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9th Circuit: Streamers Aren’t Cable Operators

Latest ruling favors studios, next one could send issue to high court 3/27/2017 8:00 AM Eastern
TakeAway

OTT rights are still up in the air, and in the courts, but a recent decision puts distance between them and MSOs.

WASHINGTON — Just what streaming rights do over-the-top video providers have when it comes to broadcast content? The answer: It’s complicated.

A pair of U.S. District Courts are split on the issue, though there was movement on the federal appeals court level in the past two weeks.

The issue is whether an over-the-top video provider — in this case, FilmOn X, but theoretically anyone else — can obtain the type of compulsory license that cable operators can get to retransmit the programming of broadcasters without having to individually negotiate for each show.

The 9th U.S. Circuit Court of Appeals ruled last Tuesday (March 21) that FilmOn X and other online video streamers were not the equivalent of cable operators when it came to that eligibility, though it was primarily deferring to a Copyright Office advisory to that effect.

That court was overruling a decision by the U.S. District Court for the Central District of California that FilmOn X did qualify for the compulsory license.

It was a win for the Hollywood content suppliers, led by 21st Century Fox, who had challenged FilmOn X in both district court cases at issue. A three-judge panel of the 9th Circuit ruled that “a service that captures copyrighted works broadcast over the air, and then retransmits them to paying subscribers over the Internet without the consent of the copyright holders, is not a ‘cable system’ eligible for a compulsory license under the Copyright Act.”

But it was hardly a slam dunk in terms of the larger question.

“FilmOn and other Internet-based retransmission services are neither clearly eligible nor clearly ineligible for the compulsory license,” the court also said. “The Copyright Office says they are not eligible. Because the office’s viewers are persuasive, and because they are reasonable, we defer to them.”

Meanwhile, in the U.S. Court of Appeals for the D.C. Circuit, FilmOn X and the studios held oral arguments in FilmOn X’s challenge to a New York district court decision that the video streamer did not qualify for the license.

FilmOn X attorney Ryan Baker argued that Congress knew technology would change and created the compulsory license “using broad language to encompass technological change.”

He said FilmOn X’s service fit within that language and should not be “shackled to 1970s technology,” as broadcasters wanted.

On the other side, the studios argued that the claim that FilmOn X is a cable system contradicts the Copyright Act and its purpose. They said the compulsory license was meant to apply to providers with “huge” capital investments, like cable operators and unlike FilmOn X.

They pointed out that “inherently localized” transmissions were key to the definition of cable, since cable operators have specialized equipment and control over a defined transmission path — the Federal Communications Commission’s historic definition of a cable operator — while Internet-delivered packets are highly susceptible to piracy, which is factored into the individual negotiations that FilmOn X wants to avoid.

If the D.C. Circuit upholds the lower court, that would be two federal courts ruling that Internet retransmissions are not analogous to traditional cable, along with a half dozen other courts, according to the studios. But if the D.C. Circuit reverses it, that would set up a split with the 9th Circuit that could put the case into the Supreme Court’s docket.

The FCC could clarify the issue by reclassifying Internet video providers as multichannel video programming distributors, as former agency chairman Tom Wheeler once tried to do, but that does not appear to be high on new FCC chairman Ajit Pai’s to-do list.

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