House Unanimously Passes the Communications Act Update of 2016

On September 27, 2016, the House of Representatives unanimously passed the Communications Act Update of 2016. The bill is comprised of eight Energy and Commerce Committee bills including: H.R. 2583, the Federal Communications Commission Process Reform Act, H.R. 734, the Federal Communications Commission Consolidated Reporting Act, H.R. 4596, the Small Business Broadband Deployment Act, H.R. 4167, Kari’s Law Act of 2015, H.R. 3998, Securing Access to Networks in Disasters Act, H.R. 2669, Anti-Spoofing Act of 2016, H.R. 1301, Amateur Radio Parity Act, and H.R. 2566, Improving Rural Call Quality and Reliability.

We commend the Energy and Commerce Committee Chairman Fred Upton (R-MI) and the Communications and Technology Subcommittee Chairman Greg Walden (R-OR) for their hard work to make the FCC more transparent and to enhance public safety and communication networks throughout the country.

The FCC's Attempt to Make Choices for Consumers Will End up Harming Them

In February 2016, the Federal Communications Commission (FCC) adopted a Notice of Proposed Rulemaking (NPRM) purporting to “unlock the box,” mandating requirements for video navigation devices. Including the time the FCC spent writing the NPRM, this proceeding has lasted roughly ten months. After heavy criticism from inside and outside the FCC, the Commission is now apparently proposing an entirely new set of regulations which would require pay-TV providers to deliver video service through an application (as opposed to a set-top box) that can be used on “widely deployed platforms.” The draft Report and Order (unseen by the public) is scheduled to be voted on during an Open Meeting on September 29, 2016.  
If the technological innovation of the video marketplace has changed so much in the last ten months that the Commission has revised its proposal, what makes the FCC so sure that “apps” will be the technology consumers want in the future? And shouldn’t the FCC let the public comment on such a dramatic revision before the Commission casts its votes?

In FSF’s recent comments to the FCC regarding the status of competition in the video market, FSF scholars explained that consumers have more choices for video access than ever before. Our comments also discussed how the FCC’s original and new proposals would violate copyright terms, disincentivizing creators from producing additional content. (In addition to our comments, see my August 2016 blog and Senior Fellow Seth Cooper’s February 2016 blog for more on the copyright violations that the FCC’s proposal would enable.) Regardless of these very important issues, the FCC has misunderstood what should be a pretty simple concept: consumers like having choices in the video market. The fundamental mistake the FCC made in its original proposal was not the type of technological mandate; it was the mandate itself!

The video market has experienced tremendous innovation in the last five to ten years as online video distributors (Netflix, Amazon, Hulu) have emerged to become competitors with facilities-based pay-TV providers (Comcast, Verizon, Time Warner Cable). In fact, Netflix, Amazon, and Hulu combined have more than twice as many subscribers as all cable providers combined. The video market has been transitioning from set-top boxes to applications, so this mandate simply creates unnecessary uncertainty and removes the traditional options for consumers who are less likely to adopt to the latest market trends. (See here, here, and here for examples of the innovative transition that is occurring in the video market.)

If adopted, the mandate proposed by the FCC will raise costs for pay-TV providers. In fact, the FCC’s fact sheet acknowledges this because the proposal exempts providers with fewer than 400,000 subscribers in an attempt to “limit burdens on smaller providers.” Ultimately, consumers will end up paying for this technological mandate with an increase in the price of their pay-TV service.

Consumers likely will be able to see the increase in their provider’s costs on their monthly bills, but there will also be hidden costs. The FCC’s mandate could disable pay-TV providers from differentiating their application’s interface and usability. This would discourage providers from developing new ways to deliver their service. Such a requirement could force video distribution, which recently has been at the forefront of innovation, onto the back burner of technological development. Consumers would enjoy less innovation in the video market than they otherwise would, absent the FCC’s proposed regulations.

On September 16, 2016, Jason Furman, Chairman of the Council of Economic Advisers for President Obama, praised FCC Chairman Tom Wheeler for his efforts to “improve the proposal.” But neither President Obama and his closest advisers nor Chairman Wheeler and his FCC colleagues are knowledgeable enough to predict the future and mandate efficient outcomes in the video marketplace. Consumers, collectively, are the only group of people who can dictate what technologies provide value and which do not. While applications (as opposed to set-top boxes) might be closer to where the video market is moving right now, technology changes so rapidly that it may be only be a matter of weeks or months before the mandated technology is out-of-date.

Over the period of ten months, the FCC changed its mind about what technology to mandate for pay-TV providers and consumers. Who is to say that the FCC will not mandate a new technology a year or so down the road? The FCC should shut down this proceeding and allow consumers in the competitive marketplace to choose the technologies and platforms they prefer when accessing video content. If not, at the very least, the FCC should issue a new NPRM, instead of a Report and Order, so the public can comment on its quick switch from set-top boxes to applications. 

New Commerce Dep't Report Shows IP Industries' Economic Contribution

The Department of Commerce just issued an updated report that demonstrates the sizable contribution that Intellectual Property-intensive industries to our nation's economy.

Here's the headline message from DOC's news release:

"The U.S. Department of Commerce today released a comprehensive report that finds that intellectual property (IP)-intensive industries support at least 45 million U.S. jobs and contribute more than $6 trillion dollars to, or 38.2 percent of, U.S. gross domestic product (GDP). The report, a joint product of the Commerce Department's United States Patent and Trademark Office (USPTO) and Economics and Statistics Administration (ESA), serves as an update to the Intellectual Property and the U.S. Economy: Industries in Focus report released March 2012. 

While IP is used in virtually every segment of the U.S. economy, the report identifies 81 industries that use patent, copyright, or trademark protections most extensively. These "IP-intensive industries" are found to be the source - directly or indirectly - of 45 million jobs, roughly 30 percent of all the jobs in this country. Some of the most IP-intensive industries include: software publishers, sound recording industries, audio and video equipment manufacturing, cable and other subscription programming, performing arts companies, and radio and television broadcasting."

Whenever you run across proposals, say, for example, the FCC's current proposal to mandate a new open standard video navigation device with a compulsory license, that would threaten IP rights, please keep in mind the economic contribution of the IP-intensive market segments.

Read the full Department of Commerce report here.

Thinking Things Through VI - #UnlocktheWordProcessors

As I said in my last post in this series, some things are harder to think through than others. But, like the last post, this one too is rather easy.

I begin again with the letter Public Knowledge President Gene Kimmelman sent on September 21 to congressional leaders in which he said this: “Contrary to claims of Hollywood and cable monopolies, the FCC’s apps proposal will promote consumer choice while protecting copyright.”

In my last post, I explained why, as a matter of first principle, Mr. Kimmelman’s claim that the FCC’s navigation proposal will protect copyright is wrong.

But there is another matter of first principle at stake as well, this one involving sound communications policy. Notice that Mr. Kimmelman refers, as he and other Public Knowledge staff almost invariably do, to “cable monopolies.” There must be a locked “macro” on the PK word processors that will not allow anyone to type “cable” without “monopolies” attached. Please: #UnlocktheWordProcessors.

I could make light of this monotonous coupling by saying it is “so 90ish,” as in the 1990s. But since, for the last several years, the FCC appears to be taking so many of its cues from Public Knowledge, this is serious business.

To the extent they ever did, cable operators no longer have a monopoly in the distribution of video programming, unless Mr. Kimmelman means to argue that what he calls “cable” constitutes a distinct video distribution product market because “cable” uses a distinct “cable” technology. If he means to argue this, it is an untenable position because, in today’s video marketplace, video distributors compete vigorously against one another employing various technological platforms.

For authority that there no longer are any “cable monopolies” I refer Mr. Kimmelman to – yep! – the FCC. In June 2015, in what the agency calls the Effective Competition order, the Commission finally adopted a rule presuming that local video markets, on a nationwide basis, are subject to “effective competition.” In announcing adoption of the competitive presumption, the Commission recited the dramatic changes that have occurred in the video marketplace since the FCC started regulating basic cable rates after passage of the Cable Act of 1992.

As the agency explained in a brief filed in the D.C. Circuit appeals court in February 2016, two decades ago, in most locations, a single cable operator often was the only purveyor of multichannel video service. But now, citing all the familiar market share figures, the Commission conceded – indeed, touted – in its appellate brief that there has been a “transformation” of the multichannel video marketplace, acknowledging that “consumers have alternatives to cable,” and “cable’s market share has sharply declined.”

If ever there were, there no longer is such a thing as a “cable monopoly,” and the Commission has acknowledged this obvious truth, even if Mr. Kimmelman won’t.

But the Commission has a very bad case of cognitive dissonance when it comes to its video device navigation proposal. In a competitive market like the video distribution marketplace – that is, one in which the market participants are presumed by the Commission to lack market power – there is no sound basis, as a matter of first principle, for proposing to extend the government’s regulatory reach, rather than retract it. This is especially so, as here, where the government’s proposed new regulation ultimately involves a government-designed technological mandate in a fast-changing, dynamic technological area.

The set-top devices, or now navigation apps, that the government proposes to design, and upon which it seeks to impose a standardized compulsory license with a nondiscrimination mandate, are merely complements to the overall video distribution services offered by various video providers. And, as you might expect in a market which the FCC has declared presumptively competitive, the video distributors, in fact, do compete in the provision of navigation devices and app offerings in order to further differentiate their services. Of course, this differentiation in response to changing consumer demand is an important reason there has been considerable innovation and investment with respect to video devices and apps in the past few years.

The Commission appears blind to the adverse impact on innovation and investment by video distributors that its proposal is likely to cause. Perhaps it doesn’t care.

In any event, even if Mr. Kimmelman and his Public Knowledge colleagues continue to refer to “cable monopolies,” the Commission should know better. As a last resort, it should read its own appellate brief in defense of its Effective Competition order.

Commissioner O'Rielly: FCC Investigation Has Suppressed Zero-Rated Offerings

On September 20, 2016, FCC Commissioner Michael O’Rielly spoke at the International Bar Association Conference, where he talked about the FCC’s investigation of zero-rated services. Commissioner O’Rielly said that the ten-month investigation has suppressed the implementation of new pro-consumer offerings:  “I have had conversations with industry participants that withheld new offerings because it isn’t worth being caught up in an FCC investigation. One company told me that their engineers came up with some new interesting ideas that were shot down almost immediately by their general counsel because of this rule. It is never a good thing when lawyers are dictating technology winners and losers, no offense to the lawyers in the room.”

Consumers benefit from more choices offered by their Internet service providers, but the FCC’s general conduct standard has discouraged ISPs from developing new services. It is time for the Commission to end its investigation of zero-rated services.

Thinking Things Through V - The FCC, Copyrights, and Compulsion

Some things are harder to think through than others. But this one is rather easy.

As reported in the September 23 edition of Communications Daily [subscription required], on September 21, Public Knowledge President Gene Kimmelman sent a letter to congressional leaders in which he said this: “Contrary to claims of Hollywood and cable monopolies, the FCC’s apps proposal will promote consumer choice while protecting copyright.”

As I have explained at length elsewhere, despite all the protestations to the contrary, the FCC’s proposal, including the latest iteration as best conjectured through selective blog and “fact sheet” snippets thus far publicly disclosed, almost certainly will threaten the integrity of copyrights and the traditional right of copyright holders to determine with whom to deal and on what terms. Again, despite protestations to the contrary, the FCC is proposing a compulsory license. Regardless of whatever label the FCC eventually chooses to place on its proposed mandate, as Mr. Kimmelman acknowledges, the agency’s diktat “would simply ensure nondiscriminatory treatment of programmers and device and platform vendors.”

You can play words games as long as you like, but the FCC’s mandate to “simply ensure” nondiscrimination will be compulsory and it will be a license. Hence, a compulsory license.

I want to add that I have known Gene Kimmelman for many, many years, and I respect him and consider him a friend. I hope he feels likewise. For me, what’s important are not the personalities, and I try hard never to question a person’s motives for advocating a position. That’s certainly true here.

What’s important to me is getting policy right and acting in accordance with the rule of law. There’s a reason that the Founders included the Intellectual Property Clause in the Constitution and, uniquely, charged the federal government with securing this particular form of property. The reason has much to do with allowing creators of all sorts, whether they reside in Hollywood or Podunk, to realize the fruits of their labors, and through the medium of contracts freely negotiated, to realize the returns on their innovations and investments.


Absent a very compelling reason – which doesn’t exist in this case – a federal agency, here the FCC, should not act in a way that has the effect of derogating copyrights.

Netflix Wants the FCC to Investigate Data Caps

Earlier the month, Netflix submitted comments to the FCC with regards to the Commission’s Twelfth Broadband Progress Notice of Inquiry. In the comments, Netflix asked the FCC to “take into account the impact of data caps—and low data caps in particular—on a consumer’s ability to watch Internet television using a mobile network.”

This is a clear example of rent-seeking. Netflix would benefit from an FCC rulemaking that would limit the use of data caps by fixed and/or mobile providers, because it would enable consumers to spend more time streaming Netflix. However, consumers who do not use Netflix or infrequently use mobile data – often low-income consumers – are better off buying a fixed amount of mobile data each month as opposed to paying extra for unlimited data. Additionally, the FCC is currently investigating zero-rated services, which are a complement to data caps. It would be costly and contradictory for the Commission to investigate and possibly regulate two services which work in conjunction with each other.

New Technology Uses Bitcoin to Track Online Pirates

Yesterday, a Gizmodo article featured a new technology being used by the film industry to combat online piracy. Developed by G-J van Rooyen, a professor at Stellenbosch University, the technology uses bitcoin to track illegal content. Bitcoin uses a blockchain, which is a public ledger of all bitcoin transactions.

Professor van Rooyan’s company, Custos Media Technologies, “embeds some bitcoin into each copy of a file that is sent to a licensed recipient, usually a reviewer. A part of the license agreement is that the recipient is responsible for keeping the digital content - and the bitcoin inside it - safe from digital pirates.” If a licensed recipient breaks the agreement and distributes the content, Custos will be able to see the transaction on Bitcoin’s blockchain. In other words, the system can be thought of as a virtual bounty on each film that is pirated, revealing to the film industry who is leaking the file. Hopefully, this technology will be effective in combating online piracy and eventually can be used to track other illegal content, such as music and television.

It is necessary to address, and diminish, piracy and content theft through voluntary initiatives, such as Custos Media Technologies, that help ensure that content creators, artists, innovators, and marketers can earn a return on their creative works.

Constitution Day at the FCC

Constitution Day officially is September 17, 2016. This year marks 229 years since the signing of the Constitution on September 17, 1787, in Philadelphia.

Not many people celebrate Constitution Day, but I’ve always thought it worthy of commemoration. It’s an opportunity to take a moment – or maybe more than a moment – to think about the Constitution’s meaning and its relevance to today’s issues.

Over the years, I’ve written often about the ways the FCC’s actions implicate constitutional strictures and constitutional values. Because the FCC regulates media, communications, information services, and now the Internet, it is not surprising that many of the agency’s actions implicate the First Amendment’s free speech guarantee.

While many of the FCC’s actions present a target-rich environment, today I want to focus on just one current proceeding that implicates several different constitutional provisions – and that appears to run up against constitutional constraints.

The proceeding I have in mind is the Commission’s proposal for the government to mandate a new design, with new functions and features, for video navigation devices and apps, and, now, in its latest iteration, even to impose a compulsory license on video distributors that will dictate the terms and conditions under which they must make available their video programs to all who wish to take them.

Let’s consider the ways this proposal implicates constitutional strictures.

First, whether or not the FCC acknowledges this explicitly in so many words, the agency proposes to require video distributors like Comcast, AT&T, Charter, Verizon, CenturyLink, Frontier, and the multitude of others, to utilize a government-prescribed format, rather than one of their own choosing, for presenting a navigation search menu. And the video distributors will not be permitted to “discriminate” in the way they present the search menu content and functions.

No less than a government diktat regarding the content of video programing, a government diktat prescribing the permissible presentation, arrangement, and content of a search menu violates the First Amendment’s free speech guarantee as well. In light of the acknowledged competitiveness of the video distribution market, including the competitiveness of the navigation device and app market segment, the government can offer no compelling reason for restricting the speech of the video distributors.

Second, the FCC’s proposal most likely runs afoul of the Constitution’s Intellectual Property Clause because it almost certainly would lead to violation of copyright owners’ rights. As the Copyright Office explained in its August 3, 2016, letter to members of Congress: “The rights protected by the Copyright Act are ‘exclusive’ to the copyright owner, meaning that the copyright owner generally has full control as to whether or how to exploit his or her work, including by entering into licensing agreements.” Even while the FCC has continued to selectively leak revisions to its proposal, nothing has changed the fact that copyright protection would be jeopardized under a regime that requires programming to be shared across multiple devices under an open standard license.

And now, the FCC appears – again without explicitly acknowledging this in so many words – intent on imposing a new compulsory license that would require copyrighted programming to be made available to all entities on a non-discriminatory basis. Of course, such a compulsory license is the very opposite of the exclusive control which Article 1, Section 8, Clause 8 of the Constitution confers on copyright owners: "To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries." For a full historical and jurisprudential examination of the Founders’ intent regarding the Intellectual Property Clause, please see my book, co-authored with Free State Foundation Senior Fellow Seth Cooper, The Constitutional Foundations of Intellectual Property.

It is true that the FCC doesn’t enforce copyright violations and is not a repository of copyright expertise. All the more reason for the Commission to consider carefully the views of the government entity – the Copyright Office – possessing specific copyright expertise and charged with advising Congress regarding copyright policy. The FCC, like all government agencies, has a responsibility to uphold constitutional values. If the FCC acts consistently with its responsibilities, it will pull back its video navigation proposal.

Finally, the FCC keeps revising its proposal “on the fly.” And now, in its latest iteration, the proposal includes the compulsory license discussed above. This appears to be – although all we have to go on are FCC Chairman Tom Wheeler’s blog and a minimal “fact sheet” – a significant departure from the original proposal. As a matter of due process – even aside from compliance with Administrative Procedure Act notice and comment requirements – the agency should put its latest revised proposal out for public comment in a “Further Notice of Proposed Rulemaking.”

Such a “Further Notice” would enhance the prospects that the Commission would end up with a result that constitutes sound policy and comports with the law – or at least a result that comes closer to those obvious goals. Following this course seems to be required as a matter of fundamental fairness, which is what the Constitution’s due process clause is all about.

Again, September 17 is Constitution Day. Don’t let it pass without giving some thought to what the Founders bequeathed to all of us.

Truth be told, the FCC commissioners ought to consider everyday Constitution Day as they conduct the agency’s business. But, for now, perhaps Chairman Wheeler and his fellow commissioners will use the occasion of this particular Constitution Day to stop and reflect on how the agency’s problematic navigation device proposal comports with important constitutional constraints and values.