FCC Set-top Box Rules Not Ready, but Legal Challenges Are

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By Kyle Daly

April 25 — The Federal Communications Commission's open set-top box proposal is all but guaranteed to see a court challenge if it gets adopted in a form remotely resembling the agency's notice of proposed rulemaking (NPRM) approved earlier this year.

The final comment period on the proposed rules drew to a close on April 22, setting the stage for the FCC to potentially adjust the item based on stakeholder comments and then vote on and adopt it as amended. The agency voted 3-2 in February to advance the proposal , which would establish open standards for set-top boxes.

The agency wants to loosen the pay-TV industry's grip on the boxes by requiring multichannel video programming distributors (MVPDs) such as cable and satellite television providers to make three information streams available to third parties: Actual content being distributed; information on what that content is, including channel listings, video-on-demand lineup and which programs are transmitted at any given time; and permissions on actions, such as recording, that a given device is allowed to do with content.

Any manufacturer of a physical device — for instance, a TiVo unit or gaming console — acting as an alternative set-top box and any maker of an app offering a virtual version of the video navigation experience would then have access to those three information streams.

Though cheered by public interest and consumer groups, the proposal proved instantly controversial within the pay-TV and content industries — and among Republicans on Capitol Hill and at the FCC.

Cable companies are already marshaling the legal arguments they will use against the FCC's proposal, which is all but guaranteed to be face a court challenge if and when the agency finalizes rules. Leading cable industry trade associations have made it clear they will be fighting the proposal in court if the FCC adopts it — even if the agency makes changes along the way.

“The commission has articulated a vision of a product that they want to see come into fruition and, as long as they pursue their own industrial design as to what this box and product are supposed to look like — and it’s consistent with the way they’ve articulated thus far — I don’t think they could repair the licensing and copyright problems,” Michael Powell, the CEO of the National Cable & Telecommunications Association (NCTA) and a former FCC chairman, told reporters April 21.

Those “problems” are among several points Powell and a number of attorneys acting as NCTA counsel said will be central to the cable industry's legal arguments should the FCC pass its set-top box rules, at which point, they said, they intend to sue.

The licensing and copyright concerns arose because the cable and content industries view the proposal as “disaggregating the intellectual property rights of MVPDs and giving them to third parties,” said Helgi C. Walker, a partner at Gibson, Dunn & Crutcher LLP.

She and other attorneys working with the NCTA characterized the proposal's treatment of copyrights held by programmers, and of licensing agreements between programmers and video providers, as violations of both the Copyright Act and the First Amendment. By requiring MVPDs to deliver video and surrounding information to third parties that could in theory reconfigure and repackage them at will, the proposal would contravene copyright owners' legal right to determine how their products are transmitted, presented and consumed, said Theodore B. Olson, also a Gibson, Dunn & Crutcher partner.

“These rights are not a mistake. They are not an accident,” Olson said. “When the government does something like this, it is killing the golden goose.”

Lawyers for the cable industry said they would argue that the FCC would be overreaching its statutory authority under the Communications Act of 1934 should it adopt the set-top box proposal.

A 1996 update of the law first opened up the set-top box market to entrants like TiVo in the late 1990s, permitting consumers to use third-party devices to access multichannel video programming. According to Walker, because the FCC would lack the authority to regulate the third-party providers offering set-top box alternatives under the proposal, the proposal runs afoul of other language in the law on common carrier regulation, video systems security and consumer privacy, among other provisions.

Given the wide range of legal arguments the cable industry is prepared to make, Olson said he is confident the proposal is doomed.

“If adopted by the FCC, it will not overcome a challenge in court,” he said. “It will not survive a judicial review.”

The American Cable Association also is “not going to hesitate to take this to court” if the proposal advances, ACA senior vice president of government affairs Ross Lieberman told reporters April 21.

The FCC has proposed having an independent, open standards body establish specifications to which device and app makers would have to adhere before gaining access. It has proposed a similarly hands-off approach to issues like copyright, security and privacy, leaving it to the third-party providers to self-certify with pay-TV providers and programmers that they will adhere to the same standards and rules to which MVPDs are bound under the law and under licensing agreements.

FCC, Public Interest Community Respond

For the FCC and its public interest allies, the breadth of the industry's arguments indicate the weakness of its position.

“It strikes us as pretty much a stalling tactic, as throwing everything at the wall to raise as many questions as you can, and then there’s the next thing, and then there’s the next thing, to keep this from ever moving forward,” Public Knowledge policy fellow John Gasparini told Bloomberg BNA.

He and colleague Kate Forscey, associate counsel for government affairs at Public Knowledge, said they view the various legal arguments laid out by opponents as little more than an attempt to keep the proposal, should the FCC approve it, mired in court until a new administration comes to the White House and nominates a new FCC chief who might be more sympathetic to the cable industry's arguments.

FCC spokeswoman Kim Hart told Bloomberg via e-mail that the commission is prepared to respond to the cable industry's arguments. Hart said the FCC “will not interfere in the business or content agreements between MVPDs and content providers” and that copyright protections and remedies will remain fully intact should the proposal be adopted. Third parties, she said, would be required to abide by the same licensing terms that apply to MVPDs in order to qualify for the information streams.

Hart added that, in the FCC's view, the alleged Title VI violations Walker outlined rely on a series of faulty premises. The agency's NPRM seeks comment on how best to enforce a self-certification mechanism that would guarantee consumer security and privacy, she said.

Hart said the cable industry's other points are invalidated by the fact that the FCC is proposing to establish a standards body—which would include MVPDs as members—to decide how and under what circumstances information flows will be provided. Not only is the FCC avoiding any specific technical mandates on alternative set-top boxes, Hart said, but it intends to leave all substantial matters of how best to create a competitive set-top box market up to the industry.

To contact the reporter on this story: Kyle Daly in Washington at kdaly@bna.com

To contact the editor responsible for this story: Keith Perine at kperine@bna.com