[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 1996,1 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),2 such as Bellcore, when these
organizations promulgate industry-wide 3 standards and generic
requirements 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.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.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.'' 7 In the event of disputes on technical issues, the
NASDOs and funding parties must also attempt to develop a dispute
resolution process.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.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.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.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.12 In
addition, we invited commenters to submit alternative proposals to
implement this statutory provision.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.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.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.'' 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.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.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.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.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.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.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.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.'' 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.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.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.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.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.'' 29 ATIS further stated
that its Committee T1, which develops standards for network interfaces,
could not accommodate the statutorily mandated 30 day resolution
period.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.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.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.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.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.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.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.) 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.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.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* * *.'' 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.'' 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.'' 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).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.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.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.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.''
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.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.49
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\48\ Reply comments of TIA at 2.
\49\ Reply comments of Corning at 12.
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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.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.'' 51 TIA
suggests that parties could meet this requirement by posting a
performance bond.52
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\50\ Id.
\51\ Comments of TIA at 3-4.
\52\ Id.
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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 .''* * * 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.54
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\53\ Reply comments of Bellcore at 10-11.
\54\ Id. at 7-9.
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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.55 Another party referred us to the
standards used by federal courts to determine whether complaints are
filed in good faith.56 Another commenter questioned whether we
need to assess the motive of the disputant if the claim has no
legitimate basis.57
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\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.
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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.'' 58 The NPRM also sought
comment on whether procedural protections were necessary to protect the
party subject to the dispute.59 In this connection, commenters
were asked to consider whether there should be a citation and
subsequent misconduct before the assessment of such forfeitures.60
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\58\ 61 FR 9967 at para.8.
\59\ Id.
\60\ Id.
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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.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.'' 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'' 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.'' 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.'' 65
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\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.
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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.66 Bellcore, in response, believes
Corning's request is premature.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.
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\66\ Comments of Corning at 16.
\67\ Comments of Bellcore at 24.
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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
