Thursday, August 18, 2016

Copyright Problems Put FCC’s Set-top Box Proposal Beyond Repair

In January 2016 the FCC adopted a Notice of Proposed Rulemaking (NPRM) purporting to “unlock the box.” But in actuality, the FCC’s NPRM would unlock copyright protections by mandating third-party video device maker access to valuable content and subscriber information. This access mandate would result in widespread violations of licensing agreements negotiated between copyright owners and video service providers. The truth is that the NPRM’s strictures would stifle the video market’s innovative transition from set-top boxes to applications.

Concerns over the unintended consequences of the proposed rules have been raised by a majority of the Commission. Two of the FCC Commissioners – Ajit Pai and Michael O’Rielly – voted   against the NPRM. They have cited increases in the costs of video innovation and violations of intellectual property rights that would result from the NPRM’s adoption. Commissioner Jessica Rosenworcel – who voted for the adoption of the NPRM – has also publicly acknowledged her concerns with the proposal. In June, Commissioner Rosenworcel, said: “Kudos to the Chairman for kicking off this conversation but it has become clear the original proposal has real flaws and, as I have suggested before, is too complicated. We need to find another way forward.”

The current proposal is irretrievably flawed. As FSF Senior Fellow Seth Cooper discussed in a February 2016 blog, the FCC’s proposal would undermine negotiated contractual rights to transmit copyrighted video to subscribers. This is because video service providers would be forced to make licensed video content available to third-party device makers who never contracted with copyright owners. Copyright owners would have no ability to enforce their negotiated licensing terms against third-party devices makers they never contracted with. Nor would the FCC have legal authority to police NPRM-enabled copyright violations by third-party device makers. Significantly, on August 3, 2016, the Copyright Office sent a letter to members of Congress describing in detail the copyright law problems posed by the FCC’s NPRM.

Although this by-product of the FCC’s proposal has not received as much attention as others, copyright violations that inevitably would result from the NPRM almost certainly will harm minority and diverse content creators. In a March 2016 letter to the FCC, a number of organizations representing minority consumers and diverse ethnicities, including the Multicultural Media, Telecom and Internet (MMTC), League of United Latin American Citizens (LULAC), and the National Association for the Advancement of Colored People (NAACP), asked the Commission to study the effects the proposal would have on “diversity and inclusion.” In April, MMTC submitted comments to the FCC stating: “[T]he unintended consequences of the FCC’s choice would harm diverse programmers and content creators by violating their copyright and licensing agreements and existing distribution arrangements with MVPDs, the lifeblood of their very existence.” Indeed, Commissioner Rosenworcel has publicly recognized the threat of harm that NPRM-induced copyright violations would pose to minority and diverse content creators.

To be sure, all content creators would be harmed by this proposal because it will enable third-party device makers to repackage content and rearrange channel lineups and tier placements. Copyright owners’ reduced control over the use of their video content will correspond with reduced financial returns. The NPRM will also cause harm by enabling third-party device makers to sell targeted advertisements to consumers based on their viewing habits. Ad revenues reaped by third-party device makers would be appropriated from the owners of copyrighted video content. However, minority and diverse content creators could be harmed disproportionately because they often sell their content and corresponding ads to specific audiences that are smaller in size. This loss in ad revenues will have the effect of discouraging innovation and creativity among minorities and other smaller, diverse audiences.

It is encouraging to see a majority of the FCC Commissioners raise concerns about the costs levied on minority programmers by the agency’s set-top box proposal. But the proposal is hopelessly beyond repair. FSF President Randolph May and Senior Fellow Seth Cooper rightly have called for the termination of what they denominated the “Enable Copyright Violations” proposal. (Also, see FSF’s comments and reply comments regarding this proceeding.)

Impairment of contracts for transmitting copyrighted video content lies at the core of the FCC’s set-top box proposal. No modest revisions can fix a rulemaking proposal that so clearly and fundamentally violates copyright protections. Hopefully, the Commissioners’ recognition of these copyright concerns will lead them to terminate the current set-top box proceeding. If the Commission wishes to explore whether any new regulations are necessary and desirable in light of the rapidly changing video marketplace, including almost weekly new developments relating to navigation devices, then it should issue a Notice of Inquiry to gather up-to-date information.