AT&T has lost a case it appealed all the way to the U.S. Supreme Court to win favorable tax treatment for income it received from the Universal Service Fund program, designed to help underwrite the costs of providing rural telephone service.

AT&T was seeking a $500 million income tax refund on its 1998 and 1999 federal taxes from money the government provided AT&T.

Federal tax law requires phone companies to treat the USF revenue as income, subject to regular taxation.  AT&T argued the money was actually a “contribution to capital,” which would have substantially reduced the company’s tax burden.  Contribution to capital, as a concept, has been the subject of several corporate lawsuits over the years.  The genesis of court challenges comes from a 1925 case — Edwards v. Cuba Railroad Co., that held government subsidies provided to induce the construction of facilities and provision of service were not taxable income within the meaning of the Sixteenth Amendment.

AT&T believed that USF funding subsidized the delivery of phone service, so it cannot be considered taxable income.

The U.S. Supreme Court disagreed.  The justices elected to leave intact a lower court ruling that threw AT&T’s arguments aside.

Considering the long history of court losses for other corporate entities who have argued similar cases all the way back to the 1950s, the decision should not come as a surprise to the phone company, and AT&T’s reaction was muted.

“We are disappointed with the Supreme Court’s decision,” the company said in a statement. “However, AT&T does not expect any impact to our financial statements.”

The case is AT&T v. United States, 10-1204.

Why would a Delaware company holding several dozen patents — several formerly owned and controlled by a semiconductor manufacturer — suddenly decide to sue businesses that offer their customers access to Wi-Fi?  Because that is where the money is.

Innovatio IP Ventures, LLC is a patent holding company — one that today holds 31 patents, acquired mostly from Broadcom, that generally deal with “wireless local area network” technology most consumers know better as Wi-Fi.  In reality, Innovatio doesn’t really innovate much of anything in the technology department.  It has no products or services for sale.  But it has managed to innovate what critics are calling a “major shakedown” with the help of its law firm to collect royalty payments from companies large and small who find it easier to settle the lawsuits than hire attorneys to defend them.

That may be precisely the business model companies like Innovatio have in mind.

The company is suing coffee shops, grocery stores, restaurant chains, and even individual hotels and motels where Wi-Fi is provided as a customer convenience.  Among the defendants: Hyatt Corporation, Marriott Hotels, Wyndham Hotels and Resorts, Ramada Inn, Best Western, Days Inn, Super 8 Hotels, Travelodge, Caribou Coffee, Cosí and Panera Bread Co., and Meijer, Inc.  Within those lawsuits, hundreds of individual business locations are accused of violating Innovatio’s Wi-Fi patent rights.

But there is a way to make Innovatio, and their attorneys, go away.  Agree to a quick, “one-time settlement” in the form of a “licensing payment” between $2,300 and $5,000 per infringing location.

That’s cheaper than putting an attorney on a retainer and spending several hours contemplating a defense strategy, a fact of life many businesses can’t afford to ignore.

Critics of these patent-holding companies call them “patent trolls” that exist solely to rake in settlement payments on broadly-written patents.  Innovatio’s own lawsuits describe anyone who uses Wi-Fi as a potential violator.  It’s a new tactic for patent attorneys who more commonly chase equipment manufacturers and vendors, not the end users of the technology.  Innovatio has set its sights on smaller companies offering Wi-Fi services, perhaps because some of America’s largest equipment manufacturers, Cisco and Motorola, have deep enough pockets to fight back in court.

Who has even fewer resources to defend themselves against a patent infringement lawsuit mill?  Individual consumers, who technically are also violating Innovatio’s patents just by running a wireless network inside their home.  Innovatio defines that as patent infringement themselves, but benevolently suggests it will not sue ordinary consumers “at this stage” of Innovatio’s “systematic campaign,” reports The Patent Examiner:

“Innovatio has made a strategic and business judgment at this stage that it doesn’t intend to pursue [lawsuits on the basis of] residential use of WiFi,” said Matthew McAndrews, the lawyer representing Innovatio in the case. (The law firm’s offices in downtown Chicago are located about five blocks away from Innovatio’s office. The U.S. Patent and Trademark Office shows another address for Innovatio, in a house at the end of a cul-de-sac in Ladera Ranch, Calif.)

As if to assure anyone who owns a laptop, smartphone or tablet that they’re not in danger of finding themselves in the company’s cross hairs, McAndrews added that he doesn’t “perceive” Innovatio’s litigation strategy changing. McAndrews did not respond to queries about who is behind Innovatio.

But that may not last forever:

McAndrews acknowledged the ubiquity of wireless Internet – likening it to a fundamental utility like gas or electricity – but offered a different perspective on the terms of its use. Ultimately, he said, Innovatio’s “plan is to license this portfolio to the fullest extent possible. That would include anyone who’s wireless networking.”

Apple is set to announce a new iPhone or two early this afternoon, but some in the tech media notice the frenetic excitement of the newest Apple sensation has been tempered, in part because many of the new software and cloud storage features will run into usage caps for some, speed throttles for everyone else.

The imminent arrival of anticipated models iPhone 4S, expected to sell at AT&T and Verizon and iPhone 5, which is rumored to be sold exclusively by Sprint during a short sales window, remains a big deal for all three carriers.  Verizon is reportedly allowing its call center employees to take unlimited overtime in preparation for the anticipated rush of questions and orders.  Sprint, which has 33 million customers on two-year contracts, has made a commitment to sell at least 30.5 million Apple iPhones over four years, if reports by the Wall Street Journal turn out to be accurate.  That’s a lot of phones.

[flv width=”512″ height=”308″]http://www.phillipdampier.com/video/Sprint Getting iPhone 10-3-11.flv[/flv]

9 to 5 Mac shows off a mock image of what the newest iPhone 5 will probably look like. Pay close attention to the rounded edges and bezel.

Reports from the Wall Street Journal, WDAF-TV in Sprint’s home base of Kansas City, and Bloomberg News discuss the implications of Sprint’s deal with Apple.  (11 minutes)

That’s also an enormous gamble for Sprint, which is guaranteed no real profits from the venture until the year 2014.  If the company does win temporary exclusivity of an iPhone model that includes support for Sprint’s 4G network, WiMax, it will also bring the company an enormous number of new customers.

Among the most important new features of the phone is iOS 5, the latest version of Apple’s mobile operating system.  It comes loaded with new ways to burn through the stingy usage caps AT&T and Verizon Wireless are now providing their customers:

1. Over the air upgrades/activations: Apple’s notoriously huge software updates can be delivered to your wireless device without syncing it on a personal computer.  That means downloading software updates that can easily exceed the 200MB “light usage” plans some carriers sell budget-conscious customers;
2. Notification Center: Puts messages from e-mail, texts, and apps in a more convenient place to access and respond, increasing usage;
3. NewsStand: Leverages newspaper and magazine content in a single app, downloading content pushed to your phone, increasing usage;
4. Safari Sync: The Safari web browser will now sync with other instances of the browser on other devices to keep your reading list updated;
5. iMessage: Send texts, photos, and bandwidth-hogging video to friends and family, potentially driving up usage considerably;

But nothing is expected to spike wireless data usage like Apple’s new iCloud and iTunes Match, both of which manage and sync multimedia content and app purchases between devices “over the cloud.”  Unfortunately, repeated journeys of this type will burn through your usage allowance, and those with significant-sized libraries of photos, music, or videos are at serious risk of blasting past their usage cap.  Even customers who use more than 4-5GB on “unlimited data plans” sold by AT&T and Verizon will face the scourge of the speed throttle, which will reduce your zippy new phone to speeds that resemble dial-up.

AT&T and Verizon Apple iPhone customers are at the highest risk of facing the speed throttle, because Apple is not expected to support either company’s 4G data network.  Verizon only exempts 4G customers from the speed throttle when they use the 4G network.

The one company well-positioned to capitalize on these realities happens to be Sprint, which is keeping its truly unlimited data plan.  If Apple comes through with 4G support for Sprint, customers could not only say goodbye to AT&T and Verizon’s slower 3G speeds, they would also be able to rest easy knowing they won’t experience bill shock or a month in the dial-up speed penalty corner if deemed to be using “too much” service.

Customers of the two biggest carriers need to get familiar with switching to Wi-Fi as often as possible, and avoid using data-intensive features on usage-limited plans.  For Verizon and AT&T, it’s the best of all worlds — another two year contract for a usage-limited data plan that guarantees increased revenue and reduced costs.  For you, it’s an improved phone you can never use to its full potential.

[flv width=”512″ height=”308″]http://www.phillipdampier.com/video/Little Buzz Over New iPhone 10-4-11.flv[/flv]

The Wall Street Journal reports there isn’t as much buzz over this year’s newest iPhone.  Bloomberg talks about the software changes in the new phone, and WWLP-TV in Springfield notes Verizon’s unions are calling on Americans to boycott the new phone until Verizon workers get a fair contract.  (8 minutes)

Update 2:00pm ET:  The Wall Street Journal reports the Sprint iPhone will not support their 4G network: According to people familiar with the company’s plans, the hotly anticipated device won’t operate on long-term evolution or WiMAX fourth-generation networks. Those wireless networks promise speedier downloading to mobile devices of episodes of television programs, as well as cute baby photos. The people said the device will work on 3G networks, which are broadly in use today and are the standard for the current iPhone 4. AT&T says its HSPA+ network has 4G-like speeds.

Update 4:00pm ET: The announcement event finally concludes with news the iPhone 5 is vaporware for now.  Sprint will end up with the same Apple 4S phone AT&T and Verizon will sell on their respective networks. The San Jose Mercury News was not thrilled with the event:

At a rollout that lacked some of the thrills and surprises of past product releases — and disappointed some in attendance who expected a completely made-over iPhone 5 — Siri stood out as the sexiest new feature on an iPhone that, contrary to speculation, isn’t any thinner or different looking on the outside than its predecessor, the iPhone 4.

“This phone is better than the iPhone 4 in many ways, even though it looks the same,” said Avi Greengart, an analyst with Current Analysis on hand for the unveiling before several hundred reporters, bloggers, analysts and other guests. “Sales will be wildly successful, but Apple fanboys’ expectations probably were not met today.”

The new phone, which will be available Oct. 15 after pre-orders begin Oct. 7, will cost $199 for a 16-gigabyte version, $299 for 32GB and $399 for 64 GB. It had been center-stage in the tech blogosphere for months, as pundits weighed in with what they saw as the most obvious bells and whistles Apple would unleash on their growing fan base. Tuesday, some were surprised by how wrong that had been.

The phone that everyone thought would be thinner than the iPhone 4, pretty much resembled its older sibling. But as analysts had suspected, the new phone is much faster, thanks for the new A5 chip inside it, and it has plenty of consumer-pleasing attributes, most of them inside the case.

[flv width=”360″ height=”290″]http://www.phillipdampier.com/video/WGBA Green Bay Brewers Rally Signs 9-30-11.mp4[/flv]

Time Warner Cable is spending subscriber dollars in Wisconsin on free lawn signs with the company logo showing support for the Milwaukee Brewers.  It’s not the first time the cable company has distributed free signs to sports fans.  In January, the Wisconsin division of the cable company handed out signs celebrating the Green Bay Packers.  The cable company said local cable store employees found lines of interested takers ready and waiting before they even opened.  Green Bay locations ran out of signs within hours, but if past precedent means anything, Time Warner will print up more for a second round.  (1 minute)

Allen Wan from Chicago dropped Stop the Cap! a postcard by good old snail mail about today’s broadband cap ‘n tier regime in place at some of America’s largest Internet Service Providers to make an important point: with Internet Overcharging schemes like usage caps and usage-based billing, America’s best broadband value may actually come from the United States Postal Service.

Allen breaks it down for us:

Allen’s chart points out that for large file transfers like movies, TV shows, and major software updates, consumers actually get more value on a per-GB basis burning those shows and software to a traditional or dual-layer (DL) DVD, and dropping them in the mailbox.

While prices for service may vary, so do Internet Overcharging schemes.  If a customer reaches their monthly limit one time too many, they will be relying on the post office to move files back and forth because companies like Comcast and Cox will terminate their service.  Other providers, like AT&T and Suddenlink, are content to simply send the customer a bill with overlimit charges on it.

With a marketplace duopoly, ineffective government oversight, and ever-increasing prices, the U.S. Post Office may still be in the running after all, thanks to Back to the Future-pricing from your ISP.