Header graphic for print

TMT Perspectives

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

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

Droning On: Comments Are In; Now What?

Posted in Administrative Law, Drones, Legal Developments, Technology

Drone blog photoOn April 24, the comments period ended for the Notice of Proposed Rule Making for the Operation and Certification of Small Unmanned Aircraft Systems (“UASs”). The FAA received 4,556 comments, which have been uploaded to the public docket.

Absent a reopening of the public comment period (which is not anticipated at this time), the FAA will now begin revising the proposed rule into its final form, taking into consideration all of the comments it received. The FAA will also create a supporting statement, which is a more detailed explanation of the rule, and a regulatory economic analysis (“REA”). The REA will detail the costs and benefits of the rule, and how the FAA determined that the rule is both economically and technologically feasible. The FAA then submits the draft final regulations, along with the supporting statement and REA, for departmental clearance, and to the Office of Management and Budget (“OMB”) for further review and analysis. Once OMB’s comments have been addressed, OMB will notify the FAA that the rule can be published in the Federal Register in its final form. The final rule will take effect upon publication or at a specified time thereafter, as determined by the FAA and set forth in the Federal Register.

The FAA has previously stated that this process could last until at least 2017 (not including any legal challenges to the rule, which could extend the time period significantly). In the interim, the only way that a commercial drone operator can fly in the national airspace is under a Section 333 exemption. Since the publication of the Notice of Proposed Rule Making, the FAA has made a number of changes to the Section 333 exemption process designed to streamline it. Continue Reading

FCC Commissioner Pai Asks Congress to Partly Defund Agency

Posted in Antitrust and Competition Policy, FCC, Legal Developments, Net Neutrality

100033462Yesterday FCC Commissioner Ajit Pai testified before the House Appropriations Committee, and in his lengthy statement, asked that Congress defund the FCC–or at least that part of the FCC that would implement the FCC’s recent net neutrality decision.

There is a certain irony here. Commissioner Pai’s objection to the net neutrality decision stemmed from his concern that politics played too large a part in the decision. His specific objection is that the decision was reached five months after President Obama issued a public statement calling for bright-line open Internet rules.

There can be no question that Obama’s statement influenced the FCC’s decision. But of course, so did the 4 million comments filed by Americans from every corner of the country.

It would appear from Commissioner Pai’s request that Congress partly defund the FCC, that he does not have a principled objection to politics influencing FCC actions.

Target Escapes Consumer Data Breach Case for US$10 Million

Posted in Lawsuits, Privacy and Data Security

In November 2013 Target was hit by a massive data breach resulting in the theft of a reported 110 million customer data records. A host of suits by consumers anCybersecurityd financial institutions followed. After more than a year of litigation, Target reached a settlement to dispose of at least a portion of the cases.

The Road to Settlement: In December, the Minnesota District Court nixed Target’s bid to dismiss the consumer claims (see earlier post). In the wake of that failed bid, this week, Target agreed to a settlement of the consumer complaints. Today, the court entered an order granting preliminary approval of the settlement. The financial institution cases are not part of the settlement.

Key Settlement Terms: Continue Reading

What Is Net Neutrality All About (a Brief Refresher)

Posted in Legal Developments, Net Neutrality

100033462At its core, net neutrality is very simple. Should the Internet be open? By that we mean, should consumers be able to access content of their choice without restriction? In our capacity as consumers, each of us would surely say yes.

Second question: Do transmission companies (e.g., cable and telco) and content companies (e.g., Google, Facebook and Netflix) agree with that? The clear answer to this is no.

Content Companies. The content companies know that your experience on the Internet is dependent upon choices they make, such as the technology or algorithms they deploy. Their challenge is to run their businesses in the way that best suits them and which annoys their customers the least. Choices by the content companies are restrained by the fierce competition they face. Do I prefer to get my financial information from Google or Yahoo? That question doesn’t matter to anyone other than Google or Yahoo, because I can easily switch from one to the other depending upon my sense of how good a job they are doing. Or, I can purchase a Wall Street Journal subscription. It’s all up to me.

Transmission Companies. The transmission companies know that your experience on the Internet is dependent upon the choices they make with regard to (a) regular network management practices, and (b) their own business goals. Transmission companies are not particularly restrained by competition due to the limited choice of other providers who can serve your needs, the high costs of changing, and to the fact that to a significant extent, the limited competition means that the transmission companies often do not feel keen pressure to differentiate their services. Largely, they march in line.

Probably, you do not object to the transmission companies reasonably managing their networks. Like the electric utilities, they must make the Internet work, and they do.

It is a different story with regard to whether you would knowingly accept your experience on the Internet being altered due to the transmission companies’ individual business goals. Probably if a company said that it is up to them what websites you could access on the Internet (and how), you would disagree. This is because the Internet is our key source of knowledge and the basis for much of today’s commerce.

Net neutrality is about the last issue. The fact is that the transmission companies have, in fact, said that it is their absolute right to determine your experience on the Internet. They have said that the transmission lines are theirs, and therefore what happens over those lines is up to them.

(It may sound like we are making this up, but incredibly Verizon has gone so far as to argue in court that its ability to determine what you see when you fire up your browser is a matter of Verizon’s own First Amendment (free speech) rights.)

Not About How Much Internet Access Costs. It is important to understand that net neutrality is not about how much Verizon and AT&T can charge you for Internet access. They can charge you, their customer, anything they want. What AT&T and Verizon want is to be able to charge you for Internet access, and also to charge the rest of the web when you desire to reach that part of the web. For example, if you want to access your WSJ subscription online, they would like to be able to say to the WSJ that they will not permit that unless the WSJ pays them. And much about that negotiation will be unseen by you. You will have no way of knowing if Verizon throttles the speed to the WSJ or alters your experience in other ways.

Last Thought: Internet as Utility. A key question for anyone is how do you conceive of the Internet? Is access to it necessary in today’s life, or is it optional? If optional, then net neutrality doesn’t matter. If you think it is necessary, then requirements that the Internet be neutral matter a lot.

Consider electricity? Is it necessary in today’s life, or is it optional?