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.