USA Copyright Office on FCC set-top-box proposed rule

The Proposed Rule would require multichannel video programming distributors (“MVPDs”) to provide qualifying third parties with access to copyrighted video content, as well as associated programming information, for use across a broad spectrum of products ranging from physical set-top devices to internet-based software applications.

The video programming would be made available according to a content protection standard adopted by an open standards body not substantially controlled by the MVPD industry. The proposed Rule would not by its terms restrict repackaging, manipulation, or commercial exploitation of the programming made available to the third-party device and application producers, even where private contractual agreements between programmers and MVPDs might prohibit such activities.

The copyrighted works that make up an MVPD’s multichannel video programming are produced and made available to the public only as a result of complex, private negotiations between content owners and MVPD’s, and on the understanding that the MVPDs will make works available to the public in accordance with the terms of the resulting licenses. Typically, a violation of the license terms by the MVPD will constitute either copyright infringement or a breach of contract.

Certain consumer uses of copyrighted video content may qualify as fair uses under copyright law – for example, consumers’ time-shifting of programming for later home viewing. But, at the same time, it is important to understand that “parties are free to bargain away their rights to make fair use of copyrighted material” as a matter of contract. Thus, in this marketplace, as a condition of granting access to their works, copyright owners may choose to exclude certain uses of content by an MVPD by contract, regardless of whether such activities could potentially qualify as fair uses under copyright. The ability to delineate and assign value to permissible uses – and to exclude others – through the licencing process flows from the copyright owner’s more general right to withhold access to the content altogether if licencing terms cannot be agreed.

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 nevertheless exploit the content for profit. Under the Proposed Rule, this would be accomplished without compensation to the creators or licensees of the copyrighted programming, and without requiring the third party to adhere to agreed-upon licence terms. A third party without access to the governing agreement between a content programmer and the MVPD would have no way of knowing all of the requirements and limitations imposed under that licence. As a result, it appears inevitable that many negotiated conditions upon which copyright owners licence their works to MVPDs would not be honored under the Proposed Rule.

The Proposed Rule would apply not just to passive hardware elements, but also to software that could potentially be used to manipulate, repackage and monetize the content in ways that would be contrary to contractual conditions imposed by the content owners. The Proposed Rule is not limited to hard-wired hardware devices, as under the CableCARD system – rather, the rule seemingly contemplates that content could also be accessed by subscribers directly through internet-based services, which presents different considerations under copyright law. The Proposed Rule requires MVPDS to support a content protection system administered by an entity “that is not substantially controlled by an MVPD or by the MVPD industry”, and the Rule does not clearly indicate whether there would be any licencing relationship between an MVPD and the third=party device manufacturer.

Rather than being passive conduits for licenced programming, it seems that a broad array of the third-party devices and services that would be enabled by the Proposed Rule would essentially be given access to a valuable bundle of copyrighted works, and could repackage and retransmit 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 licenced 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 authorise 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.

Absent a mechanism to allow copyright owners to impose reasonable and appropriate licencing conditions, the Proposed Rule may be understood to create a new statutory license that requires the entirety of copyright programming offered by MVPDs to be delivered to third parties, including for commercial exploitation. The rule thus raises serious concerns as a matter of copyright policy, because allowing third parties to commercially exploit copyrighted works in this manner could diminish the value of those works.

It seems reasonable to assume that the available pool of advertising dollars would to some degree be redirected to those third parties, and away from the content producers and MVPDs, negatively impacting the value of copyrighted works in the marketplace. Without the ability to exercise commercial judgment with respect to the dissemination of their works in the marketplace – and to seek remuneration for marketplace exploitations – program creators will be hampered in their ability to earn a return on their investments, or to invest in new programming.

In some cases – such as passive hardware devices that do not alter or record copyrighted programming – the exclusive rights would not be implicated. But for other types of devices or services, further examination would be necessary. For instance, the right of public performance includes the exclusive right to control “not only the initial rendition or showing of a work, but also any further act by which that rendition or showing is transmitted or communicated to the public,” including using individualized streams over the internet. Thus, depending upon its particular characteristics, a third-party service that retransmitted MVPD programming to subscribers over the internet under the Proposed Rule could implicate copyright owners’ right of public performance. Other kinds of services and devices might also implicate the exclusive rights of reproduction, distribution and public display. Moreover, these exclusive rights can be infringed either directly, where the defendant itself publicly performs, reproduces, distributes or displays a copyrighted work without authorisation, or indirectly, under a theory of secondary copyright liability: contributory infringement, including inducement of infringement, or vicarious infringement.

Existing case law does not purport to set out the full range of permissible activity under the fair use doctrine, and many open questions remain. Sony, in Betamax case, itself focused on the distribution of an article of commerce where the seller had not ongoing relationship with the purchaser after the sale, and no connection to the content being exploited. Nor did the court address fair use where the device distributor was itself engaged in copying activities, as opposed to private home users. Both of those factors could conceivable be present with respect to devices and services authorised under the Proposed Rule. Nor have courts gone so far as to obligate copyright owners to provide content in a manner that would facilitate time-shifting or other noninfringing uses.

The Proposed Rule would inhibit the ability of MVPDs and content programmers to develop, improve and customize technological solutions to protect their content in the digital marketplace. It would do so in part by requiring MVPDs to give third-party actors access to copyrighted video content and associated data according to one or more securely standards prescribed by an outside organisation rather than the through their preferred protocols negotiated between copyright owners and the MVPDs. In addition, the Proposed Rule suggested that the FCC might allow third parties to self-certify their compliance with whatever security standards are adopted.