Currency

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By Jennifer Pilla Taylor

Phone Subsidy Scramble

The Federal Communications Commission is in the midst of a reform effort that could dramatically alter the ways billions of dollars in subsidies for rural telephone service are distributed each year.

 

FCC Chairman Julius Genachowski announced in February that the agency wanted to overhaul part of the Universal Service Fund—which seeks to make affordable telecommunications service available everywhere in the United States—and the related intercarrier compensation system. The reforms will aim at making the programs more efficient and fair, as well as putting greater emphasis on expanding broadband (rather than only telephone) access.

 

The Universal Service Fund spends more than $4 billion a year to help ensure affordable communications service in areas where it might otherwise be too costly for consumers, says Patton Boggs partner Matthew Berry, a former FCC general counsel. And it's estimated that through intercarrier compensation up to $8 billion a year changes hands between telephone service providers, with smaller companies benefiting the most. As a result, there's intense interest in any potential changes in the way those programs are operated.

 

Small rural telephone carriers fear they have the most to lose, says Berry, and many wireless providers are concerned that their subsidies for service in rural areas will decrease as well. But telecom giants such as AT&T and Verizon, which pay the most into the system, are generally supportive of reforms.

 

"Because there are so many varied and powerful interests involved, "Berry says, "reform will be difficult." But the FCC has reportedly set an ambitious timetable that would have it issuing a reform order by August. If it fails to do so by the end of this year, the window of opportunity might close in 2012.

 

"It's a politically charged process," says Berry. "I think it will be difficult to accomplish this in an election year."

 

 

Patents—and Products—Under Threat

 

A lower court ruling that cast doubt on the validity of thousands of patents granted over the last few decades—including those for widely used medicines such as antibiotics—could be headed to the U.S. Supreme Court.

 

Many legal commentators believe the Court of Appeals for the Federal Circuit will reverse a 2010 lower court decision that struck down patents on two genes linked to breast and ovarian cancer. Whatever the Federal Circuit's decision, however, it's expected to be merely a stage-setter for a Supreme Court appeal, says Patton Boggs partner Scott Chambers.

 

When the American Civil Liberties Union joined in 2009 with several individual patients and medical organizations to file the suit against patent holder Myriad Genetics, many predicted it would be thrown out. But District Court Judge Robert Sweet shocked many intellectual property experts when he ruled the patents invalid because genes, he ruled, are "products of nature." The defendants argued that the work of isolating and purifying the DNA transforms it to such an extent that it makes it patentable—and patents have been granted on that basis for a considerable period of time. Indeed, one of the oldest biotechnology patents, issued to Louis Pasteur in 1873, was related to purified yeast. Judge Sweet said the genes in question had not been sufficiently transformed so as to be patentable.

 

If upheld, the decision could call into question the validity of patents on agricultural DNA sequences, proteins, biologic drugs, antibiotics and other "products of nature," says Chambers.

 

 

The Free Trade Bottleneck

 

The biggest free trade agreement since NAFTA is stuck in limbo because of a conflict between the White House and Congress over a program to assist workers, firms and communities adversely affected by imports called Trade Adjustment Assistance, says Patton Boggs partner Frank Samolis.

 

There's broad support for a pact with South Korea, which could boost U.S. exports to that country by as much as $11 billion, according to the U.S. International Trade Commission. But Republican congressional leaders say they won't ratify it unless the White House also takes action regarding free trade agreements with Colombia and Panama.

 

All three agreements were negotiated and signed several years ago by the Bush administration. South Korea's was altered late last year after the current administration negotiated for expanded access to South Korean markets for U.S. automakers. Labor leaders have voiced concerns over the Latin American agreements, however, so both Republican and Democratic members of Congress have said they want to know what the administration's plans are for them before they vote on South Korea.

 

Complicating matters further is a debate over renewal of TAA, with Democrats insisting on a deal to reauthorize it as part of the broader agreement to take up votes on all three agreements and Republicans arguing that renewal of the 2009 version of TAA is not possible.

 

Of the three agreements, South Korea's is by far the most significant to the U.S. South Korea is this country's seventh-largest trading partner; neither Colombia nor Panama make the top 15. South Korea's aggressive pursuit of pacts with other trading partners could put pressure on U.S. officials to act. "Once [a pact with the European Union] goes into effect (on July 1], and if there is still no action on the U.S.-Korea agreement, we're going to see a lot of business lost by the U.S. to the Europeans," says Samolis.

 

 

Regulators are Lending Their Ears

 

The Labor Department's recent decision to delay enforcement of one provision of the health care reform plan indicates that regulators are open to outside input on the implementation of big initiatives, says Patton Boggs partner Rosemary Becchi.

 

Last year, Becchi and others approached labor regulators with questions about how and when they would implement a requirement that employers automatically enroll all full-time employees in their health insurance plan. Together, they went to Capitol Hill for guidance.

 

"What we found is that we were able to start a conversation between the regulators and Congress," Becchi says. The result: Automatic enrollment won't be enforced until the Labor Department is able to formulate more specific guidelines.

 

Over the next several years, expect many such conversations. The good news is that the government seems willing to let the people most affected by those provisions have a voice. "Given the political environment, regulators are being very cautious," says Becchi, who has worked for both the IRS and the Senate Finance Committee. "I've found that they are taking their time, being very methodical and really trying to do this right."

 

 

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