The Telecommunications Act of 1996

Before the FEDERAL COMMUNICATIONS COMMISSION FCC 96-205 Washington, D.C. 20554 In the Matter of

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

GC Docket No. 96-42
Report and Order

Adopted: May 7, 1996; Released: May 7, 1996

By the Commission:

I. INTRODUCTION

1. The Telecommunications Act of 1996, 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),
such as Bellcore, when these organizations promulgate industry-
wide standards and generic requirements 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.

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
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), the purpose of this proceeding is to establish dispute
resolution procedures in accordance with new section 273(d)(5) of
the Act. 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.

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." In the
event of disputes on technical issues, the NASDOs and funding
parties must also attempt to develop a dispute resolution
process. 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.

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.

6. In the NPRM, we invited members of the public to comment
on our proposal to require binding arbitration as the dispute
resolution process. 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.
In addition, we invited commenters to submit alternative
proposals to implement this statutory provision. 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.

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. 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." 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.

9. For a variety of reasons, the commenting parties
overwhelmingly opposed the binding arbitration proposal set forth
in the NPRM. 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. 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. Others, including Bellcore and U.S. West, believed
that imposing binding arbitration, without the consent of the
parties, was inconsistent with the voluntary nature of the
underlying standards process.

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. Bellcore further observed in its comments
that generic requirements complement standards which by their
very nature are not binding on anyone, vendors or purchasers.
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."

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. 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.

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. In response, two very different
alternative proposals were initially submitted, one by Corning, a
manufacturer of fiber optics equipment, and another by Bellcore.

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.
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.

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."
ATIS further stated that its Committee T1, which develops
standards for network interfaces, could not accommodate the
statutorily mandated 30 day resolution period. 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.
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. 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.

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.
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.

18. Tri-Partite Panel. The Corning II proposal permits the
disputant to select only one dispute resolution approach. Under
the approach proposed by 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. 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.

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. 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.
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.) 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.

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.

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.

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 ...."
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." 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
limited to whether the NASDO's proposal can be reasonably
supported by technical evidence, as Bellcore proposes.

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." 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.

28. Fiinally, 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). 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.

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. 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.

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. 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.

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."

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.

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. 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.

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. 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 setting activities but
rather, by "any amount that demonstrates the party shows a
responsible interest in the proceeding." TIA suggests that
parties could meet this requirement by posting a performance
bond.

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 ...." 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.

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. Another party
referred us to the standards used by federal courts to determine
whether complaints are filed in good faith. Another commenter
questioned whether we need to assess the motive of the disputant
if the claim has no legitimate basis.

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." The NPRM also sought comment on
whether procedural protections were necessary to protect the
party subject to the dispute. In this connection, commenters
were asked to consider whether there should be a citation and
subsequent misconduct before the assessment of such
forfeitures.

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. 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." 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" 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."
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."

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.
Bellcore, in response, believes Corning's request is premature.
We agree that adoption of evidentiary requirements at this time
appears premature. The statute prescribes a public comment
period on 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.

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." .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 30 days from
publication in the Federal Register as set forth in the Appendix
attached hereto.

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. 154(i) and (j), 273(d)(5), 303(r) and 403. For
further information on this proceeding, contact Sharon B. Kelley,
Office of the General Counsel, Administrative Law Division, (202)
418-1720.

FEDERAL COMMUNICATIONS COMMISSION

William F. Caton
Acting Secretary

Attachment

APPENDIX

Part 64 of Title 47 of the Code of Federal Regulations is amended
to read as follows:

PART 64 Miscellaneous Rules Relating to Common Carriers

1. The authority citation for Part 64 continues to read as
follows:

Sec. 4, 48 Stat. 1066, 1082, as amended; 47 U.S.C. 154, unless
otherwise noted. Interpret or apply secs. 201, 218, 226, 228,
48 Stat. 1070, as amended, 1077; 47 U.S.C. 201, 218, 226, 228,
unless otherwise noted.

2. A new subpart Q is added 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 Forfeiture.

AUTHORITY: 47 U.S.C. 273(d)(5).

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.

64.1701 Definitions.

(a) For purposes of this subpart:
(1) 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.

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.

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 subsection 64.1703(b).
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 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.
(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:
(A) the NASDO's proposal on the issue under consideration;
(B) the position of the party seeking dispute resolution on
the issue under consideration;
(C) a standard developed by an accredited standards
development organization that addresses the issue under
consideration;
(D) 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
(E) 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 subsections 64.1703(a)(5)(A)-(E). 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.

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 subsection 64.1704(a) above, may be subject to forfeiture
pursuant to section 503(b) of the Communications Act, 47 U.S.C.
503(b).

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