Thursday, April 26, 2012

Reps. Stearns and Matsui Introduce Bill Requiring the Auction of the 1755-1780 MHz Band for Mobile Broadband Use to Help Solve the Current "Spectrum Crunch"

Today, two key members of the House Energy and Commerce Committee's Subcommittee on Communications and Technology, Reps. Cliff Stearns (R-FL) and Doris Matsui (D-CA), introduced H.R. 4817, the "Efficient Use of Government Spectrum Act."  Press reports suggest that the legislation may serve to "put pressure on the administration to do more than just talk about meeting President Obama's pledge to free up 500 megahertz of spectrum over the next decade."

The language in H.R. 4817 is very similar to a provision requiring the auctioning of the 1755-1780 MHz sub-band for mobile broadband use within three years, which passed in the House of Representatives in December 2011, but was removed by Senate conferees at the 11th hour of the House-Senate conference negotiations over the spectrum legislation enacted in February 2012. The introduction of H.R. 4817 also follows the long-delayed release in late March 2012 of a generally disappointing report by the NTIA on the potential repurposing of the larger 1755-1850 MHz band -- which contains one-third fewer Federal agency frequency assignments today than in 2000 -- and auctioning it for mobile broadband use. In addition, the leadership of the House Energy and Commerce Committee's Subcommittee on Communications and Technology announced yesterday that they have estiblished a bipartisan Federal Spectrum Working Group to look into how efficiently the Federal government is using its spectrum allocations and whether blocks of Federal government spectrum can be reallocated and auctioned for commercial broadband use.   

Basically, H.R. 4817 would require the 1755-1780 MHz sub-band to be paired with the FCC's AWS-3 (2155-2180 MHz) block and auctioned within three years of February 22, 2012 (i.e., the date of enactment of the pay roll tax holiday conference report). And, the President would be required to clear the 1755-1780 MHz sub-band within 5 years unless an "operational impact assessment" shows that relocation of a particular government assignment is not possible "without jeopardizing essential military capability." (In that regard, it is worth noting that Rep. Stearns has a degree in electrical engineering and served in the U.S. Air Force as an aerospace engineer in satellite reconnaissance.)  Even if the sub-band is unable to be fully cleared in certain areas because an assignment is needed for an "essential military capability" in the United States, efforts must be made to share the spectrum. Of course, Federal agencies would be fully reimbursed for the costs associated with clearing and relocating any equipment from the spectrum. 

If H.R. 4817 is enacted and the paired 50 MHz block of spectrum can be auctioned and put into use in the near term, it would go a long way toward lessening the current "spectrum crunch" facing many mobile broadband providers and consumers.

If you have any questions regarding issues related to government spectrum reallocation or any other activity in Congress that could impact the telecommunications, media and technology sectors, please contact Vance Schuemann or any other member of the TLP team.

Wednesday, April 25, 2012

Bipartisan Federal Spectrum Working Group Created by the House Energy and Commerce Committee After the Release of the Disappointing NTIA Report on Repurposing the 1755-1850 MHz Band for Mobile Broadband Use

Today, Reps. Greg Walden (R-OR) and Anna Eshoo (D-CA), the Chairman and Ranking Member of the House Energy and Commerce Committee's Subcommittee on Communication and Technology, announced the creation of a "bipartisan Federal Spectrum Working Group to examine how the federal government can use the nation's airwaves more efficiently."

While Reps. Brett Guthrie (R-KY) and Doris Matsui (D-CA) will co-chair the Working Group, Subcommittee Chairman Walden and Ranking Member Eshoo will serve as ex-officio members. The other members of the Working Group are Reps. John Shimkus (R-IL), Mike Rogers (R-MI), Steve Scalise (R-LA), Diana DeGette (D-CO), John Barrow (D-GA), and Donna Christensen (D-VI).

The creation of the Working Group comes after the long-delayed release in late March 2012 of a disappointing report by the National Telecommunications and Information Administration (NTIA) regarding the repurposing of Federal government spectrum in the 1755-1850 MHz band for commercial mobile broadband use. While the data in the NTIA's March 2012 report clearly indicates that there are about one-third (1600) fewer Federal government frequency assignments in the 1755-1850 MHz band than there were about a decade ago (when the NTIA released a similar report on the same band in November 2000), the NTIA argued that "there are several challenges that need to be met before making a formal recommendation to the Federal Communications Commission (FCC)" about repurposing the entire 95 MHz, including the important 1755-1780 MHz sub-band. Moreover, while the report proposed "convening discussions between industry and the relevant federal agencies" in order to address the "challenges," the NTIA failed to even provide a deadline for making such a recommendation to the FCC. 

The 1755-1780 MHz sub-band is especially critical since it can help solve the current "spectrum crunch" facing many mobile providers because the sub-band can be paired with FCC's AWS-3 block to create a 50 MHz block of spectrum that can be to auctioned in the near-term for mobile broadband use.  Indeed, the House of Representatives actually passed legislation in December 2011 that contained language drafted by Subcommittee Chairman Walden that would have required the 1755-1780 MHz sub-band to be auctioned for mobile broadband use within three years, but the 1755-1780 MHz language was stripped out of the
House-Senate conference report containing major spectrum legislation, which became law on February 22, 2012.

Subcommittee Walden stated the following regarding the Working Group:

Spectrum is the fundamental building block of the wireless ecosystem. This precious and finite resource drives the technologies that are integral to our 21st century economy. As the largest single spectrum user, the federal government could save taxpayers money and provide its own agencies better technology tools while simultaneously making more frequencies available to meet America’s exploding demand for mobile broadband services. This working group will take a comprehensive, thoughtful, and responsible look at how to improve federal spectrum use as part of our ongoing effort to make the most efficient and effective use of the public's airwaves.

And, Ranking Member Eshoo stated that:

Spectrum is the key ingredient for faster, more ubiquitous wireless broadband, spurring unprecedented growth in new online applications and services. We need a comprehensive approach to spectrum policy, including an examination of how the federal government uses it. The working group will be tasked with examining ways in which we use spectrum and how we can use it more efficiently.

Since 2008, members of the TLP team have been advocating on behalf of TLP's clients concerning the need to resolve the current "spectrum crunch," and TLP continues to push for the repurposing of unused government spectrum. If you have any questions regarding issues related to government spectrum reallocation or any other activity in Congress that could impact the telecommunications, media and technology sectors, please contact Vance Schuemann or any other member of the TLP team.

Friday, April 20, 2012

FCC Releases Final Agenda for Open Commission Meeting - April 27, 2012

The Commission has released the final agenda for the Open Commission Meeting on Friday, April 27, 2012:

Empowering Consumers to Prevent and Detect Billing for Unauthorized Charges ("Cramming") (CG Docket No. 11-116); Consumer Information and Disclosure (CG Docket No. 09-158) and Truth-in-Billing and Billing Format (CC Docket No. 98-170)
  • The Commission will consider a Report and Order and Further Notice of Proposed Rulemaking that protects consumers by adopting and proposing additional rules to help consumers prevent and detect the unlawful and fraudulent placement of unauthorized charges on their telephone bills.
Noncommercial Educational Station Fundraising for Third-Party Non-Profit Organizations
  • The Commission will consider a Notice of Proposed Rulemaking inviting comment on whether to allow noncommercial educational broadcast stations to conduct on-air fundraising activities that interrupt regular programming for the benefit of third-party non-profit organizations.
Standardized and Enhanced Disclosure Requirements for Television Broadcast Licensee Public Interest Obligations (MM Docket No. 00-168) and Extension of the Filing Requirement for Children’s Television Programming Report (FCC Form 398) (MM Docket No. 00-44)
  • The Commission will consider a Second Report and Order that increases transparency and improves public access to community-relevant information by moving the television broadcast station public file from paper to the internet.
Innovation in the Broadcast Television Bands: Allocations, Channel Sharing and Improvements to VHF (ET Docket No. 10-235)
  • The Commission will consider a Report and Order establishing a regulatory framework for channel sharing among television licensees in connection with an incentive auction of spectrum.
Universal Service Contribution Methodology (WC Docket No. 06-122) and A National Broadband Plan for Our Future (GN Docket No. 09-51)
  • The Commission will consider a Further Notice of Proposed Rulemaking seeking comment on proposals to reform and modernize how Universal Service Fund contributions are assessed and recovered.

The Meeting will begin at 10:30 a.m. and may be streamed live here.

Please feel free to contact the TLP Team if you have any questions.

House to Vote on Cybersecurity Legislation the Week of April 23rd

House Speaker Boehner (R-OH) has announced that the House will be considering the following cybersecurity bills next week.

  • Cyber Intelligence Sharing and Protection Act (H.R. 3523), introduced by Intelligence Committee Chairman Mike Rogers (R-MI), will help private sector job creators defend themselves from attacks from countries like China and Russia by allowing the government to provide the intelligence information needed to protect their networks and their customers’ privacy. The bill also provides positive authority to private-sector entities to defend their own networks and to those of their customers, and to share cyber threat information with others in the private sector, as well as with the federal government on a purely voluntary basis.

  • Federal Information Security Amendments (H.R. 4257), introduced by Oversight & Government Reform Committee Chairman Darrell Issa (R-CA), will enhance the Federal Information Security Management Act (FISMA) by improving the framework for securing information technology of federal government systems. It also establishes a mechanism for stronger oversight of information technology systems by focusing on “automated and continuous monitoring” of cybersecurity threats and regular “threat assessments and reaffirms the role of OMB with respect to FISMA, recognizing that the budgetary leverage of the Executive Office of the President is necessary to ensuring effective security over information technology systems.

  • Cybersecurity Enhancement Act (H.R. 2096), introduced by Rep. Mike McCaul (R-TX), will improve coordination of research and related activities conducted across the federal agencies to better address evolving cyber threats. The bill strengthens the efforts of the National Science Foundation (NSF) and the National Institute of Standards and Technology (NIST) in the areas of cybersecurity technical standards and cybersecurity awareness, education, and talent development.

  • Advancing America’s Networking and Information Technology Research and Development (NITRD) Act (H.R. 3834), introduced by Science, Space, and Technology Chairman Ralph Hall (R-TX), reauthorizes the NITRD program, which represents the federal government’s central R&D investment portfolio for unclassified networking, computing, software, cybersecurity, and related information technology and involves 15 member agencies. In the area of cybersecurity, the NITRD program focuses on R&D to detect, prevent, resist, respond to, and recover from actions that compromise or threaten to compromise the availability, integrity, or confidentiality of computer-and network-based systems.


  • H.R. 4257, H.R. 2096 and H.R. 3834 will be considered on the House floor on Thursday under suspension of the House rules, and H.R. 3523 will be considered on Friday pursuant to a procedural rule for debate and amendments, which will be determined by the House Rules Committee.

    Should you have any questions regarding the House cybersecurity bills or any other legislative activity that could impact the telecommunications, media and technology sectors, please contact Vance Schuemann or another TLP team member.

    Senate Commerce Committee to Hold Hearing on Online Video Issues

    The Senate Commerce Committee has announced that it will be holding a hearing entitled “The Emergence of Online Video: Is It The Future?” on Tuesday, April 24, 2012, at 10:00 am. The hearing will "explore the migration of viewing from traditional television to Internet and broadband-enabled video content" as well as "examine the role that disruptive technologies play in facilitating this transition, and the business and legal models that foster the growth of this sector." 

    Appearing as witnesses at the hearing will be: Mr. Barry Diller, Chairman and Senior Executive of  IAC; Mr. Paul Misener, Vice President for Global Public Policy at Amazon.com; Ms. Susan Whiting, Vice Chairman of The Nielsen Company; and Mr. Blair Westlake, Corporate Vice President, Media & Entertainment Group at Microsoft Corporation. Of course, it is interesting that someone from the video content production industry is not on the witness list for the hearing.

    The hearing could cover issues related to net neutrality regulations and data usage caps, a la carte video offerings and the cost of television programming, as well as facilitating TV broadcasters' participation in incentive auctions. Moreover, the hearing may cover issues surrounding cable must-carriage and retransmission consent regulations as well as the different regulation of video services over various platforms. Such issues will likely be hotly debated in Congress over the next couple years. For example, Senator DeMint (R-SC) and Rep. Scalise (R-LA) have already introduced legislation in the Senate and House (S. 2008 and H.R. 3675, the "Next Generation Television Marketplace Act") which would reform the regulation of video services.

    Should you have any questions regarding the Senate Commerce Committee hearing or any other legislative activity that could impact the telecommunications, media and technology sectors, please contact Vance Schuemann or another TLP team member.

    House passes H.R. 9, the Small Business Tax Cut Act

    On Thursday, April 19, 2012, the House of Representatives passed H.R. 9, the "Small Business Tax Cut Act," by a roll call vote of 235 to 173—despite a warning from the Administration that senior advisors in the White House would recommend that President veto the bill.

    According to the bill's House Committee report, H.R.9, if enacted, "effectively reduces the Federal income tax rate for U.S. small businesses with fewer than 500 employees—regardless of whether they are organized as passthroughs or as C corporations—by providing a deduction of up to 20 percent of qualified domestic business income….Moreover, the bill provides an incentive for businesses to hire workers by relating the tax benefit to the amount of W–2 wages the business pays (with the amounts of its deduction potentially increasing as its W–2 wage base increases),and allows the service income of partners with small ownership stakes to qualify for this limit."

    Even though H.R. 9 passed in the House by a reasonably large margin, the Senate is unlikely to consider the measure during this election year.

    If you have any questions regarding H.R. 9 or any other legislative activity that could impact the telecommunications, media and technology sectors, please contact Vance Schuemann or another TLP team member.

    Thursday, April 19, 2012

    FCC Launches New 'Bill Shock' Website

    The FCC just launched its new Bill Shock website that tracks the implementation of wireless carriers’ bill shock commitments – such as voice, data and text usage alerts.  Last October, the Commission, along with CTIA, announced a program to combat bill shock that would provide free alerts for wireless consumers as they approach monthly voice, data and text limits, and after those limits have been exceeded.  This new website will provide program information to consumers about when carriers will begin providing these alerts.

    To read the FCC's announcement, click here.


    Please feel free to contact the TLP Team if you should have any questions.

    Wednesday, April 18, 2012

    Verizon Wireless to Conduct Spectrum License Sale; Stephens Inc. to Manage Offering Process

    From PRNewswire:

    Verizon Wireless today announced plans to conduct an open sale process for all of its 700 MHz A and B spectrum licenses in order to rationalize its spectrum holdings.  The licenses cover dozens of major cities across the country, as well as a number of smaller and rural markets.

    Verizon Wireless obtained the 700 MHz A and B licenses, as well as nationwide 700 MHz upper C licenses (with the exception of Alaska which has since been acquired), in FCC Auction 73 in 2008.  Verizon Wireless is deploying its 4G LTE network, which currently covers more than 200 million people, on its nationwide 700 MHz upper C spectrum.  If Verizon Wireless is successful in acquiring additional AWS (Advanced Wireless Services) spectrum licenses, it will use AWS spectrum in conjunction with its 700 MHz upper C band spectrum to deploy additional LTE capacity.  

    Accordingly, the sale of the A and B licenses is contingent on the close of Verizon Wireless' pending purchases of AWS licenses from SpectrumCo (an entity jointly owned by Comcast, Time Warner Cable, and Bright House Networks), Cox and Leap Wireless. These transactions are at varying stages of review by the Federal Communications Commission (FCC) and the Department of Justice (DOJ) and are expected to close by mid-summer. 

    The company is announcing the sale plans now and will begin the process of soliciting interest from potential buyers to ensure the process can move forward quickly once the AWS license transfers have been completed. 

    "Since wireless operators, large and small, have expressed concern about the availability of high-quality spectrum, we believe our 700 MHz licenses will be attractive to a wide range of buyers," said Molly Feldman, vice president of Business Development for Verizon Wireless.  "Moreover, provided our acquisition of AWS spectrum is approved, our open sale process will ensure these A and B spectrum licenses are quickly and fairly made available for the benefit of other carriers and their customers."
    Stephens Inc., a nationally recognized, independent financial services firm based in Little Rock, Arkansas, has been engaged to manage the offering process.  Interested parties may contact Stephens Inc. at vz_spectrum@stephens.com or 501-377-8134.  Stephens Inc. will later release information about efforts to reach out to potential bidders, including minority-owned and female-owned businesses, to participate in the process.  All sales will be subject to applicable regulatory approvals.

    About Verizon Wireless
    Verizon Wireless operates the nation's largest 4G LTE network and largest, most reliable 3G network. The company serves nearly 108 million total wireless connections, including 92.2 million retail customers.  Headquartered in Basking Ridge, N.J., with nearly 82,000 employees nationwide, Verizon Wireless is a joint venture of Verizon Communications (NYSE, NASDAQ: VZ) and Vodafone (LSE, NASDAQ: VOD). 

    For more information, visit www.verizonwireless.com. To preview and request broadcast-quality video footage and high-resolution stills of Verizon Wireless operations, log on to the Verizon Wireless Multimedia Library at www.verizonwireless.com/multimedia.


    If you have any questions regarding Verizon's spectrum licenses sale, please feel free to contact the TLP Team.

    Monday, April 16, 2012

    FCC Issues Google, Inc. Notice of Apparent Liability and Foreiture for Street View Project

    On Friday, Google Inc. ("Google") was issued a Notice of Apparent Liability and Forfeiture (the "Order") which levies a $25,000 fine on the Company for “deliberately imped[ing] and delay[ing]” FCC inquiry into certain practices involved with Google’s Street View project.  As part of the Street View project, Google collected data from Wi-Fi networks throughout the country and around the world.  During this data collection, Google obtained information that could help establish users’ locations and provide location-based services, but also collected ‘payload’ data, or the content of Internet communications, that was not necessary for its location database project (i.e., e-mails, text messages, passwords and other highly sensitive personal information).  Once the FCC learned of the payload data collection, it launched an official investigation as to whether Google’s data collection practices violated Section 705(a) of the Act.  In the Order, the FCC finds that Google “apparently willfully and repeatedly violated Commission Orders to produce certain information and documents that the Commission required for its investigation.”  As a result of this violation, Google has been ordered to pay the $25,000 fine by May 13, 2012.
    Please feel free to contact the TLP Team should you have any questions.   

    Monday, April 9, 2012

    FCC Announces Tentative Agenda for April Open Meeting

    The Commission has released the following tentative agenda for the Open Meeting on Friday, April 27, 2012 at 11:00 a.m.:

    Billing for Unauthorized Charges (“Cramming”) Report and Order and Further Notice of Proposed Rulemaking:
    ·    The Commission will consider a Report and Order and Further Notice of Proposed Rulemaking that protects consumers by adopting and proposing additional rules to help consumers prevent and detect the unlawful and fraudulent placement of unauthorized charges on their telephone bills.

    Noncommercial Educational Station Fundraising for Third-Party Non-Profit Organizations Notice of Proposed Rulemaking:
    ·    The Commission will consider a Notice of Proposed Rulemaking inviting comment on whether to allow noncommercial educational broadcast stations to conduct on-air fundraising activities that interrupt regular programming for the benefit of third-party non-profit organizations.

    Enhanced Disclosure Requirements for Television Stations Report and Order:
    ·    The Commission will consider a Report and Order that increases transparency and improves public access to community relevant information by moving the television broadcast station public file from paper to the internet.

    Innovation in the Television Bands Report and Order:
    ·    The Commission will consider a Report and Order establishing a regulatory framework for channel sharing among television licensees in connection with an incentive auction of spectrum.

    Universal Service Fund Contributions Notice of Proposed Rulemaking:
    ·    The Commission will consider a Further Notice of Proposed Rulemaking seeking comment on proposals to reform and modernize how Universal Service Fund contributions are assessed and recovered.

    Tuesday, April 3, 2012

    NTIA Releases Report on Repurposing Government Spectrum in the 1755-1850 MHz Band for Mobile Broadband Use; Nearly One-Third Fewer Government Assignments in Band Compared to a Decade Ago

    On March 27, 2012, the Department of Commerce's National Telecommunications and Information Administration ("NTIA") finally released its long awaited report entitled, "An Assessment of the Viability of Accommodating Wireless Broadband in the 1755-1850 MHz Band," which many had expected to be released back in October 2011.

    While the report indicates that it may be possible to reallocate all 95 MHz of the spectrum in the 1755-1850 MHz band for commercial wireless broadband use, the NTIA argues that "there are several challenges that need to be met before making a formal recommendation to the Federal Communications Commission (FCC)."  As such, the "NTIA proposes convening discussions between industry and the relevant federal agencies under the auspices of the Commerce Spectrum Management Advisory Committee, with the goal of finding ways to work together through sharing or other means to reduce the time and expense of repurposing the 1755-1850 MHz band, while maintaining essential Federal capabilities and maximizing commercial utilization."  Unfortunately, the NTIA report does not provide a deadline for making a recommendation to the FCC.

    Importantly, the March 2012 report indicates that there are about one-third fewer Federal government frequency assignments in the 1755-1850 MHz band than there were about a decade ago when the NTIA released a similar report on the same band in November 2000.  While the November 2000 NTIA report stated that were 4,869 frequency assignments to 25 agencies in the 1755–1850 MHz band, the March 2012 NTIA report states that now only 20 agencies utilize around 3,100 frequency assignments. Of course, a single assignment may cover numerous pieces of equipment, but the fact is that there are over 1600 fewer assignments today than there were in 2000.  Moreover, the November 2000 NTIA report indicated that "the average growth of new assignments in the 1755–1850 MHz band is about 300 assignments per year," which was an estimate that clearly was way off the mark even in light of the relocation of Federal users from the AWS spectrum that was auctioned by the FCC in the middle of the last decade.

    For the wireless industry, the March 2012 NTIA report is somewhat disappointing, especially with regard to the timeline for the potential auctioning and clearing of the 1755-1780 MHz sub-band. The House of Representatives actually passed legislation in December 2011 that contained language that would have required the 1755-1780 MHz sub-band to be auctioned for commercial broadband use within three years, but the 1755-1780 MHz language was stripped out of the House-Senate conference report containing major spectrum legislation, which became law on February 22, 2012. The 1755-1780 MHz sub-band is critical since it can help solve the current "spectrum crunch" facing many wireless providers because the sub-band can be paired with FCC's AWS-3 block to create a 50 MHz block of spectrum that can be to auctioned in the near-term for commercial mobile broadband use.

    Nevertheless, there does seem to be a ray of hope in the NTIA report regarding the 1755-1780 MHz subband. As FCC Chairman Genachowski stated, "[t]he lower 25 megahertz in the 1755-1780 MHz band, where there appears to be a viable path forward for mobile broadband, presents a near-term opportunity to free up spectrum that can help drive U.S. economic growth and our global competitiveness."

    In addition, Rep. Walden (R-OR), the Chairman of the House Energy and Commerce Committee's Subcommittee on Communications and Technology (which has authority over both the NTIA and FCC), has stated that his Subcommittee will be holding hearings, and potentially creating a task force, to identify blocks of spectrum currently allocated to the Federal government that can be repurposed for mobile broadband use.  Upon the release of the March 2012 NTIA report, Chairman Walden stated that he appreciated all of the hard work that produced the report and "look[s] forward to a robust discussion of its contents as we consider reallocating government spectrum."

    Since 2008, members of the TLP team have been advocating on behalf of TLP's clients concerning the need to resolve the current "spectrum crunch," and TLP continues to push for the repurposing of unused government spectrum.  If you have any questions regarding issues related to government spectrum reallocation, please contact Vance Schuemann or any other member of the TLP team.

    Monday, April 2, 2012

    President Obama to Sign H.R. 3606, the "Jumpstart Our Business Startups (JOBS) Act"; Summary of the JOBS Act

    President Obama is expected to sign H.R. 3606, the "Jumpstart Our Business Startups (JOBS) Act," into law on Thursday, April 5, 2012. The legislation is a package of bipartisan proposals that were assembled by House Majority Leader Cantor (R-VA) to help startups and other small businesses gain access to capital, mainly by limiting regulation. H.R. 3606, as amended, passed by overwhelming majorities in both the House and Senate.

    Below is a summary of the Senate amendment and the highlights of H.R. 3603 as prepared by the RSC. Please contact the TLP team if you have any questions about the legislation.

    ---

    H.R. 3606 was amended in the Senate with the following changes:
    • The legislation exempts from SEC registration requirements those non-publicly traded crowdfunding transactions in which up to $1 million in securities are sold. The House-passed version allowed up to $2 million to be raised through crowdfunding transactions if the issuer provided potential investors with audited financial statements. The bill requires the SEC to adjust the dollar amount at least every five years.
    • Under the Senate Amendment, individuals can invest through a company's crowdfunding effort the greater of $2,000 or 5% of the individual contributor's annual income, if the contributor's net worth or annual income is less than $100,000. If the individual's net worth or annual income is $100,000 or more, that individual is allowed to invest up to 10% of his or her annual income or net worth, not to exceed $100,000. The House-passed version allowed individual investment of the lesser of $10,000 or 10% of annual income, regardless of net worth or annual income.
    • The Senate amendment requires any intermediary used in crowdfunding solicitations and transactions, such as a broker, to take certain actions that differ from requirements in the House-passed version of the bill. Specifically, the broker must:
      • Register with the SEC and any applicable self-regulatory organization.
      • Disclose risks, provide other investor-education materials and ensure each investor reviews the investor-education material and demonstrates an understanding of the risk associated.
      • Prevent fraud, specifically by obtaining a background and securities enforcement regulatory history check on each officer and individual holding more than 20% of the outstanding equity of each issuer.
      • Ensure no investor has purchased more than the aggregate amount allowed through crowdfunding.
      • Protect the privacy of information collected from investors and not compensate promoters, finders or lead generators for the personal identifying information of any potential investor.
      • Prohibit its directors, officers or partners from having any financial interest in an issuer using its services.
      • Meet any other requirements the SEC may prescribe by rule.
      • The measure also requires certain actions from issuers using crowdfunding transactions (These requirements differ from requirements in the House-passed version of the bill).
    • The Senate amendment also explicitly requires that issuers must file with the SEC and make available to investors and brokers:
      • The issuer's contact information as well as the names of the directors, officers and individuals holding more than 20% of the shares.
      • A description of the business, the anticipated business plan, the financial condition of the issuer, and the ownership and capital structure of the issuer.
      • A description of the purpose and use of the proceeds of the offering, the target offering amount, deadline to reach that amount and updates on the progress.
      • The price to the public or the method for determining the price.
      • Annual reports of the results of operations and financial statements.
      • Any other information the SEC prescribes by regulation.
    • The Senate amendment allows for a crowdfunding investor to bring action against an issuer to recover the amount paid, or damages, plus interest. An issuer is liable if the issuer makes an untrue statement or omits a material fact. The issuer is also responsible for sustaining the burden of proof that he or she did not know about the untruth or omission.
    • The Senate amendment prohibits investors from selling securities purchased through crowdfunding for one year, unless the securities are sold back to the issuer, to an accredited investor or as part of an offering registered with the SEC. The securities may also be transferred to a family member in connection with death or divorce. The House-passed version of the bill only allowed for resale to the issuer or an accredited investor.
    • Lastly, the Senate bill requires the SEC, within 270 days of enactment, to issue such rules as are necessary for implementing the crowdfunding transactions. The amendment also requires, within 270 days of enactment, the SEC must issue rules that disqualify from crowdfunding certain issuers, brokers or funding portals. The House-passed version of the bill required regulations to be written within 90 days.
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    Summary
    H.R. 3606 increases American job creation and economic growth by improving access to the public capital markets for emerging growth companies. The legislation is intended to promote the growth and capitalization of small businesses by reducing reporting and registration requirements by the Securities Exchange Commission (SEC), and clarifying conditions under which issuers of securities may advertise to potential investors. The legislation also defines the conditions under which businesses may use "crowdfunding" to raise capital from investors.

    Highlights of the legislation are listed below which includes the texts of the five other bills.

    Reopening American Capital Markets to Emerging Growth Companies

    H.R. 3606 amends the Securities Act of 1933 and the Securities Exchange Act of 1934 to establish a new category of issuers known as "Emerging Growth Companies" (EGCs) which are issuers that have total annual gross revenues of less than $1 billion. An issuer that is an EGC as of the first day of a fiscal year shall continue to be deemed an EGC until: (1) the last day of the fiscal year during which the issuer had $1 billion in annual gross revenues or more; (2) the last day of the fiscal year following the fifth anniversary of the issuer's initial public offering date; or (3) the date in which the issuer is deemed to be a "large accelerated filer," defined by the U.S. Securities and Exchange Commission (SEC) as an issuer with more than $700 million in public float.

    The legislation defines the "initial public offering date" as the date of the first sale of common equity securities of an issuer pursuant to an effective registration statement under the Securities Act of 1933. The legislation establishes the effective date for the bill as December 8, 2011, so a company could be classified as an emerging growth company only if its IPO occurred after that date. The legislation allows EGCs to defer compliance with Section 404(b) of the Sarbanes-Oxley Act of 2002 until the company is no longer considered an EGC. Instead, emerging growth companies must comply with the lesser standards currently applied to companies that have a market capitalization of no more than $75 million.

    H.R. 3606 exempts EGCs from Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203), which requires publicly-traded companies to hold a non-binding shareholder vote at least once every three years on executive compensation and a shareholder vote on executive severance payments known as "golden parachutes." The bill exempts EGCs from Section 953(b) of the Dodd-Frank Act, which requires publicly-traded companies to disclose in every SEC filing the ratio of the CEO's compensation to the median compensation of all other employees. This legislation also requires an issuer that loses its EGC status before its second anniversary as a public company to comply with the Dodd-Frank Act's executive compensation disclosure requirements described above starting in its third year of being a public company. Lastly, the bill requires an issuer that loses its EGC status after its second anniversary as a public company to comply with the Dodd-Frank Act's executive compensation disclosure requirements beginning in the fiscal year after losing its status.

    The legislation amends the Securities Act of 1933 to permit the publication or distribution by a broker or dealer of a research report about an EGC that is the subject of a proposed public offering, even if the broker or dealer is participating or will participate in the offering. The legislation also would amend the Securities Act of 1933 to expand the range of permissible pre-filing communications to sophisticated institutional investors to allow EGCs to determine whether qualified institutional or accredited investors might have an interest in a contemplated securities offering. Companies that meet the criteria for being an emerging growth company could opt for compliance with full SEC registration requirements for a regular company. However, the company must make this choice when filing for registration.

    The legislation amends the Securities Exchange Act of 1934 to permit members of the investment banking team for a broker or dealer participating in an offering to arrange for communications between securities analysts and potential investors in EGCs, and to permit research analysts to participate in communications with management of the issuer that are also attended by other members of the broker or dealer.

    Access to Capital for Job Creators (Based on H.R. 2940)

    H.R 3606 directs SEC to eliminate the prohibition against general solicitation as a requirement for a certain exemption under Regulation D Rule 506. The legislation authorizes that (not later than 90 days after enactment) the SEC revise the Securities Act of 1933 to remove the prohibition against general solicitation or advertising on sales of non-publicly traded securities, provided that all purchasers of the securities are "accredited investors." The legislation requires the securities issuer to verify that the purchasers are accredited investors. Under current law, accredited investors are defined to include banks, insurance companies, registered investment companies, corporations and charitable organizations with more that $5 million in assets, and wealthy individuals. In total, the bill makes the exemption under the SEC’s Regulation D Rule 506 available to issuers even if the securities are marketed through a general solicitation or advertising so long as the purchasers are "accredited investors."

    Entrepreneur Access to Capital (Based on H.R. 2930)

    H.R. 3606 would amend the securities laws to provide for registration exemptions for certain crowdfunded securities, and for other purposes. The legislation amends section 4 of the Securities Act of 1933 by exempting transactions involving the issuances of securities for which:
    • the aggregate annual amount raised through the issue of the securities is $1,000,000 or less, or if the issuer provides potential investors with audited financial statements, $2,000,000 or less;
    • individual investments in the securities are limited to an aggregate annual amount equal to the lesser of $10,000, and 10 percent of the investor's annual income;
    • in the case of a transaction involving an intermediary between the issuer and the investor, the intermediary complies with the requirements under section 4A(a) of the Securities Act of 1933;
    • in the case of a transaction not involving an intermediary between the issuer and the investor, the issuer complies with the requirements under section 4A(b) of the Securities Act of 1933.
    H.R. 3606 also does the following:

    4A. Requirements with Certain Small Transaction:

    The legislation requires a person acting as an intermediary in a transaction involving the issuance of securities to comply with the following requirements if the intermediary:
    • warns investors, including on the intermediary's website, of the speculative nature generally applicable to investments in startups, emerging businesses, and small issuers, including risks in the secondary market related to illiquidity;
    • warns investors that they are subject to the restriction on sales requirement described under subsection;
    • takes reasonable measures to reduce the risk of fraud with respect to such transaction;
    • provides the SEC with the intermediary's physical address, website address, and the names of the intermediary and employees of the person, and keep such information up-to-date;
    • provides the SEC with continuous investor-level access to the intermediary's website;
    • requires each potential investor to answer questions demonstrating competency in —
      • recognition of the leve of risk generally applicable to investments in startups, emerging businesses, and smaller issuers;
      • risk of illiquidity; and
      • such other areas as the SEC may determine appropriate.  
    • requires the issuer to state a target offering amount and withhold capital formation proceeds until aggregate capital raised from investors other than the issuer is no less than 60 percent of the target offering amount;
    • carries out a background check on the issuer's principals;
    • provides the SEC with basic notice of the offering, not later than the first day funds are solicited from potential investors, including—
      • the issuer's name, legal status, physical address, and website address;
      • the names of the issuer's principals;
      • the stated purpose and intended use of the capital formation funds sought by the issuer; and
      • the target offering amount.  
    • outsources cash-management functions to a qualified third party custodian, such as a traditional broker or dealer or insured depository institution;
    • maintains such books and records as the SEC determines appropriate;
    • makes available on the intermediary's website a method of communication that permits the issuer and investors to communicate with one another; and
    • does not offer investment advice.
    Requirements on Issuers if No Intermediary:

    H.R. 3606 will require an issuer who offers securities without an intermediary to comply with the following requirements if the issuer:
    • warns investors, including on the issuer's website, of the speculative nature generally applicable to investments in startups, emerging businesses, and small issuers, including risks in the secondary market related to illiquidity;
    • warns investors that they are subject to the restriction on sales requirement;
    • takes reasonable measures to reduce the risk of fraud with respect to such transaction;
    • provides the SEC with the issuer's physical address, website address, and the names of the principals and employees of the issuers, and keeps such information up-to-date;
    • provides the SEC with continuous investor-level access to the issuer's website;
    • requires each potential investor to answer questions demonstrating competency in—
      • recognition of the level of risk generally applicable to investments in startups, emerging businesses, and small issuers;
      • risk of illiquidity; and
      • such other areas as the SEC may determine appropriate.  
    • states a target offering amount and withholds capital formation proceeds until the aggregate capital raised from investors other than the issuer is no less than 60 percent of the target offering amount;
    • provides the SEC with basic notice of the offering, not later than the first day funds are solicited from potential investors, including—  
      • the stated purpose and intended use of the capital formation funds sought by the issuer; and
      • the target offering amount.  
    • outsources cash-management functions to a qualified third party custodian, such as a traditional broker or dealer or insured depository institution;
    • maintains such books and records as the SEC determines appropriate;
    • makes available on the issuer's website a method of communication that permits the issuer and investors to communicate with one another;
    • does not offer investment advice; and
    • discloses to potential investors, on the issuer's website, that the issuer has an interest in the issuance.
    H.R. 3606 allows for an issuer or intermediary to rely on certifications provided by an investor to verify the investor's income. The legislation authorizes the SEC to make public the notices of 
    • the intermediary's and issuer's physical address, website address, and the names of the intermediary and employees of the person, and keep such information up-to-date
    • the offering, not later than the first day funds are solicited from potential investors, including—
      • the issuer's name, legal status, physical address, and website address;
      • the names of the issuer's principals;
      • the stated purpose and intended use of the capital formation funds sought by the issuer; and
      • the target offering amount.  
    • of the offering, not later than the first day funds are solicited from potential investors, including—
      • the stated purpose and intended use of the capital formation funds sought by the issuer; and
      • the target offering amount.
    Other Provisions:

    H.R. 3606 prohibits investors from selling securities purchased through crowdfunding for one year, unless the securities are sold back to the issuer or to an accredited investor. The legislation requires that an intermediary not be treated as a broker under securities laws. The legislation also requires that if an issuer raises capital using the methods described under this bill, nothing in this bill will be construed as preventing an issuer from raising capital through other methods not described.

    H.R. 3606 requires the SEC to issue rules as are necessary for implementing the crowdfunding transactions as listed above and provide cost benefit analysis within 90 days of enactment. Also within 90 days of enactment the SEC must issue rules that disqualify from crowdfunding any issuers who have in the past been convicted of any felony or misdemeanor in connection with the purchase or sale of any security or involving the making of any false filing with the SEC.

    Lastly, H.R. 3606 directs the SEC to make available to the states the information disclosed to it regarding the notice of crowdfunding offerings and the contact information for the intermediary or the issuer, as is relevant. The legislation also pre-empts state law by adding securities issued under crowdfunding agreements to the list of covered securities exempt from state law.

    Small Company Capital Formation (Based on H.R. 1070)

    H.R. 3606 would authorize the Securities and Exchange Commission (SEC) to exempt a certain class of securities from the 1933 Act. The legislation gives the SEC the authority to add by rule or regulation a class of securities to the securities exempted. The legislation would exempt these securities with the following terms and conditions 
    • The aggregate offering amount of all securities sold within the prior 12-month period in reliance on the exemption added in accordance with this paragraph will not exceed $50,000,000.
    • The securities may be offered and sold publicly.
    • The securities will not be restricted securities within the meaning of the federal securities laws and the regulations.
    • The civil liability provision in section 12(a)(2) will apply to any person offering or selling those securities.
    • The issuer may solicit interest in the offering prior to filing any offering statement, on these terms and conditions as the SEC may prescribe in the public interest or for the protection of investors.
    • The SEC will require the issuer to file audited financial statements with the Commission annually.
    • Any other terms, conditions, or requirements as the SEC may determine necessary in the public interest and for the protection of investors, which may include—
      • a requirement that the issuer prepare and electronically file with the Commission and distribute to prospective investors an offering statement, and any related documents, in the same form and with same content as prescribed by the Commission, which will include a description of the issuer's business operations, its financial condition, its corporate governance principles, its use of investor funds, and other appropriate matters; and
      • disqualification provisions under which the exemption will not be available based upon the disciplinary history of the issuer or its predecessors, affiliates, officers, directors, underwriters, or other related persons, which will be substantially similar to the disqualification provisions contained in the regulations adopted in accordance with section 926 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (15 U.S.C. 77d note).
    H.R. 3606 would enact a limitation that only the following types of securities may be exempted under the proposed rule or regulation: equity securities, debt securities, and debt securities convertible or exchangeable to equity interests, including any guarantees of such securities.

    The legislation also require that upon the SEC enacting the terms and conditions, as the Commission determines necessary in the public interest and for the protection of investors, the Commission by rule or regulation may require an issuer of a class of securities exempted under this bill to make available to investors periodic disclosures regarding the issuer, its business operations, its financial condition, its corporate governance principles, its use of investor funds, and other appropriate matters, and also may provide for the suspension and termination of a requirement with respect to that issuer.

    The bill requires that not later than 2 years after the date of enactment of the Small Company Capital Formation Act of 2011 and every 2 years thereafter, the Commission will review the offering amount limitation and will increase this amount as the Commission determines appropriate. If the Commission determines not to increase the amount, it will report to the Committee on Financial Services of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate on its reasons for not increasing the amount.

    Lastly, H.R. 3606 requires the added class of securities is to be treated as covered securities for the purpose of the National Securities Markets Improvement Act

    Private Company Flexibility and Growth (Based on H.R. 2167)

    H.R. 3606 raises the threshold for mandatory registration under the Securities Exchange Act of 1934 from 500 shareholders to 1,000 shareholders for all companies and excludes securities held by shareholders who received such securities under employee compensation plans from the calculation. Raising the shareholder threshold would eliminate one impediment to capital formation for small companies.

    Capital Expansion (Based on H.R. 4088 and H.R. 1965)

    H.R. 3606 raises the threshold for mandatory registration under the Securities Exchange Act of 1934 from 500 shareholders to 2,000 shareholders for all banks and bank holding companies and raises the shareholder deregistration threshold from 300 shareholders to 1,200 shareholders. Raising the shareholder threshold for these small financial institutions will reduce their regulatory burdens and eliminate an impediment of raising equity capital from new shareholders without triggering SEC oversight in addition to prudential regulation.