UPDATE 3-Spy, phone protection bill clears US Senate hurdle

(Recasts, adds debate resumes Thursday)

By Thomas Ferraro

WASHINGTON, June 25 (Reuters) - A White House-backed spy bill to protect telecommunication companies from billions of dollars in potential damages from privacy lawsuits passed a Senate test vote on Wednesday, and headed toward final congressional approval.

On a vote of 80-15, mostly Republican supporters of the bipartisan measure, which would also implement the most sweeping overhaul of U.S. spy laws in decades, easily mustered the 60 votes needed to clear a Democratic procedural roadblock.

Overwhelmingly approved by the House of Representatives last week, the Senate will resume consideration of the bill on Thursday. It may provide needed concurrence on the legislation before Congress begins a holiday break at the end of this week.

President George W. Bush has promised to sign the measure, which would replace a temporary surveillance law that expired in February.

In addition to providing a special court review of lawsuits against telecommunication companies, the bill would increase oversight of U.S. intelligence activities and bolster privacy protection -- but not as much as civil liberties groups and a number of lawmakers want.

"This bill is not a compromise. It is a capitulation," said Sen. Russ Feingold, a Wisconsin Democrat.

Feingold has offered an amendment to strip out protection for telecommunication companies. But Democrats and Republicans both predict the amendment will be rejected.

Sen. Christopher Bond, a Missouri Republican and a chief negotiator of the legislation, urged passage.

"We have a chance to tell the American people that the (U.S.) intelligence community on which our citizens, our troops and our allies rely ... can continue to do its job," Bond said.

LAWSUITS FILED

"We can tell those companies that answered their government's call for help in the aftermath of the September 11th terrorist attacks that a grateful nation stands behind them and that they will be given the civil liability protection they rightly deserve," Bond said.

The bill would protect companies that participated in the warrantless domestic spying program Bush secretly began shortly after the Sept. 11, 2001 attacks.

About 40 lawsuits have been filed accusing AT&T Inc (T.N), Verizon Communications Inc (V.N) and Sprint Nextel Corp (S.N) of violating Americans' privacy rights. Damages could total in the billions of dollars.

While the House-passed bill would not provide the retroactive immunity Bush demanded, it would enable a federal district court to dismiss a suit if written certification is presented that the administration assured the companies the program was legal.