenever an agency administers its organic statute through rulemaking, adjudication, or other actions that carry the force of law,” emphasizing that “when Congress intends to take the unusual step of withholding an agency’s general rulemaking authority from a particular prov ision of a statute that the agency administers, it would ordinarily do so expressly.” As such, the FCC maintained that “any attempt to distinguish for Chevron purposes between ‘jurisdictional’ and ‘non-jurisdictional’ statutory prov isions would be inadministrable in practice.” Verizon Communications told the high court, however, that deference under Chevron is premised upon Congress’s explicit delegation of authority to the regulatory agency over the matter at issue. Stressing that “courts defer to an agency’s exercise of policymaking authority, but only if that authority has been properly delegated,” Verizon thus argued that “allowing agencies to decide in the first instance the limits of their policy making power would improperly transfer legislative authority from Congress to the Executive.” In an amicus brief, AT&T and U.S. Telecom agreed with Verizon’s claim that the Supreme Court “should hold that Chevron deference does not apply to an agency ’s interpretation of its own statutory jurisdiction,” but nevertheless left open the possibility that the high court could affirm the Fifth Circuit judgment “on the alternative ground that the [FCC] had clear, unambiguous jurisdiction to issue the order under rev iew based on the text of the Communications Act of 1934.”

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Key Apple Patent Invalidated by U.S. Patent Office

There was a new twist in the ongoing patent battle between Samsung and Apple, Inc., as the U.S. Patent and Trademark Office (USPTO) invalidated a key patent pertaining to the Apple “pinch-to-zoom” feature that allows iPhone and iPad users to zoom the screen view in or out by pressing their fingers together or apart on the display . The pinch to zoom feature is included among six Apple smart phone patents at the center of a California district court jury decision earlier this y ear to hold Samsung liable for violations of the patents in question. The jury’s verdict formed the basis of the record $1.05 billion fine assessed by the district court against Samsung in August. Samsung cited the USPTO decision in recent documents that were filed by Samsung with the federal court in San Jose, California and that analysts say may buttress the South Korean handset maker’s pending request for a new trial. In a similar recent development that may also boost Samsung’s argument for a new trial, the USPTO in October invalidated another Apple patent at the center of the August damage award, i.e., the “rubber banding” or “bounce” feature which makes a digital page bounce when an iPhone user drags their finger from the top of the display screen to the bottom. For Apple, the USPTO ruling constitutes the second legal setback in a week as it comes on the heels of U.S. District Court Judge Lucy Koh’s decision to reject Apple’s request for an injunction barring the sale of Samsung smart phone and tablet products that infringe upon Apple patents. According to sources, the USPTO invalidated the pinch-to-zoom patent on grounds that the technology had been covered by patents issued prev iously to other technology firms. Officials of neither company offered comment.

Google Divests Motorola Set Top Box Unit for $2.35 Billion

Google wrapped up one unfinished piece of business from its $12.5 billion purchase last summer of Motorola Mobility (MM), as it agreed to sell Motorola Home, the set-top box division of MM, to Arris Group in a cash and stock transaction valued at $2.35 billion. Arris, a manufacturer of cable television equipment that counts Comcast and Time Warner among its top customers, will gain access to approximately 2,000 Motorola patents upon completion of the deal, which, according to analysts, should enable Arris to boost its sales threefold to about $4.7 billion. For Google, the agreement offers the opportunity for the web search giant to offload a non-core business that was acquired through the MM deal, thus enabling Google to concentrate on the development of MM’s treasure trove of 17,000 wireless and other patents for new smart phone products based on Google’s Android operating system. Through the transaction, Google will receive $2.05 billion in cash from Arris, plus $300 million in Arris stock that will give Google a 15.7% stake in Arris upon closing. Arris will also be given the right to license MM patents that are currently owned by Google. The agreement is also reported to contain provisions that cap Arris’s potential liability for patent infringement claims that pertain to Motorola Home. (In one high profile case that remains to be decided, digital video recording pioneer TiVo has accused Motorola and Cisco Sy stems of violating various TiVO patents in the design of their set-top boxes.) Expressing confidence that “ever-expanding consumer demand for bandwidth will continue to drive growth across cloud and network technologies we provide,” Arris CEO Bob Stanzione described the Motorola Home acquisition as “a transformational deal” that “[ensures] we are even better positioned to capitalize on and manage the evolution toward multi-screen home entertainment.”

Deutsche Telekom Chief to Step Down

In a surprise development, Rene Obermann announced that he will step down as CEO of Deutsche Telekom (DT) at the end of 2013 to take a leadership position at an undisclosed smaller company where he would have the opportunity to “work closer to the engine room.” Obermann, 49, will leave DT after 17 years with the company. He became the youngest

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CEO of a major German corporation when he assumed the reins of power at DT in 2006 and will be succeeded by Timotheus Hottges, the current finance director of DT. During his six year tenure at the DT helm, Obermann orchestrated the merger of the British wireless units of DT and France Telecom and play ed a lead role in crafting T-Mobile USA’s planned acquisition of MetroPCS. In perhaps his boldest move, Obermann also helped to craft the proposed sale of T-Mobile USA to AT&T last year in a multibillion dollar transaction that was ultimately withdrawn as a consequence of regulatory opposition. Speaking to reporters, Hottges promised to continue Obermann's strategy of investing in both the United States and Germany as DT works to achieve robust revenue growth within Europe’s financially volatile economic sector. A spokesman for the German government, which holds a 32% stake in DT, welcomed Hottges’s appointment, asserting: "the chief strategist . . . becoming the new captain indicates that the course will be held.”

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For information about any of these matters, please contact Patrick S. Campbell (e-mail: pcampbell@paulweiss.com) in the Paul, Weiss Washington office. To request e-mail delivery of this newsletter, please send your name and e-mail address to telecom@paulweiss.com. (No. 2012-52)

*A HAPPY AND PROSPEROUS 2013 TO ALL*