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The U.S. Copyright Office Commented on The FCC's Set-top Box Proposal

Federal communications Commission logo After the U.S. Federal Communications Commission proposed in February new set-top box rules for cable TV providers to encourage innovation, choices, and lower prices for consumer, the pay TV industry countered with its own proposal in June. Earlier this month, the U.S. Copyright Office shared its views about the matter.

Maria A. Pallante, a United States register of Copyrights and Director, provided the agency's views in a detailed 18-page letter to the FCC. The FCC used "Multi-Channel Video Programming Distributors" (MBPD) in its proposal to refer to the variety of companies (e.g., cable TV, wireless, Internet distributors, etc.) that distribute TV,, film, and video content. Pallante's letter is available at the Electronic Frontier Foundation (EFF) website:

"As requested, our comments pertain to the potential copyright implications of the Proposed Rule, as well as the general copyright principles at issue. Please note that although the Copyright Office did not file public comments in the FCC proceeding, the FCC did request our advice on the copyright issues raised by its proposal... we have no doubt that a number of the third-party products facilitated by the FCCs rule would enable fair and other nonfringing consumer uses of MVPD programming. The Copyright Office is therefore focused on whether these goals can be accomplished without overriding other concerns of copyright law and policy. The Office's principal reservation is that, as currently proposed, the rule could interfere with copyright owners' rights to license their works as provided by copyright law, and restrict their ability to impose reasonable conditions on the use of those works through the private negotiations that are the hallmark of the vibrant and dynamic MVPD marketplace..."

In short, the TV landscape today consists of many, secret, complicated licensing agreements between content producers and distributors. A Forbes Magazine article by Larry Downes described the landscape:

"Hollywood, for better and for worse, is built on a complicated legal regime of content licensing. That licensing limits when, where, and how programs are broadcast, and to whom. It includes limitations of the number and types of commercials that can be inserted into the programming, and even where in the channel line-up the programs will appear to consumers. Licensing agreements between producers and distributors are long, complicated, and mostly secret.

Opening the information flows for undefined new forms of access through new set-top boxes will almost certainly undermine those agreements. Third party boxes may change the channel line-up, replace the commercials, or offer programs on-demand that aren’t licensed for that use. Existing security and consumer privacy protections, mandated by law for pay TV providers, can’t be enforced by the FCC against new unregulated providers."

What we consumers see on TV, when we see it, how often we wee it, the number of commercials we see during shows, whether the show can be recorded (e.g., time shifted), whether the show can be device shifted (e.g., from television to a phone, tablet), and whether we see the show on pay-per-view, on-demand, on an Internet site, and/or on our phones are all governed by those private contracts.

Pallante's letter described the landscape similarly, but in greater detail. It also analyzed the FCC's proposed set-top box rule:

"In its most basic form, the rule contemplated by the FCC would seem to take a valuable good -- bundled video programming created through private effort and agreement under the protections of the Copyright Act -- and deliver it to third parties who are not in privity with the copyright owners, but who may nonetheless exploit the content for profit. Under the Proposed Rule, this would be accomplished without compensation to the creators or licensors of the copyrighted programming, and without requiring the third party to adhere to agreed-upon license terms. Indeed, a third party would have no way of knowing all of the requirements and liitations imposed under that license. As a result, it appears inevitable that many negotiated conditions upon which copyright owners license their works to MVPDs would not be honored under the Proposed Rule..."

"The FCC has stated that the Proposed Rule is not intended to negate these private contractual arrangements. However, it is not clear how the FCC wold prevent such an outcome under the Proposed Rule, for it appears to obligate MVPDs to deliver licensed works to third parties that could then unfairly exploit the works in ways that would be contrary to the essential conditions upon which the works were originally licensed... Thus, rather than being passive conduits for licensed programming, it seems that a broad array of the third-party devices and services would be enabled by the Proposed Rule would essentially be given access to a valuable bundle of copyrighted works, and could repackage and re-transmit those works for a profit, without having to comply with agreed contractual terms. And even though such activities -- for instance, competing or incompatible advertising -- could easily lessen the value of the rights licensed by program producers to the MVPDs, no offsetting compensation would flow back to the copyright holders or their actual licensees. THe Proposed Rule would thus appear to inappropriately restrict copyright owners' exclusive right to authorize parties of their choosing to publicly perform, display, reproduce and distribute their works according to agreed conditions, and to seek remuneration for additional uses of their works."

The Copyright Office's letter also discussed enforcement issues:

"... there already exists today a variety of third-party set-top box devices, mainly produced overseas, that are used to view pirated content delivered over the Internet. A reasonable concern is that, in response to the Proposed Rule, this market might expand to encompass devices designed to exploit the more readily available MVPD programming streams without adhering to the prescribed security measures. In addition, some commenters have suggested that limiting options for content security in this manner could jeopardize robust content security regimes -- including innovations to those systems -- thereby opening doors for third parties to acquire content illegally..."

Pallante and the Copyright Office concluded:

"We note that at the July 12th Congressional oversight hearing, FCC Commissioners acknowledged that they might choose to follow a different approach to achieve the FCC's objectives than that outlined in the NPRM, and that emerging alternative proposals showed promise. The Copyright Office is therefore hopeful that the FCC will refine its approach as necessary to avoid conflicts with copyright law and authors' interests under that law... it seems critical that any revised proposal respect the authority of creators to manage the exploitation of their copyrighted works through private licensing arrangements, because regulatory actions that undermine such arrangements would be inconsistent with the rights granted under the Copyright Act..."

So, the FCC's set-top box rule as initially proposed is too disruptive, and is effectively dead, since it would interfere with copyright owners' rights to license their content. Hopefully, the FCC won't give up and will refine its set-top box approach.

Pallante's letter to the FCC is also available here (Adobe PDF; 278.1K).


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Chanson de Roland

Let's wait just a minute, because the Copyright Office's objections don't have the merit that they seems to have, and, therefore, the FCC's proposed rule for open set-top boxes (Set-top Rule) would not, with easy reforms, lead to the evils that the Copyright Office (CO) describes.

The CO's primary objection is that the Set-top Rule would result in content being displayed on set-top boxes in violation of the licensing agreements covering that content, because the new set-top boxes would not be covered by and subject to the license. But that is easily enough remedied by three simple requirements: (1) The FCC can require that all licit licenses travel with the content, that is, on whatever set-top box the content exist or is shown, that set-top box, its manufacturers, its owners, must adhere to the license and provide payment to the licensors according to the terms of the license; (2) That all set-top boxes have effective security to prevent infringement that is at least as effective as security provided by MVPBs; and (3) That all persons, natural and juridical, and the bulk of their assets, and the management of the juridical persons, who are permitted to make, distribute, and/or use set-top boxes and who are subject to any license for content, be subject to the jurisdiction of U.S. courts, especially the personal jurisdiction of U.S. courts.

A fourth concern would be fly-by-night persons and firms that organized just to exploit infringing use of content, and then simply tried to flee with whatever illicit profits they were able to steal. The answer to that is also very easy. In addition to restricting the use, manufacture, and distribution of set-top boxes to person subject to the jurisdiction of U.S. courts, as described, supra, the FCC would also requires that firms making the set-top box be substantial enterprises so that any FCC and/or DOJ enforcement actions against them will have the effect of halting their operations, the recovery of all profits or the assets that they have been converted to, and cause the loss of assets that will equal or exceed the value of any illicit profits that could be obtained.

The four requirements, supra, eliminate the CO's objections, while permitting a Set-top Rule, so modified, to bestow the benefits of a fully competitive and open set-top box rule, while fully protecting copyright holders' copyright in their copyrighted works.

The only two objections to the foregoing have no merit, because they would violate U.S. anti-trust law. First, it might be argued that permitting many others to license content on open set-top boxes would lessen the value of the exclusivity of current license agreements. But to make such an argument shows the illegality of those agreements, because that argument authorizes anti-competitive exclusive contract between copyright holders and MVPB that restrict competition and restrain trade of potential competitors in the market for set-top boxes and the market for distributing and displaying content. That is a black-letter law, text-book violation of the Sherman and Clayton Anti-trust Acts. And, such agreements, would, therefore, at least to the extent of their exclusivity, which prevent others from having copyright holders’ content on the same financial terms for royalties as legacy MVPBs, violate U.S. anti-trust law and are, therefore, illegal and void ab initio.

The second objection, that many of the restrictions in licensing agreements, would prevent a competitor's set-top box from displaying content. But those restrictions would also restrain trade and competition and are, therefore, illegal. To the extent that any other restrictions, which do not restrain trade and/or competition in the market for set-top boxes, MVPBs, and other relevant markets, exist, they would be permitted and, as explained, supra, would be imposed on all providers, makers, distributors, and users of set-top boxes, just as they are now.

In other words, copyright holders are not entitled to any benefit from their copyright that suppresses competition in the market for set-top boxes or for being an MVPB, any more than the holder of copyright make impose conditions on which musical instruments are used to play copyrighted music or which television sets can display copyrighted video. The protections and rights of copyright extend no further than the copyrighted work itself and its licensee but does not extend to how any licensee would exercise his license rights to display or perform a copyrighted work. Therefore, Apple, Google, Amazon, et al. have just as much a right to be and compete with legacy MVPBs as Ford has the right to compete with GM, without the distributors and makers of tires refusing to provide tires to Ford so that they can enjoy the benefits of an exclusive arrangement to provide tires only to GM. It has never been the intent or purpose of copyright law to suppress such competition, and it is error for CO to suggest, as it did, as described, supra, that copyright law does authorize such suppression of competition in markets for complimentary goods, which here are the markets for set-top boxes and for being an MVPB.

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