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«JOURNAL OF LAW, ECONOMICS & POLICY VOLUME 10 SPRING 2014 NUMBER 2 EDITORIAL BOARD 2013-2014 Steve Dunn Editor-in-Chief Crystal Yi Meagan Dziura Sarah ...»

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Thus, to facilitate those criminal proceedings and sanctions that are already available, perhaps Congress should adopt a means of enforcement, such as those delineated in the Federal Rules of Civil Procedure, to the ever-advancing world of criminal behavior. After all, the question in the relevant pending cases is not necessarily of jurisdiction, but whether the service requirements, specifically the mailing requirement, can be effectuated. The United States can already establish jurisdiction in most cases where there are minimum contacts with the forum state.181 This “effects doctrine,” provides that a foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case... in which the action is based upon a commercial activity carried on in the United States by the foreign state; or upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that causes a direct effect in the United States.182 What bars the prosecution of known criminal copyright infringers such as Dotcom is the seemingly administrative matter of serving the corporation with a copy of the summons.

Therefore, perhaps the Legislature should explicitly provide for the effectuation of service through internationally agreed means of service or the alter-ego doctrine as it does in the Federal Rules of Civil Procedure. This would alleviate the effect of the strict “in the United States” language of the mailing requirement in Rule 4(c)(3)(C) of the Federal Rules of Criminal Procedure. Of course, removing the “in the United States” language completely would provide another solution. This way, it might at least be possible to surpass the administrative hurdle of sending a copy of the summons where the United States already has jurisdiction over the defendant. Because these methods of using letters rogatory, MLATs, and MOUs are already available in the civil context, it would not be a much further step to extend them to the criminal context. After all, even the civil means require an agreement between countries, so the change would not be attempting to impose any further obligations on foreign countries that they would not agree to impose on themselves.

These changes would merely open doors to facilitate the prosecution of a growing international problem that already causes vast economic losses all over the world.183 The alternative means of service may not provide a practically easy solution in each case, but the current “in the United States” 181 See supra Part I.C.1.

182 Laura H. Bak–Boychuk, supra note 172, at 372 (quoting 18 U.S.C. § 1605 (2006)).

183 For example, in 1995 alone, China experienced losses of at least $1.8 billion due to online piracy. Butterton, supra note 165, at 1093.

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language precludes all possible alternatives. Thus, although it is not a full solution, modifying the text of Rule 4(c)(3)(C) would act to combat criminal opportunism abroad and promote international cooperation against copyright infringement.

CONCLUSION In an era in which individuals can be connected instantaneously and simultaneously with millions of other individuals around the world, the implications of even this seemingly minor loophole in the Federal Rules of Criminal Procedure can be devastating. The drafters of the Federal Rules of Criminal Procedure may not have anticipated such innovation in the criminal sphere through the use of cyberspace, but especially in recent years, the effects have been catastrophic. In the face of international criminal copyright infringement, policymakers must open new avenues to prevent administrative requirements from becoming insurmountable hurdles to criminal prosecution. As it currently stands, Rule 4(c)(3)(C) acts as an administrative obstacle that may prevent obtaining justice against criminal corporations and their executives. Criminal copyright infringement has already cost the United States economy billions of dollars and promises only to further devastate music and entertainment industries worldwide.

2014] 515

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INTRODUCTION

Prior to August 9, 2013, Winston Holloway could only make two or three phone calls per month.1 Each fifteen-minute collect call cost his family $10.70.2 In contrast, Natalie Bolds pays $3.50 for each fifteen-minute collect call to her fiancé.3 Holloway is an inmate in an Arkansas state prison, while Bolds’s fiancé resides in a California state prison. The difference in phone rates results from the unique pricing policies in state and federal prison payphone services.

Security concerns inherent in penal facilities necessitate reliance on expensive call monitoring and blocking systems, differentiating inmate payphone systems from standard public carriers.4 In addition, several states require monetary commissions from telephone providers.5 Site commissions are payments from the service provider back to the state, usually a set percentage of the provider’s revenues from the facilities.6 Before the Federal Communications Commission (“FCC”) intervened, the costs of providing commissions to states were incorporated into consumer pricing, resulting in higher costs for recipients of collect calls made from prison.7 * Maxwell Slackman is a George Mason University School of Law Juris Doctor Candidate for May 2014. He received a B.S. in Biology from the College of William and Mary, graduating cum laude in 2010. Special thanks for ideas, mentorship, and editing go to Pamela Arluk, Esq., Professor Lisa Sockett, Esq., Emma Morris, Esq., Mark Stevens, Molly Wilcox, and Allison Walsh.





1 Peter R. Shults, Calling the Supreme Court: Prisoners’ Constitutional Right to Telephone Use, 92 B.U. L. REV. 369, 369 (2012).

2 Brief of Appellant at 4–5, Holloway v. Magness, 666 F.3d 1076 (8th Cir. 2012) (No. 11-1455), 2011 WL 1554810.

3 Letter from Natalie Bolds, to Marlene H. Dortch, Sec’y, FCC, CC Docket No. 96-128 at 1 (Filed June 3, 2009).

4 In re Implementation of the Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996, 17 F.C.C.R. 3248, 3252 (Feb. 21, 2002) [hereinafter 2002 Order and NPRM] (“[I]nmate calling services, largely for security reasons, are quite different from the public payphone services that non-incarcerated individuals use.”).

5 U.S. GOV'T ACCOUNTABILITY OFFICE, GAO-11-893, BUREAU OF PRISONS: IMPROVED

EVALUATIONS AND INCREASED COORDINATION COULD IMPROVE CELL PHONE DETECTION 13 n.a

(2011) [hereinafter GAO Report].

6 Paul R. Zimmerman & Susan M.V. Flaherty, Location Monopolies and Prison Phone Rates, 47 Q. REV. OF ECON. & FIN. 261, 262 (2007).

7 Justin Carver, An Efficiency Analysis of Contracts for the Provision of Telephone Services to Prisons, 54 FED. COMM. L. J. 391, 398 (2002) (written prior to the FCC intervention and noting that

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Many inmates believe that these commissions and resulting prices were unreasonable, unjust, and violated their First Amendment rights.8 However, the Supreme Court granted deference to correctional institutions due to the expertise, planning, and commitment of resources required to administer these facilities.9 Prison payphones arguably represent the purest form of statecontrolled “captive customer”10 markets. Inmates claim that exorbitant state commissions unduly increase prices, tax the poorest segments of the population, and reduce inmate connection with the outside world, resulting in higher incidence of recidivism.11 In contrast, state governments and telecommunications companies contend that monetary commissions support the prison infrastructure and reduce recidivism by providing better facilities, education, and reintegration assistance.12 On August 9, 2013, the FCC passed an order that sets maximum rates at $0.21 per minute for calls placed using a debit system and $0.25 per minute for collect calls.13 By greatly reducing these per minute rates, this order promises to make prisoner calling more affordable and, through this, to reduce recidivism.

However, this article argues that the FCC, via the powers granted to it through the Telecommunications Act of 1996,14 should revisit its ruling and instead mandate a tiered pricing system for inmate payphone rates based on facility size and commission payouts. While the current order takes needed steps to limit rates and increase inmate communication with the outside world, these rate caps15 do not reflect operation costs and may discourage most “admit that the kickbacks they receive from the service provider do increase the cost of the calls for the consumer”).

8 Holloway v. Magness, 666 F.3d 1076, 1078 (8th Cir. 2012), cert. denied, 133 S. Ct. 130 (U.S.

2012).

9 Turner v. Safely, 482 U.S. 78, 84–85 (1987).

10 A captive customer is reluctant or unable to “substitute one product or vendor with another,

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SANCTIONED MONOPOLIZATION IN THE PRISON PHONE INDUSTRY 1–2 (2012), available at http://www.prisonpolicy.org/phones/report.html.

12 Letter from Cherie R. Kiser, Counsel to Global Tel*Link Corp., to Marlene H. Dortch, Sec’y, FCC, CC Docket No. 96-128, attach.1, at 8 (filed on Oct. 3, 2012) [hereinafter Global Tel*Link Oct. 3 Ex Parte Letter].

13 Press Release, FCC, FCC Bars High Rates for Long Distance Phone Calls in Jails and Prisons Nationwide (Aug. 9, 2013) [hereinafter FCC Press Release] available at http://transition.fcc.gov/Daily_Releases/Daily_Business/2013/db0809/DOC-322749A1.pdf.

14 Verizon Commc’ns Inc. v. Trinko, 540 U.S. 398, 405–07 (2004).

15 The term “price cap” is colloquial for “price ceiling,” a “legally established maximum price that sellers may charge.” HENRY N. BUTLER & CHRISTOPHER R. DRAHOZAL, ECONOMIC ANALYSIS FOR LAWYERS 513 (2d ed. 2006). The FCC and inmate payphone stakeholders use the term “cap” when 2014] CALLING FROM PRISON 517 service provision to small, high-cost facilities. Low rate caps may also disincentivize heightened security precautions and create large administrative burdens on the FCC as facilities individually petition for cost-based relief from the caps. The FCC must review its single rate caps in light of the various economic and legal arguments for and against the current system.

Part I of this Comment will investigate and analyze the technical, economic, and social background of inmate payphones and facility commissions. Part II of this Comment will analyze the FCC’s power to regulate payphone rates and corresponding state commissions under 47 U.S.C.

§ 201(b) and caselaw. Court precedent and the Telecommunications Act of 1996 empower the FCC to directly regulate commissions or set benchmark price caps on consumer rates.16 Finally, Part III will analyze the FCC’s price cap order and investigate the most effective regulatory policy that incentivizes efficient pricing and proper use of potential percentage commissions.

I. BACKGROUND

The United States prison population has rapidly increased in the last thirty years, expanding from 320,000 inmates in 1980 to 2.27 million in

2010.17 This expansion necessitated larger investments in the country’s penal infrastructure.18 Today, the United States invests more than $60 billion per year in state and federal penal systems and operates more than 5,000 adult prisons and jails.19 These investments also expanded the market for prison services.20 The prison telephone industry benefited from these investments and has grown into a $1.2 billion industry.21 As the prison telephone industry matured, its effects on inmate recidivism expanded.

describing possible price ceilings of inmate payphone rates. This article follows the industry standard and uses “price cap” in place of “price ceiling.” 16 Trinko, 540 U.S. at 406–07.

17 Steven J. Jackson, Ex-Communication: Competition and Collusion in the U.S. Prison Telephone Industry, 22 CRITICAL STUD. IN MEDIA COMM. 263, 266 (2005); LAUREN E. GLAZE, BUREAU OF JUSTICE STATISTICS, CORRECTIONAL POPULATION IN THE UNITED STATES, 2011, 8 (2012), http://bjs.ojp.usdoj.gov/content/pub/pdf/cpus11.pdf.

18 Carver, supra note 7, at 392.

19 JOHN J. GIBBONS & NICHOLAS DE B. KATZENBACH, CONFRONTING CONFINEMENT, A REPORT

OF THE COMMISSION ON SAFETY AND ABUSE IN AMERICA'S PRISONS 11 (2006), available at http://www.vera.org/download?file=2845/Confronting_Confinement.pdf. This data combines both federal and state penal systems.

20 Carver, supra note 7, at 392.

21 Todd Shields, Prison Phones Prove Captive Market for Private Equity, BLOOMBERG (Oct. 4, 2012), available at http://www.bloomberg.com/news/2012-10-04/prison-phones-prove-captive-marketfor-private-equity.html.

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