The ongoing dispute in WPIX v. ivi exhibits the problematic nature of current copyright policy's compulsory licensing and royalty fee scheme for retransmitting video. On March 18, the U.S. Supreme Court declined to review a federal appeals court's ruling that ivi's Internet-based streaming service is a "cable system" under the Copyright Act. As a result, ivi cannot invoke Section 111's compulsory licensing rights to retransmit copyrighted TV broadcasting content. Instead, ivi must negotiate for retransmission rights.
Aside from the merits of the Second Circuit's interpretation of Section 111, this dispute over definitions and their regulatory consequences is a reminder of current copyright policy's problematic forced access and price controls. These provisions are applied selectively depending on the underlying transmission service. Selectively-applied compulsory licensing and royalty rate standards are also imposed on copyrighted music. Market-based reforms to copyright policies for video and music should be a component of broader reforms to communications policy that are needed to comport with the realities of the digital age.
Compulsory licensing and government rate-setting for both video and music content need to be part of the public policy conversation concerning digital age reform. Either right away or in steps, public policy for copyrighted video and music content should be realigned more closely with rule of law and free market principles. Policy reform should ultimately seek to foster a truly free market in which video and music copyright holders can freely negotiate with potential licensees for retransmission or public performance rights. And those negotiations should take place under a system of impartial laws.
From a copyright standpoint, the question of whether ivi meets the definition of a "cable system" is a big deal. Significant market and financial consequences follow, depending on the answer. A "cable system" has a statute-based right to retransmit copyrighted live TV broadcast programming according to Copyright Act § 111’s compulsory licensing provision. In exchange for retransmission rights, a cable system is then obligated to pay copyright holders royalty rates set by the Copyright Royalty Board.
The Second Circuit's ruling means ivi cannot invoke statutory compulsory licensing rights to retransmit copyrighted TV broadcasting content live via the Internet. Nor can ivi claim compulsory licensing rights as an affirmative defense to copyright infringement claims by WPIX or other copyright holders. Should ivi seek to retransmit copyrighted live TV broadcast content, it must bargain at arm's length with copyright holders for licensing rights.
It's no wonder that services like ivi prefer the benefits of Section 111's compulsory licensing and royalty fee payment scheme as opposed to negotiating directly for retransmission rights in a free market. Forced access and government price controls typically present terms more favorable to potential copyright users than copyright holders. It is equally evident why copyright holding TV broadcasters would seek to avoid losing control over their content. Internet streaming services may fragment and reduce their TV viewing audiences, undermining their bargaining position with advertisers.
As a matter of principle, compulsory licensing and government rate-making run counter to a free market. Compulsory licenses are a forced access mandate that undermine copyright holders' control over their own work. Royalty fee schedules or rate standards established by statute constitute government price controls on exchange. What's more, compulsory licensing is typically administered in arbitrary ways. Different types of media services and platforms are treated differently, depending on their respective transmission technologies or business models.
I drove these points home with respect to current copyright policy for music content in my FSF Perspectives paper "Putting Music Copyright Policy on a Free Market Footing." When it comes to copyrighted music content, copyright holders who fail to negotiate terms with such media service providers must instead accept public performance royalty fees set by statutory formulas and applied by the Copyright Royalty Board. And different royalty rate standards apply to the same copyrighted music content, depending on the type of media service or platform involved. Music content royalty rate standards for cable and satellite services are subject to the § 801(b) standard, which by its terms seeks to "minimize any disruptive impact on the structure of the industries involved and on generally prevailing industry practices." Non-interactive subscription-based webcasting is subject to a "willing buyer/willing seller" that at least attempts in theory to replicate genuine market prices. And AM/FM commercial broadcasters enjoy compulsory licensing rights but are not required to pay copyright holders any royalties for over-the-air public performances.
Continuation of current policies, over time, may well undermine the incentives of creators and other copyright holders to produce video or music content. Incentives would also likely be undermined for establishing new service and delivery models and technologies to serve consumers in better ways.
Also bearing significantly on the need for reforming copyright policy for both video and music content is the transformative impact of the Internet. Both types of content are now being distributed through what the Second Circuit described in WPIX v. ivi as "'cloud-based systems,' or virtual platforms where content resides remotely on a distant server." Internet-based alternatives for distributing video and music content to consumers render even more unjustifiable arbitrary forced access mandates accompanied by price controls.
Since compulsory licensing and government-set royalty rates or fees are deeply problematic in principle, efforts to reform copyright policy ultimately should include both video and music content. And because of the transformative impact of the Internet and other digital communications platforms, copyright policy reforms for video and music should take place within the broader context of necessary reforms to communications policy, all of which should be guided by the same set of free market principles.
In the case of video copyright policy, there is a complex but especially close connection to communications policy. Cable and DBS providers must contend with an added layer of regulatory burdens imposed by the must-carry and retransmission consent regime. Those regulations are based on the Communications Act and enforced by the FCC. "Must-carry" regulations give local TV broadcast networks – who are not necessarily the copyright holders for programming content – the ability to require cable systems or direct broadcast satellite (DBS) providers to carry their programming on a basic tier channel. Alternatively, TV broadcasters can invoke statute-based retransmission consent rights, requiring cable or DBS providers to negotiate with certain local TV broadcasters. But other FCC rules – such as network non-duplication and syndication exclusivity rules – restrict the ability of cable and DBS providers to negotiate for retransmission of signals from non-local TV broadcasters.
I have previously called into question the problematic forced access implications of must-carry in previous blog posts. FSF President Randolph May has criticized the unduly restricted context for FCC-enforced retransmission consent negotiations in respective FSF Perspectives papers and blogs. And FSF Board of Academic Advisors member Bruce Owen has likewise written about the "The FCC and the Unfree Market for TV Program Rights."
In short, Copyright Act-related restrictions on video retransmission and Communications Act-related restrictions on video transmission should be reformed in accordance with fundamental free market principles that better reflect the realities of the broadband Internet age. Efforts to unshackle music content from compulsory licensing and rate-making previsions should also be considered with the same market principles in mind.
Eliminating compulsory licenses and rate-making is critical to restoring a free market environment that fosters creative new ideas in content, business models, and technology. And fostering a vibrant free market for copyrighted video and music content should be a critical element in overall digital era communications policy reform.