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TMT Perspectives

Insight & Commentary on Business, Legal and Policy Developments Affecting the Telecom, Media, and Technology Sectors

Net Neutrality—Analyzing Georgetown’s Position

Posted in Antitrust and Competition Policy, FCC, Lawsuits, Net Neutrality

100033462Georgetown University’s business school (specifically the Center for Business and Public Policy) submitted an Amicus Brief in the currently pending net neutrality lawsuit at the D.C. Circuit. It is highly critical of the FCC and dependent upon ideas that are deeply suspect. The Brief is based on the “Economic Policy Vignette.

Economic Flaws. The policy paper argues that in adopting the “radical” Net Neutrality rules, the FCC ignored economic considerations resulting in the following three economic flaws:

  1. The Order overstates the likely benefits of its stringent regulatory regime by relying on implausible theory and speculation about anticompetitive threats from broadband access providers;
  2. By failing to account appropriately for the overwhelming empirical evidence showing the benefits of “light-touch” regulation, the Order overstates the benefits from additional regulatory control and understates the costs of net neutrality regulation; and
  3. The Order recklessly dismisses evidence of the very real threat to investment, innovation and output that will result from net neutrality regulations.

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FTC Asserts Jurisdiction over Privacy in Unusual Case

Posted in FTC, Lawsuits, Privacy and Data Security

ThinkstockPhotos-517343725What is the FTC’s jurisdiction over privacy?

That is one of the most important—and overlooked— issues in Washington, DC today.

The reason it is so important is because privacy issues can arise for almost any business engaged in electronic commerce. And if the FTC has jurisdiction over privacy generally— on the theory that failure to protect privacy is “an unfair or deceptive” practice, then the FTC potentially has jurisdiction over all electronic commerce without any formal rules to constrain FTC enforcement actions.

In other words, in the absence of clearly ascertainable ex ante privacy regulations, a “we know a violation when we see it” standard would apply. This is an invitation to arbitrary government adjudication, never a good thing.

An Unusual Alliance. A case in point is a suit brought by the FTC against LabMD, a small cancer diagnostic business, now mostly defunct except for clean-up operations out of the owner’s condo. Although the litigation is ongoing, it appears that in 2008 the FTC was concerned about privacy and peer-to-peer (PTP) networks. At about that time a private company, Tiversa, took a LabMD file containing information on 9,300 patients. The file was on a LabMD’s employee’s computer. Unfortunately this single employee had a PTP application running on her computer which enabled Tiversa to access the computer, in violation of LabMD policies and inspection practices. Continue Reading

Celebrities Rule—But the FTC Has Endorsement Rules

Posted in FTC, Legal Developments
best buy

best buy

Perhaps because it is pervasive, there is a growing presumption that social media communications are unregulated. That is not accurate where endorsements are concerned.

So before you blog or tweet about a product under circumstances in which you are getting compensated, it is worth figuring out whether your communication complies with the Federal Trade Commission’s Endorsement Rules.

The rules say that if you are recommending or promoting a product, and if you are compensated, that compensation has to be clear to the reader. If not, you may have violated federal law against deceptive speech.

The concern about deceptive speech in the social media context is particularly high where the recommendation is from a “true celebrity”—a famous actor or business person. But the rules also apply to non-celebrity notables, such as bloggers, vloggers, and other twitterati. Continue Reading

Retransmission Consent Reform—The “Must Haves” for Cable and Satellite Companies

Posted in FCC, Legal Developments

ThinkstockPhotos-497350805Retransmission consent refers to the system by which pay TV providers (principally cable and satellite companies, which for convenience we will call “CableCos” and which FCCers call MVPDs) pay broadcast TV stations to carry the programming they broadcast. Years ago the payments were marginal or non-existent. Today the payments are growing, in part because increasingly the payments are shared by the TV stations and the networks with which they are affiliated (NBC, Fox, etc.). This increases the price consumers pay for cable and satellite TV. Price disputes between broadcasters and CableCos are subject to commercial negotiations based on “good faith negotiations,” however currently the broadcasters have the ability to withhold programming from the CableCos in the event of a dispute, meaning that such programming gets blacked out to cable and satellite consumers. This severely limits CableCos negotiation power.

The FCC will shortly release a proposal to revamp the retransmission rules, which were first developed in the early 1990s. As a result, the American Television Alliance, made up of CableCos and some programming interests—all of whom are opposed to the broadcasters’ unilateral ability to black out programming in the event of a dispute—have informed the FCC of ATVA’s “must haves” in reforming retransmission consent rules. They are:

  1. Broadcasters should not be able to block CableCos customers’ access to the broadcasters’ online programming when there is a negotiations impasse between the broadcaster and the CableCo.
  2. Broadcasters should not be allowed to require CableCos to purchase content they don’t want in order to get content they do want, which is referred to as “forced bundling.” Any bundling requirement that is not based upon the specific economics related to the content the CableCos want would be considered forced bundling.
  3. Broadcasters should not be allowed to withhold, or threaten to withhold, marquee events, such as certain sporting events.
  4. If Broadcasters withhold content during negotiations, CableCos should be able to get that same content from somewhere else (FCC rules currently prohibit this in a variety of ways).
  5. Broadcasters should not be able to cede rights to negotiate retransmission consent to third parties (such as the TV networks). In other words, individual television stations or station groups should have to negotiate with the CableCos.
  6. Broadcasters should not be permitted to demand that CableCos make use of any particular technologies (e.g. set-top boxes).
  7. Broadcasters should not be permitted to charge CableCos rates based upon the CableCos’ total number of subscribers, but only on the number of subscribers that purchase the particular content controlled by the broadcaster.

FCC Approves Lawn Robots

Posted in FCC, Technology

lawn robot 2With a gleeful nod to all 15-year-old boys out there, yesterday the FCC approved the first lawn robot. The manufacturer —iRobot—claims that this Roomba-for-the-Yard device “has the potential for reducing deaths and injuries, reducing emissions and noise pollution, and improving quality of life related to residential lawn mowing.” Frankly, given our own shaky experiences with lawn mowers, our first thought was the opposite—“run for your life, your lawn mower is untethered”—but we trust the FCC has given this more thought than we have. In any event, the complicating issue for the FCC was not the safety of our cats and dogs, but interference with radio astronomy activities. Go figure.

Netflix v. Rovi–and Today’s Software Patent Debate

Posted in Intellectual Property, Lawsuits, Legal Developments

ThinkstockPhotos-481904364Netflix sued Rovi (formerly Macrovision) in federal court in California seeking a declaratory judgement of non-infringement and invalidity of five Rovi patents. Rovi recently lost and the patents were invalidated.

The battle between Netflix and Rovi mirrors battles that are being fought daily throughout corporate America. The topic: the validity of software patents after the 2014 Supreme Court decision in Alice Corp. v. CLS Bank. We don’t normally recommend reading federal court orders, but this may be an exception. The Netflix decision is clear, concise, and presents enough recent Intellectual Property history to provide a business person with good context for understanding the foundations of the IP debate that is today affecting most software companies. Continue Reading

How Washington Works—The Problem of the AWS-3 Wireless Auction

Posted in FCC

ThinkstockPhotos-94799092In a wireless auction earlier this year, Dish purchased in conjunction with two entities US$13 billion of wireless licenses for approximately US$10 billion. It did so by structuring a bid in the AWS-3 auction through two “small business” entities to which it lent billions of dollars. We haven’t done the analysis, but presumably the arrangement was lawful. The FCC has regulations about this subject and both AT&T and Verizon have previously taken advantage of these rules. The FCC program, referred to as the “Designated Entity” program, intends to promote bidding by new or small enterprises, thus promoting diversity in the wireless market, but the rules are odd and loose and essentially allow for a work-around whereby large companies effectively obtain small business discounts even where they are likely to obtain most of the benefit.

The rumor is that the FCC wants to retroactively strip Dish of the benefits. This is not surprising. Dish’s use of the Designated Entity rules was overt, and the US$3 billion benefit was oversized and sure to elicit political pressure on the question of why taxpayers should be subsidizing Dish in such an extravagant manner.

But what is the FCC to do? The regulations have been in place for some time. Presumably Dish was careful to conduct itself within the bounds of the rules. But surely this was not the intended result. Commissioner Pai has called Dish’s activities an “abuse” of the program. Going forward, the FCC has limited the benefits to US$150 million.

Today the question is whether Chairman Wheeler will deny Dish its benefits, which will provoke a lawsuit, which could endanger the results of the AWS-3 auction and which could (in the worst case) call into question the results of some prior auctions.

We think the better course is for the FCC to base its decision purely on the law that existed when the auction occurred. If Dish structured its activities consistent with the rules in place at the time, then accept the results of the auction and move on. It is critical that Washington respect the rule of law and the expectations that come with it.

FilmOn: (Alki) David Stuns Goliath in On-Demand and Mobile TV Victory

Posted in FCC, Intellectual Property, Legal Developments

Last week FilmOn quietly obtained a very important, preliminary decision from a California federal District Court that found that non-traditional, on-demand and mobile TV companies (the “Internet TV” providers) are entitled to a compulsory license under the Copyright Act. If upheld, this ruling will allow Internet TV providers to compete effectively with traditional cable and satellite (“CableSat”) providers by making content and broadcast TV available to consumers over the Internet.

A Complicated Tale. This is a complicated tale of technology and law, so stay with us for a moment. CableSat providers exist only because of certain legal benefits extended to them by Congress and the FCC. One of those is that CableSat providers do not have to directly compensate copyright owners for content they deliver to customers; they can do so indirectly and for a favorable rate, under a so-called “compulsory copyright license.” Another is “retransmission consent,” which is FCC-speak for rules that permit CableSat providers to “retransmit” broadcast television. A big question is whether “retransmission consent” and the copyright license extend to Internet TV providers. In other words, should the law treat Internet TV the same way that it treats Cable TV today?

The big broadcast content owners, such as NBC and Fox, are opposed to extending these protections to Internet TV providers. There are a number of reasons for this, some technical and some simply because the content owners perceive the license as not being in their commercial interest (particularly because they are capable of offering their content over the Internet directly). But it is abundantly clear that without some form of protection similar to that which made the CableSat industry possible, there will be no Internet TV provider packaging third-party content that includes broadcast television to mobile devices.

The Aereo Case Was Hot Last Year. Last year the Internet TV issue was one of the hottest in the technology space. We wrote about the Copyright Office Letter of July 16 and the intriguing question of retransmission consent. A technology leader called Aereo (now bankrupt) lost a high-profile Supreme Court case in which Aereo was trying to take advantage of a loophole in the Copyright Act. For the lawyers in the audience, the Court held that Aereo’s transmissions served as a public performance of the broadcasters’ works within the meaning of the so-called “Transmit Clause,” thus violating the broadcasters’ rights to control such performances. For those interested in delving deeper into the legal issues (the issues are arcane enough to make a lawyer cry), the Congressional Research Service provided an excellent analysis.

The Aereo Supreme Court case was also notable because among the ashes, the Court left open a different legal question: Even if Aereo’s system was unlawful under the legal issue being debated, could Internet TV providers come into legal compliance simply by taking advantage of the retransmission consent and compulsory copyright license that CableSat providers use? That is the general question addressed in part by the FilmOn court.

The Compulsory Copyright License Question. Specifically, the FilmOn court looked at the relevant copyright statute and concluded—against the wishes of the Copyright Office—that there is no inherent reason why Internet TV providers do not qualify for the license. The court reviewed an earlier decision by the 2nd Circuit Court of Appeals that had concluded Internet TV providers do not qualify for the license, and ruled that the 2nd Circuit was wrong because it misunderstood the technology and incorrectly imported certain policy objectives into its reading of the Copyright Act. The FilmOn court concluded that there was simply no distinction under the Copyright Act between CableSat providers and Internet TV providers. The fact that they used different delivery mechanisms to deliver the content to customers (CableSat uses cable and satellite to reach them, whereas the Internet providers use the Internet) mattered not at all.

At the same time, the court concluded that its decision was a close call and will have substantial commercial implications, and therefore determined that the final say should come from the 9th Circuit Court of Appeals. As such, the FilmOn court authorized an immediate appeal to the 9th Circuit, and while that is pending, maintained the existing preliminary injunction against FilmOn.  So, FilmOn got a lot of what it wanted, but not everything.

Blockbuster Hit of the Summer. The final resolution to this issue will take some time, as our court system is an imprecise way to obtain rights and different courts will have an opportunity to weigh in. So, FilmOn and others like it will continue to bear substantial legal costs and delay in clarifying the legal regime that applies to Internet TV. But make no mistake, the FilmOn decision is this seasons’ blockbuster hit that has somehow managed to gain almost no publicity.

Justin Goushas, Chadbourne 2015 summer associate, contributed to this article.

First Circuit: Puerto Rico’s Recovery Act Preempted, Ball in Congress’s Court—But a Curious Concurrence Too

Posted in Finance, Lawsuits, Legal Developments

On Monday, July 6, in a significant victory for objecting bondholders, the United States Court of Appeals for the First Circuit held that the Puerto Rico Public Corporation Debt Enforcement and Recovery Act (the “Recovery Act”) was fully preempted by Federal bankruptcy law. The Act, which was signed into law by Puerto Rico’s governor in June 2014, created a bankruptcy-like regime through which the debts of certain of Puerto Rico’s public corporations could purportedly be restructured without unanimous creditor consent. In an almost 50-page majority opinion, Circuit Judge Sandra Lynch held that section 903(1) of the US Bankruptcy Code “by its plain language, bars a state law like the Recovery Act.” Nevertheless, the First Circuit made clear that Congress possesses power to resolve Puerto Rico’s difficulties, either by granting Puerto Rico’s municipalities access to chapter 9 of the Bankruptcy Code or through new, and potentially much broader, restructuring legislation tailored to Puerto Rico’s unique status. But in a curious “concurrence in the judgment,” Circuit Judge Torruella may have cast a pall over bondholder euphoria by concluding that the exclusion of Puerto Rico municipalities from chapter 9 is unconstitutional. If you are interested in reading more about this, please see our Client Alert.


FCC Proposes to Fine AT&T Significantly

Posted in FCC, Legal Developments, Net Neutrality

Transparency_TMTwebToday the FCC proposes to fine AT&T US$100 million for its practice of selling its customers “unlimited” data plans which it subsequently limited by throttling back data speeds as much as 90% (sometimes, to dial-up levels) without being clear about the extent of the throttling. This proposed fine is based upon the FCC’s “Open Internet Transparency Rule,” which says that companies must communicate clearly about the terms on which they make Internet access available. This is related to, but a little different from, the very controversial “Net Neutrality” rules. The Net Neutrality rules are substantive; the Open Internet Transparency Rule is about clarity (or lack thereof) with which communications companies communicate with their customers and its related concepts: fraud and misrepresentation.

The proposal provides some information about AT&T’s practices, but undoubtedly the story is more complex and we do not currently have all the information. But if we stay at the surface level, the FCC says that AT&T offered to sell a Camry that could run forever and, when it suited AT&T, AT&T remotely shut down five of the six engine cylinders and said, well, “the car can still run forever.” And it is true. The problem is that in reality no one will drive a Camry that can go only 20 miles per hour. So, is that a misrepresentation or not? Continue Reading