Court Decision Brings Clarity to the Law of Contributory Copyright Infringement

On October 16 of this year, the U.S. Court of Appeals for the 10th Circuit issued a significant decision regarding contributory liability for copyright infringement. In Greer v. Moon, the court concluded that the plaintiff-appellant sufficiently stated a claim for contributory copyright infringement against the defendant-respondents – a  website and its operator – by alleging that digital copies of a copyrighted book and a copyrighted music recording were posted on the website without authorization, the site refused to comply with a takedown notice, and that the site's conduct contributed to the infringement by encouraging the site's users to commit direct infringement.

Contributory liability is a form of secondary liability for copyright infringement, and it requires that a copyright owners show: (1) existence of a direct infringement; (2) a party's knowledge of the direct infringement; and (3) a party's contribution to the direct infringement by causing or materially contributing to it. 

The lower court had dismissed the plaintiff-appellant's infringement claims against the website and its operator on the grounds that merely permitting infringing material to remain on the site without having induced or encouraged "the initial infringement" is not enough to plead infringement based on contributory liability. 

 

However, the 10th Circuit concluded that the defendant-respondents' alleged conduct went beyond passive behavior in merely permitting infringing content to remain on the site. According to the court, a reasonable inference from the facts alleged is that the site's reposting of the plaintiff-appellant's copyright takedown notice – apparently to belittle the copyright owner and the notice as well as for acknowledge that the sites users would continue to engage in infringing activity – amounted to encouragement of the site's users to engage in direct infringement of the plaintiff-appellant's protected works. 

 

Importantly, the 10th Circuit determined that the lower court's insertion of "initial infringement" qualifier to making a claim contributory liability for infringement was improper. It wrote: "We cannot understand initial to be a literal requirement supported by applicable law, otherwise contributory infringement liability would rarely, if ever, lie for ongoing repeated infringements."

 

In Greer v. Moon, the 10th Circuit rightly rejected a would-be barrier to obtaining relief for contributory copyright infringement because it is unsupported by law. Unfortunately, courts in other cases have sometimes narrowed the scope of traditional secondary liability principles as applied in the context of Section 512 of the Digital Millennium Copyright Act (DMCA). Free State Foundation President Randolph May and I address this in our June 2020 Perspectives from FSF Scholars, "Copyright Office Report Should Spur Modernizing the DMCA." 

Senate Bill Would Require USF Contributions From Major Edge Providers and ISPs

On November 16, the Lowering Broadband Costs for Consumers Act of 2023 was introduced in the U.S. Senate. This Universal Service Fund (USF) reform bill would expand the contribution base to include mega-popular edge providers who generate substantial yearly U.S. revenues. The Act comes with bipartisan sponsorship by Senators Markwayne Mullin, Mark Kelly, and Mike Crapo. As of this blog post, the Act has yet to receive a bill number, but the text of the legislation is available on Sen. Mullin's website, along with a press release. The Senate should give this bill due consideration.

 

The Lowering Broadband Costs for Consumers Act provides that, within 18 months of the bill being passed into law by Congress, the FCC "shall complete a rulemaking to reform the Universal Service Fund by expanding the contribution base so that broadband providers and edge providers… contribute on an equitable and non-discriminatory basis" to "specific, predictable, and sufficient mechanisms established by the Commission to preserve and advance universal service." Importantly, the Act would require contributions only from the largest broadband providers and edge providers, as the bill exempts from contribution requirements broadband providers and edge providers that either: (1) transmit less than 3% of estimated broadband data transmitted in the U.S. during the prior year (as determined by the Commission) and earn less than $5 billion dollars in U.S. revenue during the prior year; or (2) would have a "de minimis" level of contribution to universal service under the Commission's mechanisms. 

 

The Act's definition of an "edge provider" includes digital ad services, search engines, social media platforms, streaming services, app stores, cloud computing services, over-the-top or other text-messaging services, videoconferencing services, video game services, and e-commerce platforms. 

 

The sponsors of the Lowering Broadband Costs for Consumers Act should be saluted for introducing legislation that would tackle the serious problem of the USF contribution scheme's fiscal unsustainability. It makes all the sense in the world to require at least some amount of USF contributions from the service providers who are responsible for the overwhelming majority of the Internet's traffic and who financially benefit the most from internet connectivity. Free State Foundation President Randolph May described the USF system's precarious financial situation and the urgent need for contribution reform in our August 2023 public comments filed with the Universal Service Fund Working Group that is led by Sens. Ben Ray Luján and John Thune. 

For other legislation introduced in the 118th Congress that would address the USF contribution scheme, see my blog post from March of this year, titled "Senators Reintroduce Bill to Require FCC Report on USF Contribution Reforms." Therein I describe the FAIR Contributions Act, which would require the Commission to conduct a feasibility study on collecting USF contributions from Internet edge providers.  

Test Shows Broadband Internet Speeds Increased Again in 2023

According to a November 3 report, HighSpeedInternet.com's Internet speed test shows a national average Internet download speed in 2023 of 171.3 Mbps. This figure is up 44% compared to 2022, when the average speed was 119.03 Mbps. And this is significantly faster than the reported 2020 national average of 42.86 Mbps.

HighSpeedInternet.com's findings go to show that broadband Internet speeds continue to improve and benefit consumers across the country. Momentous and continuous rises in network speeds have taken place without public utility regulation. Despite doomsday predictions of the end of the Internet as we know it leading up to the repeal of the FCC's 2015 Title II Order, broadband services have flourished under the light-touch Title I regulatory framework for broadband Internet access services that was established by the 2018 Restoring Internet Freedom Order. The completely failed predictions that Internet blockages and slowdowns follow the repeal of public utility regulation ought to be remembered now that the Commission has issued a Notice of Proposed Rulemaking to re-impose such regulation. It also ought to be remembered that there is no solid evidence of ISPs blocking, throttling, or unfairly harming consumers' access to lawful Internet content following the repeal of the Title II Order.

 

To be sure, there are inherent limits to the usefulness of an annual national download speed average, as HighSpeedInternet.com's median download speed finding for 2023 was 90.96 Mbps, and the variations across regions, networks, and technologies are innumerable. But the HighSpeedInternet.com's reports provide a consistent base line and indicator of the heavy private investment-backed progress that is being made in Internet connectivity to benefit consumers. Re-imposing Title II will threaten the conditions for continued strong investment and risk undoing this ongoing progress. The FCC should reject Title II reclassification and stay with the pro-market, pro-investment, pro-innovation policy under Title I. 

 

For recent publications by Free State Foundation Scholars recommending against the FCC re-imposing public utility regulation on broadband Internet access services, see FSF Board of Academic Advisors member Daniel Lyons' Perspectives from FSF Scholars, "Refreshing the Record on Net Neutrality," and FSF President Randolph May's Perspectives, "Let Us Not Raise a Ruckus Over Net Neutrality."

Press Release: The FCC's Digital Discrimination Order Includes "The Long Tail of Intangible Variables"

Free State Foundation President Randolph May issued the following statement regarding the FCC’s adoption of its Digital Discrimination order.

The FCC and the Biden Administration both acknowledge that there is no evidence in the record or otherwise that Internet service providers intentionally have discriminated based on income or otherwise in deploying broadband facilities or providing access to broadband networks. So, rather than using this finding as a point of departure for establishing a sensible framework to prevent any digital discrimination that may occur in the future, the Commission opts to use it as a basis for perhaps the most far-reaching unauthorized power grab in the history of the agency. The foundation upon which the Commission's Democrat majority hopes to rest this power grab is the adoption of a "disparate impact" standard, rather than a disparate treatment standard. Based on existing judicial precedent, I predict the courts will find this a shaky foundation indeed.

 

As astonishing as it may seem, it is no exaggeration to say that the Commission claims for itself the power to regulate all — yes, all — aspects of the policies and practices of Internet providers, including a provider's decisions regarding deployment, network reliability, network maintenance, the equipment it distributes to customers, pricing, promotional discounts, customer service, language options, credit checks, marketing and advertising, and more. And, as astonishing, the Commission claims the power to regulate the policies and practices of landlords, banks, construction firms, unions, advertising, and other business sectors. The order makes clear that, for Internet providers and for those firms that have no idea even where the FCC is located, the list of policies and practices which the agency claims the right to examine, and the list of businesses covered, is non-exhaustive.

 

Indeed, the FCC actually touts "the long tail of intangible variables" that can't be foreseen as a justification for placing no tangible limits on the power it asserts to regulate all aspects of the operations of all the businesses now within its sights.

 

Anyone who doesn't foresee that the Commission's order will lead to rate regulation, however denominated, of Internet providers is engaging in willful blindness. The Commission has emphasized it will examine a provider's pricing, and, in assessing "economic feasibility," it will consider the provider's projected income, expenses, demand, and expected rate of return. Those factors are at the core of regulating the rates charged by public utilities — which the FCC now has no hesitancy in admitting that’s what it is determined for Internet providers to be. It's difficult to see how the agency will not get bogged down in years-long proceedings that resemble old-fashioned utility rate cases.

 

Finally, what ought to be as disturbing as anything else is the certainty that the effect of the order will be to curtail the investment and innovation which should be the primary objective of government policy, including promoting equal access.   

NTIA Releases National Spectrum Strategy, But Pipeline Remains Empty

On November 13, the NTIA released its National Spectrum Strategy (NSS). The document's release in advance of the December 31, 2023 deadline set by the White House is welcome as far as it goes. However, at the same time, the NSS doesn't appear to move the ball forward in any practical sense because it doesn't actually designate any spectrum for repurposing but instead simply identifies five bands for future studying – of up to two years – for "potential repurposing." There is a widely-acknowledged pressing need to dedicate more spectrum for commercial wireless services, but from a reading of the NSS it appears that the empty spectrum pipeline won't be replenished anytime soon.

The matter of most immediate importance covered in the National Spectrum Strategy is its first "pillar": "A Spectrum Pipeline to Ensure U.S. Leadership in Advanced and Emerging Technologies." The NSS selected five different spectrum bands totaling 2,786 megahertz (MHz) of spectrum for "in-depth near term study to determine suitability for potential repurposing to address the nation's ever-evolving needs." According to the NSS, "[t]hese spectrum bands are a mix of Federal and shared Federal/non-Federal bands—with an emphasis on mid-band frequencies—that will be studied for a variety of uses, including terrestrial wireless broadband, innovative space services, and unmanned aviation and other autonomous vehicle operations." Those five bands are: (1) Lower 3 GHz (3.1-3.45 GHz); (2) 5030-5091 MHz; (3) 7125-8400 MHz; (4) 18.1-18.6 GHz; and (5) 37.0-37.6 GHz. 

 

Additional "pillars" in the NSS address long-term planning for supporting spectrum use, improving spectrum access and efficiency through innovation and emerging technologies, and future spectrum-related workforce development. The NSS states that the NTIA's next step is to develop an Implementation Plan for carrying out the objectives identified in the report. That Implementation Plan reportedly will be completed within 120 days of the release of the NSS. A Presidential Memorandum issued on November 13 states that the Plan will include a schedule for detailed studies of the selected bands to be completed within 2 years of the submission of the NSS or within 2 years of receipt of funding for agency studies under the Spectrum Pipeline Act of 2015.

 

The 2015 Act ought to serve as a reminder that spectrum resource needs have long been recognized, but the federal progress on actually addressing those needs, across multiple Administrations, has been slow. Hopefully, the Implementation Plan will likewise be submitted ahead of schedule and the spectrum band studies also are completed rapidly so that significant progress finally becomes discernable and spectrum is actually repurposed to support 5G and future 6G services. Until then, the spectrum pipeline remains empty.

 

In April of this year, Free State Foundation President Randolph May and I submitted comments to the NTIA in its Development of a National Spectrum Strategy proceeding. See also my April 18 blog post, "FSF Calls for Fast Action on Mid-Band Spectrum." FSF scholars will have more to say in the near future on the NSS and spectrum policy. 

State Court Weighing USAC on Tax Immunity for Lifeline

On October 26, the Washington Supreme Court heard oral arguments in Assurance Wireless USA v. State of Washington Department of Revenue. At issue in the case is Washington State's attempt to impose retail sales tax obligations on Assurance for providing wireless services to individual participants in the Lifeline program. The parties disagree over the Assurance's provision of wireless services to individuals is a taxable sale. The Lifeline subscribers do not pay Assurance for the service, and Assurance claims that the FCC is the buyer of Lifeline services because payment to Assurance comes from the FCC via the U.S. Treasury and that the transaction is therefore immune from state taxation. But the State argues that the Universal Service Administrative Company (USAC) is the buyer of the wireless services for Lifeline users, and thus as a private corporation – and not, it is argued, a federal instrumentality – the transactions are not immune from taxation.

Indeed, the central question to be addressed by the Washington Supreme Court in Assurance Wireless USA is whether the USAC is a federal instrumentality that is exempt from state taxation. Owing to the peculiar composition and function of the USAC in administering the Lifeline program on sub-delegated authority from the FCC, the parties' briefings offer sharply contrasting views on the matter.

According to Assurance's supplemental brief: 

Unlike a federal contractor, USAC is so interconnected with the FCC's function of universal service that the two cannot realistically be viewed as separate. USAC was created at the FCC's direction. Pet. 22. USAC has no funding apart from the USF, and the FCC approves its quarterly administrative budget. 47 C.F.R. § 54.423. The FCC prescribes each of USAC's functions and the rules under which it carries out these functions. USAC must report the amounts of money disbursed for Lifeline to the FCC on a quarterly basis. 47 C.F.R. § 54.702(h). Such reporting must comply with federal financial management statutes. 47 C.F.R. § 54.702(n). The FCC appoints and/or approves all USAC’s board members. 47 C.F.R. § 703(c)… For purposes of federal laws, courts have noted the FCC's control over USAC is so integrated that USAC should be treated as the government… If USAC does not "stand in the shoes" of the FCC when it performs mere ministerial tasks at the FCC’s behest, no private entity would ever be treated as an instrumentality. Pet. 26. No court has overruled the longstanding precedent which extends tax immunity to federal instrumentalities. See Rev. Rul. 57-128, 1957-1 C.B. 311 (listing factors that the I.R.S. uses to determine if entities are instrumentalities of states for purposes of the federal taxation).

But the Washington Department of Revenue views the USAC differently: 

[T]he U.S. Supreme Court has narrowed the concept of an "instrumentality" of the federal government. In order for the courts to confer tax immunity on a private entity, that entity must be "incorporated into the government structure." New Mexico, 455 U.S. at 737 (internal quotation marks omitted). Or, stated slightly differently, the private entity must be "'so assimilated by the Government as to become one of its constituent parts.'"… Congress has not conferred tax immunity on the USAC, and Assurance does not argue otherwise. Moreover, imposing a state retail sales tax on goods or services purchased by the USAC in no way interferes "with the functions of [the federal] government itself." New Mexico, 455 U.S. at 736… Instead, the USAC is a wholly-owned subsidiary of a trade association that has been given the responsibility to "collect, pool, and disburse the universal service support funds contributed by carriers." Incomnet, 463 F.3d at 1067. Moreover, the USAC has expressed publicly that it is not "a federal government agency or department or a government controlled corporation." CP 299. Likewise, the FCC has publicly acknowledged that the USAC "is a private corporation, not a public entity." Report on the Future of the Universal Service Fund, FCC 22-67 at *41 ¶ 117, 2022 WL 3500217 (F.C.C. 2022) (citations omitted). Because the USAC is a private corporation and not a federal entity, members of its board of directors are not required to be nominated and appointed by the President of the United States under the Appointments Clause of the federal constitution. Id.

There is no timeline on when Washington Supreme Court will make its decision. However, I favor the view that the USAC is a federal instrumentality and thus immune from taxation.

 

Free State Foundation President Randolph May and I address a broader set of structural issues regarding universal service – including programs such as Lifeline – in our April 2021 Perspectives from FSF Scholars, "Congress Should Put Universal Service on a Firmer Constitutional Foundation." And in August of this year, FSF President May and I submitted public comments with Universal Service Fund Working Group led by Senators Ben Ray Lujan and John Thune. 

Pitfalls of FCC's Proposal to Sharply Raise Broadband Benchmark Speed

On November 1, the FCC released a Notice of Inquiry for its upcoming Broadband Deployment Report – also known as the 706 Report. In the Notice is a proposal to increase the benchmark download/upload speeds for defining broadband Internet access services from 25Mbps/3 Mbps to 100 Mbps/20 Mbps.

Expect to hear more from Free State Foundation scholars on this matter in the coming weeks. That said, Free State Foundation scholars have published papers this year and last recommending that the FCC set broadband speed benchmarks that reflect real-life common uses by Internet end-users. And they identify potential downsides to sharply raising those benchmarks. 

 

Free State Foundation President Randolph May and Senior Fellow Andrew Long published an August 2023 Perspectives from FSF Scholars, titled "The FCC Should Define "Broadband" Based on Actual Consumer Usage." FSF President May and Mr. Long wrote in the context of the previously existing 2-2 deadlock of the Commission’s members on the matter of broadband speed benchmark, yet their take is entirely relevant today:

We contend that the reason for this apparent stalemate regarding the proposed new benchmark is that it seemingly is based on preconceived policy notions, rather than on evidence-based technical and economic foundations. The Biden Administration consistently has acted in ways to prioritize a specific distribution technology – fiber-based networks – over other wholly viable, and often far more cost-effective, solutions. Federal agencies tasked with distributing multiple billions in broadband subsidies have collaborated in that effort by issuing rules that embrace eligibility requirements – relating to both speeds and distribution technologies – that tilt the scales toward fiber.

 

But to meaningfully determine "whether advanced telecommunications capability is being deployed to all Americans in a reasonable and timely fashion," as it is required to do annually by Section 706 of the Communications Act, the FCC ought to leverage its technical and economic expertise, and input from the public, to develop an evidence-based model as to what "advanced telecommunications capability" in fact entails. A deep dive into actual consumer usage of the Internet is required and in all likelihood will produce much different – and more relevant – results than policy-driven line-drawing that starts with favored distribution technologies and works backward. 

Additionally, Duke Professor Michelle Connolly, a former FCC Chief Economist and a member of FSF's Board of Academic Advisors, published in an insightful May 2023 Perspectives from FSF Scholars, titled "Mindfully Wasteful Spending: The Definition of Broadband." Among the salient points made by Prof. Connolly:

The FCC's definition is supposed to represent the minimum threshold for service to officially count as broadband service. It is not supposed to represent the minimum needed for a household with five gamers, two live streamers, and two grandparents streaming to two ultra-high definition 4K TVs 24 hours a day. Nor should it.

And according to Prof. Connolly:

The consequence of using such a limited (and limiting) definition is mislabeling "served" areas as "unserved," and, importantly, mislabeling areas that have no need for subsidization as "underserved." This allows funding intended to reduce digital divides to be redirected away from truly unserved areas and towards more economically attractive areas that are being mislabeled as "unserved" or "underserved" simply due to the entirely artificial constraints embodied in such a definition of broadband service.

For more, check out both of the foregoing Perspectives from FSF Scholars papers, as well as my September 2022 Perspectives, titled "A Case for Modest Speed Benchmarks in the FCC's Next Broadband Report." 

PRESS RELEASE: FSF Submits Ex Parte Regarding the "Economic Feasibility" Test and Responding to Public Knowledge

 

Free State Foundation President Randolph May and Director of Communications Policy Studies Seth Cooper submitted the attached written ex parte presentation to the FCC explaining why the definition of “economic feasibility” proposed in the Commission’s draft Report and Order in its Digital Discrimination proceeding is so problematic and wrongful and why a suggested “clarification” by Public Knowledge is even more problematic and wrongful.

Below are two paragraphs excerpted from the beginning of the ex parte submission and three from the end:

The Free State Foundation offers these ex parte comments regarding the Commission’s draft Report and Order and Further Notice of Proposed Rulemaking in the above-referenced Digital Discrimination proceeding. The focus of these ex parte comments is on the draft Report and Order’s definition of “economic feasibility” to implement Congress’s express requirement in Section 60506(a) of the Infrastructure Investment and Jobs Act of 2021 that the Commission take into account issues of “technical and economic feasibility” in evaluating claims of discrimination. And, even more specifically, these ex parte comments focus on an ex parte submission by Public Knowledge dated November 1, 2023.

 

Regrettably, as explained below, the draft Report and Order defines “economic feasibility” in a way that will induce, if not require, the Commission to conduct old-fashioned public utility style rate cases, including rate of return determinations, akin to the ones found in the FCC’s case books back in the 60s, 70s, and 80s. And akin to those thousands of public utility rate case decisions of the state public utility commissions. Public Knowledge’s November 1 ex parte is even more troublesome because, by making the agency’s rate case decision-making task even more complicated, the “clarification” sought by Public Knowledge would further destroy the Commission’s ability to comply with the congressional direction to consider “economic feasibility.” The suggested “clarification” language would render the task of evaluating “economic feasibility” even less practically implementable, especially within any reasonable timeframe, than the already problematic test proposed in the draft Report and Order.

*     *     *

In considering draft Paragraph 71, PK’s November 1 ex parte, and this submission, the Commission would do well to remember the admonition of William Kennard, President Clinton’s FCC Chairman, back in 1999, when he said: "I have been there on the telephone side. . . [I]f we have the hope of facilitating a market-based solution here, we should do it, because the alternative is to go to the telephone world, a world that we are trying to deregulate and just pick up this whole morass of regulation and dump it wholesale on [Internet providers]. That is not good for America."

Whether intentionally or not, the draft Report and Order indicates that the present Commission, needlessly, is about to dump the “whole morass of regulation” on Internet service providers. And PK would dump even more morass “wholesale” on top of that. The draft’s approach to defining the “economic feasibility” standard is misguided. PK’s suggested “clarification” is doubly misguided. As former Chairman Kennard might say: Neither is good for America.

It is entirely possible, and surely preferable, including for those in the classes Section 60506 seeks to protect, for the Commission to adopt rules that go in a different direction. In an ex parte submission dated October 20, 2023, we explained how the Commission can adopt rules that comport with Congress’s direction to prevent digital discrimination and properly consider “economic feasibility,” while not requiring the agency to engage in complicated, time-consuming rate cases, involving rate of return assessments, and almost certainly involving controverted evidentiary submissions.

Cable MVNOs Subscribership Continues to Climb in 2023

Cable wireless mobile virtual network operators (MVNOs) are effective intermodal competitors in today's communications marketplace. An article published in Fierce Wireless on October 27 of this year summarizes third quarter growth in cable MVNO services by the two largest services, Comcast's Xfinity Mobile and Charter's Spectrum Mobile:

Comcast yesterday reported the company added 294,000 wireless lines in Q3 2023. Comcast now has 6.2 million wireless lines in total. In contrast, Charter today reported it added 594,000 wireless lines in Q3, bringing its total wireless lines to 7.2 million.

My August 1 blog post observed that in the second quarter of 2023, Xfinity Mobile gained 316,000 lines and Spectrum Mobile gained 648,000 lines. 

 

Significant growth potential remains for both cable MVNO services within their respective geographic footprints. And as noted in the Fierce Wireless article, the cost-efficiency and competitiveness of those services is likely to improve in the near future as a result of buildouts of their own wireless infrastructure using small cells and licensed CBRS spectrum. Deployment of such networks as well as increased offloading of mobile traffic onto cable MVNO wi-fi networks, will make hybrid cable MVNOs less and less "virtual" and make their services less costly to provide by reducing their reliance on leasing wholesale access to mobile cellular networks. 

 

Importantly, the mobile broadband choices offered by cable MVNO services did not exist when the FCC imposed public utility regulation on mobile broadband Internet access services in the 2015 Title II Order. That order proffered "switching costs" for mobile broadband consumers and supposed incentives and ability by mobile providers to unreasonably discriminate against their own subscribers as supposed justifications for imposing public utility regulation. Commentsfiled with the FCC by the Free State Foundation in July 2017 explained that those rationales were not persuasive. In late 2023, competition from cable MVNOs further undermines those rationales for imposing public utility regulation. Any wireless provider that blocks or throttles their own subscribers' access to legal content via the Internet or otherwise unreasonably discriminates against their own subscribers risks massive loss of subscribership. Instead of foisting new regulatory restrictions on mobile broadband providers to address non-existent harms, the Commission should maintain the pro-market, pro-investment, and pro-innovation federal light-touch policy set forth in the 2018 Restoring Internet Freedom Order.