Broadcasters Get a Free Throw in Aereo Case

Scott R. Flick

Posted April 17, 2014

By Scott R. Flick

Oral arguments before the Supreme Court are less than a week away in the Aereo case, and broadcasters are feeling pretty good about their chances. With the Department of Justice, Professor Nimmer (who, along with his father, quite literally wrote the book on copyright), and a host of other luminaries filing in support of the broadcasters' position, the storyline looks a lot like broadcasters have portrayed it from the beginning: that this is a simple case of copyright infringement hidden behind a veil of modern technological obfuscation.

Sensing that such a storyline is fatal to its prospects, Aereo has responded by casting this case as an attack on consumers' use of the cloud, and has attracted some allies based on that storyline. However, it is a pretty thin storyline, as few think that the country's highest court is so careless as to draft a broadcast retransmission rights decision that accidentally destroys the world of cloud computing. The two are not tough to distinguish, and even if the Court secretly disliked cloud computing, it hardly needs to opine on the copyright implications of cloud computing to decide the Aereo question.

Still, lower courts have disagreed on these issues, and only a fool enters the Supreme Court certain that the court will rule in his favor. There are many moving parts, and if a case were easy to decide, it would not have made it to the Supreme Court. That is why both sides will be anxiously watching the oral arguments for hints as to where the various justices stand on the matter.

As of today, however, broadcasters have one less reason to sweat about the outcome. The Court announced yesterday that Justice Alito, who had previously recused himself from the case, is now able to participate. This is a significant development for broadcasters. Because the 2nd Circuit decision being appealed was in Aereo's favor, Alito's earlier recusal meant that the case would be heard by the remaining eight justices. That created the risk of a 4-4 tie, which would leave the adverse 2nd Circuit decision in place.

In that scenario, broadcasters would need to win 5 of the 8 possible votes in order to overturn the lower court decision. That can be a tall order, and impossible if it turns out that four justices are firmly on the Aereo side of the fence. With Alito no longer recused, broadcasters now have an additional avenue for scoring that fifth vote. In other words, it's easier to attract 5 votes out of 9 than it is to get 5 votes out of 8. That means broadcasters are unlikely to find themselves losing on a tie vote, and if the rest of the court should split 4-4, Alito's entry into the fray effectively gives broadcasters a free throw opportunity at the buzzer to score his vote and break that tie. Now broadcasters just need to convert on that opportunity.

The Supreme Court Giveth Where the FCC Taketh Away

Scott R. Flick

Posted April 2, 2014

By Scott R. Flick

After Monday's FCC meeting left television broadcasters facing higher expenses and lower revenues by restricting the use of Joint Sales Agreements and joint retransmission negotiations, broadcasters were due for some good news. Where the FCC is the bearer of bad news, it has often fallen to the courts to be the bearer of good news, generally by overruling the adverse FCC decision. Unfortunately, that process can take years, meaning that in Washington you have to take a very long term view of "the good outweighs the bad."

This week, however, the FCC's bad news was followed very quickly by the Supreme Court's decision today in McCutcheon v. Federal Election Commission. In McCutcheon, the Court ruled that while limits on political contributions to individual candidates continue to be permissible, overall limits on contributions to candidates and party committees are unconstitutional. In other words, the government can limit how much you donate to an individual candidate or party committee, but cannot limit the number of candidates or party committees you support with your donations.

While campaign finance reform will continue to be a hot-button issue, a direct effect of today's decision will be to increase the war chests of candidates and parties through greater political donations. Much of those increased funds will ultimately be used for political advertising, redounding to the benefit of media in general, but particularly to local broadcasters.

The Court's 5-4 decision was not particularly a surprise, as many saw McCutcheon as the sequel to 2010's Citizens United decision, in which the Court found restrictions on political expenditures by corporations and unions to be unconstitutional. When the Supreme Court released its decision in Citizens United, we all understood the immediate financial implications for media, but no one was quite sure just how great that impact would be. It turned out to be very substantial, completing the multi-decade transition of political advertising from being a "not worth the regulatory headaches" obligation of broadcasters to now being a highly sought after segment of the overall advertising market. Indeed, there is no stronger validation of this than the fact that cash flow multiples used in station acquisitions are based on two-year averages, balancing political year revenue with revenue from a non-political year.

As in 2010, the question is not whether today's decision will result in more ad revenue for media outlets, but how much more. Given that in recent years the number of donors bumping up against the now-unconstitutional cap measured in the hundreds rather than the thousands, the economic impact of today's decision is unlikely to match that of Citizens United. However, it may have a more interesting effect. The limit on overall donations effectively forced a political contributor to pick and choose a small number of candidates to support with the maximum ($2600 at the moment) donation, and to turn away others because of the cap. The practical result was that donors tended to focus their contributions on candidates in hotly contested races where the contribution could have the most impact.

With today's elimination of the overall cap, a donor can make the maximum individual donation to every federal political candidate it wishes to support. The likely result is an increased flow of political contributions to candidates in races previously deemed to be lost causes, creating tighter races through the influx of political ad dollars.

From a political standpoint, this means the number of hotly contested races around the country will increase. From an economic standpoint, it means political ad dollars will flow on a more geographically diverse basis, ensuring that a larger number of local stations benefit, rather than just those in swing states and swing districts. This will be welcome news for stations that previously found themselves missing out on political ad dollars while candidates and parties flung large sums at stations in nearby swing districts. By itself, it may not entirely remove the sting of Monday's FCC actions, but given enough time, the courts may eventually produce some good news in that regard as well.

IRS Ruling Affects Media (and Other) Businesses Dabbling in Bitcoin Use

Scott R. Flick

Posted March 26, 2014

By Scott R. Flick

While it has been around since 2009, Bitcoin has seen substantial media coverage in the past few months. Media outlets (as well as many other businesses) have been increasingly dabbling in the Bitcoin world, if for no other reason than to show they are up to date with the latest consumer fixations.

While numerous businesses have begun accepting Bitcoin transactions, the most likely place to find them in the media world is as contest prizes or as part of an advertiser promotion. Of course, one of the principal reasons for the novelty of Bitcoin is its goal of being an electronic currency unregulated by governments. As a result, how businesses have been treating their usage of bitcoins from an accounting and legal perspective is highly variable, since it is in many ways a new frontier.

That frontier changed significantly yesterday, when the IRS ruled that virtual currencies like Bitcoin are to be treated as property for federal tax purposes, with transactions using virtual currency subject to much the same tax treatment as those involving U.S. currency. Our own Jim Gatto, head of Pillsbury's Social Media and Games Team, distributed a Pillsbury Client Alert discussing the ruling. In that Alert, Jim notes that the impact of the IRS ruling includes:


  • Wages paid to employees using virtual currency are taxable to the employee, must be reported by the employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.

  • Payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply. Normally, payers must issue IRS Form 1099.

  • The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.

  • A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.

  • For purposes of computing gross income, a taxpayer who receives virtual currency as payment for goods or services must include the fair market value of virtual currency received as measured in U.S. dollars, as of the date that the virtual currency was received.
The Client Alert provides additional detail, but if you are using bitcoins for any type of transaction, whether as contest prize, currency for purchases on your website, or payments to employees and vendors, the IRS has made clear that you will need to follow the same procedures (and pay taxes) as though the transaction had occurred in dollars.

While that is a big issue for businesses doing large Bitcoin transactions, businesses dabbling in small and occasional Bitcoin transactions will need to pay even closer attention than they would to a transaction using traditional currency. For example, if the prize in a station contest is one bitcoin, the station will need to assess whether awarding the prize triggers the need for issuing IRS Form 1099 to record the awarding of the prize. In a cash prize contest, that is straightforward, since the Form 1099 currently specifies a prize of $600 or more as the threshold for needing to issue the form. As I write this, however, the current Bitcoin exchange rate is roughly $582 U.S. dollars per bitcoin. That means a one bitcoin prize would not trigger the need for a Form 1099, but a two bitcoin prize would.

Similarly, yesterday's IRS ruling seems to indicate that the bitcoin must be valued for tax purposes at the time it is received. As a result, the station holding the contest would need to check the value of a bitcoin on the day the prize is awarded to see if it is above or below the $600 threshold for tax purposes. Of course, given the volatility of the Bitcoin exchange rate, this raises other questions, such as how do you value the bitcoin for tax reporting if the exchange rate was below $600 for part of that day and above $600 for part of that day, or if the day the prize is "sent" is not the same day as the prize winner receives or "cashes" it.

Like so many things, Bitcoin appears to be another example of something meant to simplify life, but which is turning out to only make life more complicated. Look for life to get even more complicated as individual states formally adopt a similar approach in treating virtual currency transactions as taxable events.

FCC Enforcement Monitor

Scott R. Flick Carly A. Deckelboim

Posted March 18, 2014

By Scott R. Flick and Carly A. Deckelboim

March 2014

Pillsbury's communications lawyers have published FCC Enforcement Monitor monthly since 1999 to inform our clients of notable FCC enforcement actions against FCC license holders and others. This month's issue includes:

  • FCC Proposes $40,000 Fine for Public Inspection File/License Renewal Violations
  • Short-Term License Renewal and Hefty Fine for Missing QIP Lists
  • $5,000 Fine for FM Station's Failure to Maintain Minimum Operating Hours
Failure to Disclose Rules Violations Leads to $40,000 Fine

Late last month, the FCC issued two essentially identical orders against co-owned Milwaukee and Chicago Class A TV stations in response to a number of missing Quarterly Issues/Programs Lists and Children's Television Programming Reports and for not reporting the missing issues/programs lists in the stations' license renewal applications. The FCC's Media Bureau proposed a $20,000 fine against each station, for a total fine of $40,000.

In late December of last year, the FCC issued Notices of Apparent Liability for Forfeiture ("NAL") for the two stations, noting that the stations had mentioned in their license renewal applications that they had failed to timely file numerous Children's Television Programming Reports, but had not disclosed the absence from their online public files of over a dozen (each) Quarterly Issues/Program Lists. Section 73.3526 of the FCC's Rules requires licensees to maintain information about station operations in their public inspection files so the public can obtain "timely information about the station at regular intervals."

The base fine for failure to file a required form is $3,000, and the base fine for public file violations is $10,000. After considering the facts, the FCC concluded in each NAL that the respective station was liable for $9,000 for the missing Quarterly Issues/Programs Lists, $9,000 for the missing Children's Television Programming Reports, and an additional $2,000 for failing to disclose the missing Quarterly Issues/Program Lists in their renewal applications.

After receiving the NALs, each station requested that the fine be reduced due to an inability to pay. The FCC will not consider reducing a fine based on a claimed inability to pay unless the licensee submits federal tax returns for the last three years, financial statements, or other documentation that accurately demonstrates its financial status. In this case, each station submitted appropriate documentation about its financial condition. However, the FCC was not persuaded that the amount of the fines exceeded each station's ability to pay, and declined to reduce the fines.

Public Inspection File Violations Lead to $46,000 in Fines and Limited License Terms
In connection with recent license renewal applications, the FCC issued four essentially identical Memorandum Opinions and Orders and Notices of Apparent Liability for Forfeiture, resulting in $46,000 in fines for a Washington radio licensee. In addition, three of the licensee's four stations' license renewal applications were granted for only a four-year term rather than the normal eight-year term.

The first three of the licensee's stations were missing, respectively, 24, 26, and 20 Quarterly Issues/Programs Lists for various periods during the license term. The fourth station's public inspection file was missing 12 reports for a two-year period spanning from 2006 to 2008.

Continue reading "FCC Enforcement Monitor"

Big Fines for False EAS Tones Demonstrate the Need for a Good Indemnification Clause

Scott R. Flick

Posted March 3, 2014

By Scott R. Flick

There was quite a stir today when the FCC, despite being closed for a snow day, issued a Notice of Apparent Liability proposing very large fines against Viacom ($1,120,000), NBCUniversal ($530,000), and ESPN ($280,000) for transmitting false EAS alert tones. According to the FCC, all three aired an ad for the movie Olympus Has Fallen that contained a false EAS alert tone, with Viacom airing it 108 times on seven of its cable networks, NBCUniversal airing it 38 times on seven of its cable networks, and ESPN airing it 13 times on three of its cable networks.

The size of the fines certainly drew some attention. Probably not helping the situation was the ad's inclusion of the onscreen text "THIS IS NOT A TEST" and "THIS IS NOT A DRILL" while sounding the EAS tone. The FCC launched the investigation after receiving complaints from the public.

All three entities raised a variety of arguments that were uniformly rejected by the FCC, including that "they had inadequate notice of the requirements and applicability of the rules with respect to EAS violations." What particularly caught my eye, however, was that all three indicated the ad had cleared an internal review before airing, and in each case, those handling the internal review were apparently unaware of Section 325 of the Communications Act (prohibiting transmission of a "false or fraudulent signal of distress") and Section 11.45 of the FCC's Rules, which states that "No person may transmit or cause to transmit the EAS codes or Attention Signal, or a recording or simulation thereof, in any circumstance other than in an actual National, State or Local Area emergency or authorized test of the EAS."

Back in 2010, I wrote a post titled EAS False Alerts in Radio Ads and Other Reasons to Panic that discussed the evolution of the FCC's concerns about false emergency tones in media, which originally centered on sirens, then on Emergency Broadcast System tones, and now on the Emergency Alert System's digital squeals. Two months later, I found myself writing about it again (The Phantom Menace: Return of the EAS False Alerts) when a TV ad for the movie Skyline was distributed for airing with a false EAS tone included in it.

That was the beginning of what has since become a clear trend. Those initial posts warned broadcasters and cable programmers to avoid airing specific ads with false EAS tones, but were not connected to any adverse action by the FCC. After three years of EAS tone tranquility, the issue reemerged in 2013 when hackers managed to commandeer via Internet the EAS equipment of some Michigan and Montana TV stations to send out false EAS alert warnings of a zombie attack. The result was a rapid public notice from the FCC instructing EAS participants to change their EAS passwords and ensure their firewalls are functioning (covered in my posts FCC Urges IMMEDIATE Action to Prevent Further Fake EAS Alerts and EAS Alerts and the Zombie Apocalypse Make Skynet a Reality), but no fines.

From there we moved in a strange direction when the Federal Emergency Management Agency distributed a public service announcement seeking to educate the public about the Emergency Alert System, but used an EAS tone to get that message across. Because it did not involve an actual emergency nor a test of the EAS system, the PSA violated the FCC's rule against false EAS tones and broadcasters had no choice but to decline to air it. The matter was resolved when the FCC quickly rushed through a one-year waiver permitting the FEMA ad to be aired (Stations Find Out When Airing a Fake EAS Tone Is Okay).

Late last year, however, the evolution of the FCC's treatment of false EAS alerts turned dark (FCC Reaches Tipping Point on False EAS Alerts) when the FCC issued the first financial penalties for false EAS alerts. The FCC proposed a $25,000 fine for Turner Broadcasting and entered into a $39,000 consent decree with a Kentucky radio station for airing false EAS alert tones. The FCC indicated at the time that other investigations were ongoing, and more fines might be on the way.

We didn't have to wait long, as just two months later, the FCC upped the ante, proposing a fine of $200,000 against Turner Broadcasting for again airing false EAS alert tones, this time on its Adult Swim network. The size of the fine was startling, and according to the FCC, was based upon the nationwide reach of the false EAS tone ad, as well as the fact that Turner had indicated in connection with its earlier $25,000 fine that it had put in place mechanisms to prevent such an event from happening again. When it did happen again, the FCC didn't hesitate to assess the $200,000 fine.

Today's order, issued less than two months after the last Turner decision, ups the ante once again, proposing fines of such size that only some of the FCC's larger indecency fines compare. The FCC is clearly sending a signal that it takes false EAS tones very seriously, and the fact that the ads containing the EAS tones were produced by an independent third party didn't let the programmers off the hook. In other words, it doesn't matter how or why the ads got on the air; the mere fact that they aired is sufficient to create liability.

So what lesson should broadcasters and cable networks take away from this? Well, the all too obvious one is to do whatever it takes to prevent false EAS tones from making it on air. However, an equally useful lesson is to make sure that your contracts with advertisers require the advertiser to warrant that the spots provided will comply with all laws and to indemnify the broadcaster or network if that turns out not to be the case. That won't save you from a big FCC fine and a black mark on your FCC record, but it will at least require the advertiser to compensate you for the damages you suffered in airing the ad and defending yourself. Unfortunately, many advertising contracts are not particularly well drafted (and some are just a handshake), which can expose you to a variety of liabilities like this unnecessarily.

It is therefore wise to have both your ad contracts and your advertising guidelines carefully reviewed by counsel experienced in this area of the law. Vigilant review of ads submitted for airing is an excellent first line of defense, but as demonstrated in today's decision, it won't do much good if the individuals reviewing the ads don't know what to look for.

Breaking News: FCC Kills Critical Information Needs Study

Scott R. Flick

Posted February 28, 2014

By Scott R. Flick

Following a firestorm of media attention regarding the FCC's efforts to examine newsroom decision making as part of a Critical Information Needs (CIN) Study, the FCC had announced a week ago that it would modify the study to eliminate the questions directed at media entities regarding their newsroom decisions.

That announcement, however, did not calm the furor, with calls from Congress for hearings and legislation to prevent the FCC from proceeding with the study. Late today, the FCC sought to put an end to this certainly unwelcome attention. It released a terse statement, the entirety of which is: "The FCC will not move forward with the Critical Information Needs study. The Commission will reassess the best way to fulfil [sic] its obligation to Congress to identify barriers to entry into the communications marketplace faced by entrepreneurs and other small businesses."

Whatever else it may represent, this past week's activities demonstrate the challenges for a government agency forced to operate on "Internet Time" and facing a continuous news cycle. In prior eras, FCC dramas like this would have played out over months or years. In this case, once it became clear that the study was turning into political fodder, the FCC moved with surprising speed to back away from it, and then abandon it entirely, rather than continue to be the subject of news reports and late night monologues. The typo in today's one sentence announcement (which was subsequently fixed in later versions) presumably indicates the haste with which it was issued, likely in an effort to put the issue to bed before the weekend and avoid a fresh round of media commentary regarding the Study next week.

While the speed with which the FCC moved is impressive, perhaps the most interesting aspect of this week's events is that, without even conducting the study, the FCC learned a lot about how newsrooms operate, and probably wishes it hadn't.

FCC Enforcement Monitor

Scott R. Flick Carly A. Deckelboim

Posted February 26, 2014

By Scott R. Flick and Carly A. Deckelboim

February 2014

Pillsbury's communications lawyers have published FCC Enforcement Monitor monthly since 1999 to inform our clients of notable FCC enforcement actions against FCC license holders and others. This month's issue includes:

  • FCC Limits License Renewal to Two Years and Assesses $4,000 Fine
  • $24,000 Consent Decree for Incomplete Public Inspection File
  • Hotels Cited for Exceeding Signal Leakage Limits in Aeronautical Bands

Station Assessed Fine for Public File Violations and Granted Short-Term License Renewal
In reviewing the license renewal application for a Meridian, Texas radio station, the FCC's Media Bureau proposed a $4,000 fine for public inspection file violations. It also granted the station's license renewal application, but only for a period of two years (rather than the normal eight), based upon the station's extended periods of silence during the prior license term.

Section 73.3526 of the FCC's Rules requires licensees to maintain information about station operations in the station's public inspection file so the public can obtain "timely information about the station at regular intervals." In its license renewal application, the station indicated that it could not locate a number of its quarterly issues-programs lists. The base forfeiture amount for public inspection file violations is $10,000, but the FCC has authority to adjust that amount up or down based on a licensee's circumstances. Here, the FCC noted that "the violations were extensive, occurring over a period of nearly two years and involving at least 6 issues/programs lists." Despite this, the FCC ultimately imposed a forfeiture amount of only $4,000 since the violations were not "evidence of a pattern of abuse."

The station was also dark for lengthy periods during the prior license term. Section 312(g) of the Communications Act prohibits long periods of silence by licensed stations because licensees have an obligation to provide service to the public by broadcasting on their allocated spectrum. When the FCC reviews a station's renewal application, it considers whether the licensee has adequately served its community of license. Section 309(k) of the Communications Act provides that the renewal application should be granted if "(1) the station has served the public interest, convenience and necessity; (2) there have been no serious violations of the Act or the Rules; and (3) there have been no other violations which, taken together, constitute a pattern of abuse." In this case, the FCC pointed out that the licensee had two periods of silence, each lasting nearly a year, and that the station had been dark for almost half of the license term. Since the licensee had failed to provide "public service programming such as news, public affairs, weather information, and Emergency Alert System notifications" during these long periods of inactivity, the FCC determined that granting a renewal of only two years would be the most effective sanction because it would incentivize the licensee to maintain its broadcast operations and not go silent in the future.

License Agrees to Pay $24,000 Under Terms of Consent Decree for Missing Public File Documents
The FCC has entered into a consent decree with an Atlanta LPTV licensee after conducting a lengthy investigation. Almost two years ago, in March of 2012, the FCC sent a letter to the licensee asking for specific information to determine the station's eligibility for Class A television status. The requested information included the location of the main studio, a description of production equipment, names of employees, the location of the public inspection file, a copy of the quarterly issues/programs lists, and a copy of the public inspection file documentation. In its response, submitted in June of 2012, the licensee informed the FCC that the station had been vandalized and provided police reports and other documentation to account for its failure to produce a public inspection file. In another letter dated almost one year after the licensee's explanatory letter, the FCC asked for further clarification from the licensee regarding the location of the station's public inspection file and why the police report did not mention vandalism of the public inspection file. The licensee replied one month later in July of 2013 and provided another police report to explain the theft of equipment.

Continue reading "FCC Enforcement Monitor"

Aereo Stumbles in Utah on Its Way to the Supreme Court

Scott R. Flick

Posted February 20, 2014

By Scott R. Flick

I wrote a few weeks ago about Aereo's Rocky Path Ahead, discussing the legal obstacles Aereo will need to overcome even if the Supreme Court should rule in its favor in the currently pending proceeding. Yesterday, that path became even rockier, when a federal judge in Utah dropped a boulder in Aereo's path. The resulting sound was that of a thousand tiny antennas splintering against Utah red sandstone, with the judge granting a preliminary injunction prohibiting Aereo from operating in Utah, Colorado, Kansas, New Mexico, Oklahoma, and Wyoming.

The decision is Aereo's first major defeat in court, although Aereo look-alike FilmOn X already has two preliminary injunctions against it. The most notable aspect of Judge Kimball's decision, however, is that he had little difficulty concluding that Aereo's service was exactly the type of copyright infringement Congress intended to prohibit in enacting the 1976 Copyright Act. Quotable quotes from the decision include "[t]he court ... has carefully reviewed each of the prior decisions and has concluded that the California and D.C. district court cases [granting injunctions] as well as Judge Chin's dissent in the Second Circuit case are the better reasoned and more persuasive decisions ...." and "[t]his court agrees with Judge Chin that '[b]y any reasonable construction of the statute, Aereo is engaging in public performances' when it intercepts and retransmits copyrighted programs to paying strangers."

As the language above indicates, broadcasters have much to like in Judge Kimball's decision and really nothing to dislike. In fact, they surely hope that the Supreme Court decision will look a lot like the Utah decision. In that regard, I should mention that TV Technology this week published a pro/con article on how the Supreme Court should rule, and asked me to write the pro-broadcaster analysis. John Bergmayer of Public Knowledge ably handled the pro-Aereo portion of the article which, by coincidence, was published on the same day the Utah decision was released. In reading Judge Kimball's decision, I was struck by how many of the pro-broadcaster arguments found their way into his decision. For those interested, reprinted below is my contribution to the TV Technology article. If you would like to see the entire article, including John Bergmayer's pro-Aereo argument, it can be found here.


The Broadcaster Argument Against Aereo

The major argument you hear in support of Aereo is "if a viewer can do it, then the viewer should be allowed to hire Aereo to do it for them." That logic is flawed for a number of legal reasons too complex to address in this short space, but it is also factually flawed--a truism that isn't true (i.e., a person can have sex with their spouse, but if they hire someone else to do it, that's prostitution, and it's illegal in most places).

More specifically though, Aereo isn't doing what viewers otherwise do on their own, it is doing what no viewer in their right mind would do--renting a building near the Empire State Building to place their antenna and the equipment necessary to transcode the signal for relay over the Internet, signing up for broadband Internet access at that leased sight so the signal can be transmitted over the Internet, paying for electricity at that site to power the equipment, making regular maintenance visits to keep the equipment operational, and paying higher fees for both the antenna site and home broadband connections because of the broadband speeds and capacity needed to relay nonstop HD broadcast programming.

The reason no consumer has ever done this is obvious--installing a window antenna, buying basic cable service, or just watching Internet video sources like Hulu is both simpler and cheaper. The difference between a home viewer and Aereo is akin to the difference between a recreational fisherman and a commercial fisherman--for good reason, the commercial fisherman is subject to many more regulations, and if the recreational fisherman starts using commercial trawlers and drift nets for fishing, he is no longer a recreational fisherman.

The Supreme Court is not, however, considering Aereo's general legality at this early stage, but only the narrow question of "whether a company 'publicly performs' a copyrighted television program when it retransmits a broadcast of that program to thousands of paid subscribers over the Internet." The stakes are markedly higher for Aereo than for broadcasters at the Supreme Court, as a ruling against Aereo would pave the way for an injunction against its service while simultaneously making it very difficult for Aereo to demonstrate in various courts around the country that its service does not infringe copyright. In contrast, a ruling in favor of Aereo, while a significant boost, would still leave Aereo with major legal and factual obstacles to overcome at trial (e.g., does each Aereo subscriber actually have their own antenna and DVR as promised?; do the copies of programs made at the request of subscribers qualify as fair use under copyright policy?). In other words, the Supreme Court's ruling on this one issue could be devastating to Aereo, but a ruling to the opposite effect won't resolve Aereo's other legal issues.

Copyright law can be arcane in the extreme, but to oversimplify the transmission issue a bit, it boils down to this: if Aereo transmits the same content to a thousand subscribers, there is no dispute that each subscriber counts as a public performance of the content and infringes the rights of the copyright holder. Aereo argues however that it is not transmitting the same content to a thousand subscribers, but is transmitting unique content to each of those subscribers, leading to a thousand private performances that do not trigger copyright infringement. Stated in this way, the key question becomes "what is the 'content', and how can it be unique for each subscriber?" Aereo's argument is that since each subscriber is assigned (at least temporarily) its own antenna and hard drive, a transmission of program content from that particular hard drive is unique. This conclusion is counterintuitive at best, since every hard drive copy and transmission of this week's episode of The Big Bang Theory will be bit-for-bit identical with every other one, undercutting the notion that these transmissions are in any way unique private performances. As Judge Chin pointed out in his Second Circuit dissents in this proceeding, the relevant "content" has to be the program itself, not the bits on a particular hard drive, and since the same program is being distributed to those thousand subscribers, Aereo is transmitting a public performance that infringes copyright. Asserting that "this string of bits is different than that string of bits because they come from different hard drives, even though they are bit-for-bit identical" is just one more reason people make fun of lawyers.

While Aereo asserts that this illogical result is a loophole left by Congress in copyright law, it is not. Instead, it is a loophole created out of whole cloth by overenthusiastic extension of the sometimes tortured logic found in the Second Circuit's earlier decision in the Cablevision case. Cablevision, however, is a good example of that maxim we learned in law school that "good facts make bad law." In that case, the subscriber had paid for the content, and the cable operator had paid for the right to retransmit that content. Setting aside its legal reasoning to get there, it was not difficult for the Second Circuit to conclude, in effect, that if everyone in the process has been compensated anyway, and the proposed use isn't undercutting the market for that content, then what's the harm of letting a subscriber have their DVR located at the cable headend rather than at their house? However, whenever the law is contorted to achieve a factually attractive outcome, the inevitable result is other parties seeking to apply that same tortured logic to situations with far less attractive facts. Aereo is that case, and the Supreme Court hopefully will be the solution.

Marijuana Advertising: Don't Get Fooled Again

Scott R. Flick

Posted February 19, 2014

By Scott R. Flick

It's been three years since I first wrote about marijuana advertising here at CommLawCenter. Despite a head-spinning number of developments since then, including the legalization of recreational marijuana in Washington and Colorado, the answer to the question of whether broadcast stations can accept marijuana advertising is no clearer today than it was then. Since all forms of marijuana use are prohibited by the federal government, and broadcasters rely on federal licenses to operate, millions of dollars of ad revenue hang in the balance.

While steadfastly maintaining that marijuana is an illegal and dangerous drug, the federal government's enthusiasm for prosecuting marijuana-related activities that are legal under state law has waxed and waned over the years. Call it the federal freeze/thaw cycle, because the only certainty so far has been that every thaw is inevitably followed by a federal freeze.

The last thaw was in 2009, when the Department of Justice issued a memorandum indicating it was not particularly interested in pursuing medical marijuana sales that complied with state law. A number of broadcasters took this to mean that the federal government would be okay with advertising medical marijuana, and started accepting the ads. In the dark early days of the recession, marijuana ad sales kept afloat many stations that were otherwise starving for ad revenue.

You can track what happened afterward in posts here at CommLawCenter. In May 2011, I wrote about the DOJ sending threatening letters to states that were then considering enacting medical marijuana laws. Those letters went so far as to threaten state employees with civil and criminal prosecution if they participated in implementing that state's medical marijuana law. At that point, most broadcasters that had been taking the ads stopped, waiting for the federal government, and perhaps the FCC itself, to provide clarification as to whether accepting marijuana ads threatened broadcast license renewals (or worse).

In the fall of 2011, I noted that the last bank in Colorado openly servicing medical marijuana businesses in that state closed those accounts, deciding that it wasn't worth the risk. That post also noted that the DOJ had sent letters to the landlords of marijuana dispensaries threatening prosecution, including the threat to confiscate buildings and the rent received from the dispensaries. A week later, a U.S. Attorney in California raised the specter of prosecuting radio and TV stations for airing medical marijuana ads. While nothing further came from that threat, it certainly rattled media that had accepted marijuana advertising. The federal government had once again put marijuana advertising into the deep freeze.

I was reminded of this cycle last week when media stories declared another federal thaw regarding the sale of marijuana. This past Friday, FinCEN (Financial Crimes Enforcement Network), a part of the Department of Treasury, announced a set of guidelines for banks "that clarifies customer due diligence expectations and reporting requirements for financial institutions seeking to provide services to marijuana businesses. The guidance provides that financial institutions can provide services to marijuana-related businesses in a manner consistent with their obligations to know their customers and to report possible criminal activity."

The response was predictable. Advocates of marijuana legalization hailed the action as proof that the federal government had come around on the issue. Arguably adding support to this view was a memo dated the same day from the Deputy Attorney General of the U.S. to all U.S. Attorneys appearing to accept state-approved marijuana sales, and prioritizing other types of marijuana offenses for prosecution. Specifically, U.S. Attorneys were advised to focus their resources on:

  • Preventing the distribution of marijuana to minors;
  • Preventing revenue from the sale of marijuana from going to criminal enterprises, gangs, and cartels;
  • Preventing the diversion of marijuana from states where it is legal under state law in some form to other states;
  • Preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;
  • Preventing violence and the use of firearms in the cultivation and distribution of marijuana;
  • Preventing drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use;
  • Preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands; and
  • Preventing marijuana possession or use on federal property.

Understandably, federally-chartered banks were less enthusiastic about the announcement, noting that federal law still bans the sale of marijuana, and that there was little reason for a bank to stick its neck out to service such accounts until that changes. Of course, it also didn't help that the DOJ memo was titled "Guidance Regarding Marijuana Related Financial Crimes" and that it was chock full of caveats like:

Continue reading "Marijuana Advertising: Don't Get Fooled Again"

Aereo's Rocky Path Ahead

Scott R. Flick

Posted February 6, 2014

By Scott R. Flick

Where the law aims to draw a bright line between what is permissible and what is not, advances in technology often blur that line, creating factual scenarios that couldn't have existed when the law was drafted. In the case of Aereo's technology, the mistake many are making is to assume that technology doesn't just blur the line, but erases it entirely. Courts, however, are remarkably astute at locating that faded line and darkening it rather than just throwing up their hands and saying "Congress didn't specifically address this technology, so you're free to do whatever you want with it." As Napster discovered years ago, just because a technology wasn't envisioned by Congress when the copyright laws were drafted doesn't exempt it from their application.

In the proceeding now pending before the Supreme Court, the Court is looking only at the narrow issue of whether the Second Circuit erred in declining to issue an injunction against Aereo's service on the grounds that Aereo's transmissions are not "public performances" of broadcast programs. While the details of this debate are quite nuanced, a ruling that Aereo is engaged in transmitting public performances would be the judicial equivalent of a torpedo amidships; Aereo might not sink immediately, but it would start taking on water fast. Aereo's argument against such a finding is that its system of thousands of antennas paired with thousands of hard drives allows it to engage in thousands of private transmissions, but no transmissions to "the public" triggering copyright liability.

From a policy standpoint, there is little doubt that Congress never intended to bless such an arbitrary distinction, or the use of technological workarounds that serve no purpose but to try to circumvent copyright laws. To some extent, Aereo doesn't seem to deny this, but argues that Congress left a tiny opening in the law that the Second Circuit then stretched into a man-size opening in the Cablevision case, and Aereo is just stepping through that doorway.

Tellingly, however, the relevant aspects of copyright law have not changed much in recent years, and it was only the Second Circuit's actions that created a "loophole" where none existed before. As Judge Chin made clear in his Second Circuit dissents, creating the Aereo loophole requires such a tortured reading of the law that "pinhole" is a more accurate description than "loophole". Because the Supreme Court is not bound by Second Circuit decisions, however, it could well resolve the issue in favor of broadcasters without breaking a sweat.

Lost in the furor over what the Supreme Court will do though, is the fact that Aereo has a lot more at stake at this stage than broadcasters. While a sufficiently adverse ruling by the Supreme Court could be fatal to Aereo, a ruling favorable to Aereo would still leave a rocky path ahead, with many other obstacles to be traversed. As just one example, what if trial discovery reveals that the Aereo architecture doesn't quite live up to the "one subscriber, one antenna" approach upon which Aereo has staked its legal survival?

Similarly, while the current debate at the Supreme Court is focused on the legality of Aereo's transmissions to subscribers, missing from the public debate has been much discussion of the legality of Aereo's copying of broadcast programs to transmit. Aereo's fundamental legal argument in that regard has been that if a consumer can legally make a home copy, then they should be able to hire Aereo to do it for them. But consider the following example: as a listener, you can record radio broadcasts, including the music in them, and keep those copies for your personal, noncommercial use. Knowing this, I create a company with the ability to receive all local radio stations using sophisticated signal analysis software and databases that can instantly recognize any song and, upon request, copy that song onto a hard drive. I then solicit subscribers, who send me their requested playlists, and for a fee, my sophisticated equipment and full-time employees can automatically record each requested song onto the hard drive I have assigned to a particular subscriber. The subscriber can then access that music for use on home computers and stereos, or pay me an additional fee to convert all of "their" files into MP3, FLAC, or other useful file formats so that the music can be downloaded to any of the subscriber's consumer devices, including tablets, smartphones, or home music servers.

In an Aereo world, all I've done is accomplish what a radio listener (with very expensive and sophisticated monitoring equipment and software) could have done on their own, so my music service is completely legitimate and copyright compliant. Of course, why stop there? Why not sell subscribers a blank CD and then charge them a fee for recording "their" music on it? We've just automated the process for subscribers to create their own "home" mix tapes! It's Pandora without all those pesky ASCAP, BMI, SESAC, and record company royalties. In the real world, however, does anyone think this "Audio Aereo" service would survive even the most cursory of legal challenges? Video Aereo may fare no better.

While advocates of Aereo will cite the Second Circuit's Cablevision decision as the guiding legal precedent for Aereo's operations, the true wellspring of Aereo is the Supreme Court's 1984 Sony Betamax decision. In a narrow 5 to 4 decision, the Supreme Court found that home recording of television programming constituted a "fair use" under copyright law, launching the age of home video recording. The Second Circuit's contribution in Cablevision was to state that the location of a viewer's recording device is unimportant, clearing the way for cable subscribers to "rent" a DVR located at the cable headend from their cable provider while retaining the fair use status of "home" recording.

In developing a Rube Goldberg service whose complexity serves no purpose other than seeking to sidestep copyright law, Aereo has pushed the Second Circuit's logic past the breaking point. In Cablevision, the subscriber had paid for the content, and the cable operator had paid for the right to retransmit that content. It was therefore not difficult for the Second Circuit to conclude, in effect, "if everyone in the process has been compensated, and it doesn't undercut the market for the content, then what's the harm of letting a subscriber locate their DVR at the cable headend rather than in the subscriber's house? Have we really altered the activity to such an extent that recording program content is no longer the fair use blessed by the Supreme Court in Sony Betamax?"

And this is where a fundamental flaw in Aereo's legal position emerges. The test is not whether a member of the public can copy a program for their own home viewing and call it fair use; the test is whether Aereo copying a program for that subscriber still qualifies as a fair use under copyright doctrine. Fair use analysis considers four factors: (1) the commercial or nonprofit nature of the activity; (2) the nature of the copyrighted work; (3) the substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use on the potential market for, or value of, the copyrighted work. The Supreme Court's decision in Sony Betamax focused on the first and fourth factors, finding that individuals recording programs for time-shifting is a noncommercial activity, and that time-shifting is unlikely to undercut the market for the copyrighted work. The Supreme Court therefore found that home taping qualifies as fair use.

In contrast, Aereo's copying of broadcast programming (even at a subscriber's behest) is decidedly not a "noncommercial activity", and even the Second Circuit decision affirming the denial of an injunction against Aereo did not disagree with the district court's finding that Aereo would cause irreparable harm to broadcasters. That irreparable harm arises from undercutting the market for the copied programming. In other words, the two factors that principally led the Supreme Court to bless home taping as a fair use in Sony Betamax produce the opposite result when applied to Aereo. Justice Stevens' majority decision in Sony Betamax is instructive in this regard. He wrote that "If the Betamax were used to make copies for a commercial or profitmaking purpose, such use would presumptively be unfair," and "every commercial use of copyrighted material is presumptively an unfair exploitation of the monopoly privilege that belongs to the owner of the copyright...." The Aereo service is clearly a "commercial use of copyrighted material" that undercuts the market for that material. By the very decision that allows home recording to exist as a fair use under copyright law, "home" recordings made by Aereo appear to fall outside that protection, and Aereo would not be able to avail itself of the fair use defense in making copies of broadcast programming.

Which means that if the Supreme Court rules against Aereo on the transmission issue, the Aereo story could come to a relatively abrupt end, but if it doesn't, Aereo still faces serious legal hurdles ahead. In either case, the Supreme Court's decision on the transmission issue is not likely to be the "one and done" referendum that Aereo might have hoped for. Stated differently, if the Supreme Court decision does turn out to be "one and done," it will be Aereo that is done.

FCC Enforcement Monitor

Scott R. Flick Carly A. Deckelboim

Posted January 24, 2014

By Scott R. Flick and Carly A. Deckelboim

January 2014

Pillsbury's communications lawyers have published FCC Enforcement Monitor monthly since 1999 to inform our clients of notable FCC enforcement actions against FCC license holders and others. This month's issue includes:

  • FCC Admonishes Television Stations for "Host-Selling" to Children
  • $7,500 Fine Imposed for Documents Missing From Public Inspection File
  • $17,000 Fine for Unauthorized Operation of a Radio Transmitter

Admonishment Issued for Program Characters Promoting a Product

The FCC continues to enforce its restrictions on commercial content during children's shows. Section 73.670 of the FCC's Rules restricts the amount of commercial matter that can be aired during children's programming to 10.5 minutes per clock hour on weekends and 12 minutes per clock hour on weekdays. The Commission most often examines compliance with these limitations when acting on a television station's license renewal application.

Earlier this month, the FCC issued identical admonishments to two commonly-owned Wisconsin TV stations for failing to comply with the limits on commercial matter in children's programming. The stations disclosed in their license renewal applications that they had aired a commercial for cereal during a children's program seven years ago, and the commercial contained "glimpses of characters from the program on the screen." The licensee noted that the appearance was "small, fleeting, and confined to a small area of the picture," and that the software used by the CW Network to prevent such appearances failed to catch this particular incident. Where a program character appears during a commercial in that program, the FCC's approach is to treat the entire program as a commercial, which by definition exceeds the FCC's commercial time limits in children's programming.

The licensee argued that the images did not appear "during the commercial part of the spot but during a portion of the material promoting a contest." The FCC disagreed, but only issued an admonishment to each of the stations because the violation was an isolated incident. Nevertheless, the FCC warned that it would impose more serious sanctions if the licensee committed any similar violations in the future.

License Assessed $7,500 Fine for Failing to Provide Quarterly Issues/Programs Lists for Seventeen Quarters

Earlier this month, the FCC imposed a $7,500 fine on a Pennsylvania station for willfully and repeatedly violating the Commission's rule regarding the public inspection file. Under Section 73.3526(e)(12) of the FCC's Rules, a licensee must create a list of significant issues affecting its viewing area in the past quarter and the programs it aired during that quarter to address those issues. The list must then be placed in the station's public inspection file by the tenth day of the month following that quarter.

In April of 2010, an agent from the Enforcement Bureau's Philadelphia office found during an inspection that the licensee was missing fifteen quarters of issues/programs lists. The licensee explained in response to a subsequent Letter of Inquiry that some of the lists had been stolen or removed from the public inspection file and promised to replace the missing lists. However, in February of 2011, a follow-up investigation revealed that the public inspection file contained only one issues/programs list, which meant that there was a total of seventeen quarters of missing lists. At the time of the follow-up, the licensee said that part of the roof of a neighboring building had collapsed and destroyed the records.

In June of 2011, the FCC issued a Notice of Apparent Liability for Forfeiture ("NAL") for $15,000. In response, the licensee argued that the fine should be reduced because the missing records were outside his control and that he did not have the ability to pay such a fine. In January of 2014, the FCC determined that a reduction of the fine was warranted based on the licensee's inability to pay, but noted that the failure to maintain issues/programs lists was not outside of the licensee's control and that the licensee's explanations as to the cause of the missing documents conflicted with each other. Although the FCC reduced the fine from $15,000 to $7,500, the Enforcement Bureau cautioned that it has previously rejected inability to pay claims for repeated or egregious violations and that in the event this licensee commits future violations, it may result in significantly higher fines that may not be reduced merely because of the licensee's inability to pay.

Licensee Fined for Interfering with United States Coast Guard Operations

Last month, the FCC issued an NAL against a California licensee for operating a radio transmitter on a frequency not authorized by its license and failing to take precautionary measures to avoid causing interference. The base fine for operating on an unauthorized frequency is $4,000, and the base fine for interference is $7,000.

In January of last year, the United States Coast Guard complained to the FCC of interference with its operations in the 150 MHz VHF band. An agent from the Enforcement Bureau's Los Angeles office used radio direction-finding methods to determine that the interference was coming from the licensee's building. The agent located a transmitter at that location that was operating on a frequency different than that indicated on the transmitter's label. After the Bureau contacted the licensee and informed it of the agent's findings, the licensee turned off the transmitter, and the interference to the Coast Guard stopped.

Subsequently, the Enforcement Bureau's Los Angeles office issued a Notice of Violation ("NOV") to the licensee for failing to operate in accordance with its authorization and not taking reasonable precautions to avoid interference to licensed services. The NOV noted that the licensee's authorization specified operation on frequencies that included neither the transmitter's labeled frequency nor the frequency on which the transmitter was actually operating. In response, the licensee argued that the transmitter was unstable and operating about .8 MHz on both sides of the designated frequency.

Under Section 1.903(a) of the FCC's Rules, a licensee can only operate a station in compliance with a valid authorization granted by the Commission. The FCC rejected the licensee's argument that the malfunctioning transmitter was operating on the licensee's assigned frequency, finding that its agent's investigation indicated otherwise. The FCC also noted that Section 90.403(e) of the FCC's Rules requires that licensees take appropriate measures to avoid causing harmful interference, and that the licensee here failed to offer any evidence in response to the NOV that it had taken such precautions.

In determining the appropriate fine, the FCC considered the facts and circumstances and found that the violations warranted proposing a fine higher than the base amount for these violations. Because the licensee caused harmful interference to the Coast Guard's operations and the licensee was not aware of its spurious signal until the FCC notified it, the FCC assessed a total fine of $17,000, increasing the fine by $6,000 over the base amount for such violations.

A PDF version of this article can be found at FCC Enforcement Monitor.

Another Year Over and a New One Just Begun

Scott R. Flick

Posted January 17, 2014

By Scott R. Flick

Around this time every year, you typically see an abundance of articles in the trades making predictions about what the FCC will do in the coming year. It has become such a rite of the new year that I've even joked about it in past posts.

This year, however, I have noticed much less predictive commentary about the FCC, and it isn't hard to understand why. 2014 is so far looking like a "to be continued" year, forcing FCC soothsayers to concede that it's hard to say precisely how 2014 will differ markedly from 2013 at the FCC.

For example, 2014 was originally supposed to be the Year of the Broadcast Spectrum Incentive Auction. However, after the confusion surrounding the federal Affordable Care Act website demonstrated that "set a deadline to launch and it will surely be figured out by then" might not be the optimal approach to complex government projects, Chairman Wheeler agreed with much of the broadcast industry that it will take more time to get such a complicated undertaking right. As a result, he announced last month that the auction is now likely a mid-2015 event. While buying health insurance is indeed complicated, it is ditch-digging compared to designing the Broadcast Spectrum Incentive Auction (official motto: "The Broadcast Spectrum Auction--Making quantum mechanics look easy since 2010").

Similarly, Chairman Wheeler also last month took media ownership proposals being considered internally at the FCC under the prior Chairman off the table in order to give a "fresh look" at the FCC's media ownership rules. By statute, the FCC is required to review its media ownership rules every four years and eliminate any that are no longer in the public interest. The tabled proposals were part of the still-in-process 2010 quadrennial review, increasing the likelihood that the 2010 proceeding will now be rolled into the 2014 quadrennial review (official motto: "It's 2014 already?").

So does this mean 2014 will be boring for media watchers? Not at all. First, one reason for the dearth of breathless predictions is the relatively recent arrival of Chairman Wheeler. A new Chairman can bring many surprises, and as he has succeeded so far in holding many of his cards close to his vest, it's too early to tell just what all may be on his 2014 wish list. What he will do in 2014 therefore remains more a matter of speculation than prediction, leading many prognosticators to hold back for the moment.

Second, even if 2014 ends up being a quiet year of incremental change at the FCC, there is plenty to keep things interesting on the media front outside of the FCC. First and foremost, last week's announcement that the Supreme Court is jumping into the Aereo fray ensures that there will be some dramatic developments in 2014. Similarly, the 2014 elections promise to be a significant event for many media outlets, both in terms of bringing political ad dollars through the door while affecting the political balance of a Congress that has promised a rewrite of the Communications Act of 1934 in the next few years.

While such events will create an interesting 2014 regardless of what the FCC has on its menu, it's meeting the daily deadlines that keeps media businesses going, and meeting the legal deadlines that keep broadcasters in particular operating. For example, while the state by state radio license renewal application filing cycle concludes in 2014, the TV renewal cycle continues on throughout this year and into 2015.

One way, however, that 2014 will differ from 2013 is that October 1, 2014 marks the every-three-years deadline for TV stations to send their must-carry/retransmission consent elections to cable and satellite carriers. Given the growing importance of retrans dollars for broadcasters, and the fact that, at least with regard to cable, a failure to make an election results in a default election of must-carry, these elections are critically important (in contrast, note that failure to send an election to DirecTV or Dish leads to the opposite result, a default election of retransmission consent, just to make it as confusing as possible).

To help broadcasters navigate the less-exciting but still critically important deadlines that keep their licenses intact, at the end of 2013 we published the 2014 edition of our annual Broadcasters' Calendar. It can be found on the right side of the CommLawCenter main page, as well as at the Communications Publications section of Pillsburylaw.com.

Also, to stay up to date on industry events, keep an eye on our main page Interactive Calendar, as we upload numerous 2014 industry events, including NAB shows, state broadcasters associations conventions, and Pillsbury seminars and webinars on a variety of communications-related subjects. Predicting may be more fun, but knowing your regulatory deadlines keeps the lights on. Regardless, as 2014 reveals itself, I have little doubt that there will be a lot to talk about, and make predictions about, here at CommLawCenter.

FCC Prophecy on False EAS Alerts Comes True to the Tune of $200,000

Scott R. Flick

Posted January 14, 2014

By Scott R. Flick

Over the years, I've written numerous times about the FCC's adverse reaction to advertisers seeking to make their ads more attention-getting through inclusion of an Emergency Alert System tone. The most recent was this past November, when the FCC proposed a $25,000 fine against Turner Broadcasting System, Inc. for an EAS tone-laden Conan promo, and announced a $39,000 consent decree with a Kentucky TV station for a local sports apparel store ad containing an EAS alert tone.

I titled the post FCC Reaches Tipping Point on False EAS Alerts, and noted at the end of it that

ominously, today's FCC Enforcement Advisory notes that "[o]ther investigations remain ongoing, and the Bureau will take further enforcement action if warranted." Given today's actions by the FCC, everyone whose job it is to review ad content before it airs is having a very bad day.
Today, the FCC fulfilled that prophecy, proposing an additional $200,000 fine against Turner Broadcasting System, Inc. for distributing another ad containing EAS tones. According to the FCC, Turner's Adult Swim Network aired ads produced by Sony Music Group promoting an album by rap artist A$AP Rocky and the album's availability at Best Buy stores. While the ad did not contain any digital data from an EAS tone, it did simulate the EAS audio tone itself. The ad aired seven times over the network's East Coast feed, and then was repeated seven more times in the West Coast feed three hours later.

The FCC's decision is "spirited" (at least by FCC standards), managing to convey a fair degree of exasperation, principally because of Turner's prior violation and the fact that

In response to those [earlier] complaints, which also emphasized the potential impact on public safety of the transmission of such material, Turner represented to the Commission that it had changed certain of its internal review practices. Nevertheless, another Turner-owned channel, less than one year later, transmitted the A$AP Rocky/Best Buy advertisement 14 times over a six day period, which also contained simulations of the EAS codes. Thus, despite its experience with the problem of misusing EAS codes and Attention Signals, Turner continued to violate Section 11.45 of the Commission's rules and Section 325(a) of the Act, indicating a higher degree of culpability in this instance. Therefore, based on the number of transmissions at issue, the amount of time over which the transmissions took place, the nationwide scope of Adult Swim Network's audience reach, Turner's degree of culpability, Turner's ability to pay, and the serious public safety implications of the violations, as well as the other factors as outlined in the Commission's Forfeiture Policy Statement, we find that a forfeiture of two hundred thousand dollars ($200,000) is appropriate.
Beyond the unprecedented size of the fine for such a violation, today's decision is also notable because, unlike the self-inflicted wound of putting an EAS tone in a program promo, this case involved a spot produced by a third party. While the FCC has appeared in the past to have had at least some sympathy where a problem in a third-party ad "slipped through", the FCC's sympathy seems to be exhausted at this point. Having said that, it is worth noting that the FCC went after the program network rather than the individual cable and satellite systems that actually transmitted the spots to the public. Cable and satellite providers can take at least some solace in that.

While the nationwide audience and prior violation may have made the size of this fine somewhat unique, it is safe to say that the FCC has reached the point that it is unlikely to find a false EAS tone, no matter the circumstances, to be an excusable "oops" on the part of a program distributor. While the FCC might once have been willing to just admonish a violator and save the fines for repeat offenders, it appears that there will no longer be any free bites at the false EAS tone apple, and that each bite will be appreciably more expensive than the last.

Of course, if the FCC is hoping that steadily escalating fines will cause violators to lose their taste for the forbidden fruit of false EAS tones in ads, the question is whether advertisers will also hear that message, or are broadcasters, cable operators and satellite TV providers forever doomed to play a game of whack-a-mole (whack-a-tone?) with third-party ads?

Unhappy With the Communications Act? Congress Wants to Know

Scott R. Flick

Posted January 8, 2014

By Scott R. Flick

Updating the nation`s communications laws is a perennial hot topic in Washington, with the phrase "the law hasn't kept up with technology" being routinely invoked by those wishing for a change in the law (whether or not technology has anything to do with it).

During the past year, however, the call to update the much amended Communications Act of 1934 has gained momentum, with Congress showing increased interest in taking on the controversial task. While modernizing the statute is not, at least conceptually, all that controversial given how often it has been updated in the past, how it is modernized promises to be a very heated debate given the high stakes involved for a variety of industries.

It is upon the shoals of such controversy that numerous past efforts to update the law have foundered, and observers couldn't be faulted for believing that any new initiative faces a similar fate. However, what separates the current effort to modernize the statute from many past discussions is that Congress has begun taking concrete steps to move the process forward. Today, the Energy & Commerce Committee of the House of Representatives announced the release of a White Paper outlining the current state of the Communications Act.

The announcement notes that

House Energy and Commerce Committee Chairman Fred Upton (R-MI) and Communications and Technology Subcommittee Chairman Greg Walden (R-OR) today began seeking public input as they work to review and update the Communications Act. In December, Upton and Walden announced that the committee will begin work this year on a comprehensive #CommActUpdate, including a white paper series that seeks to understand areas where the law is no longer working effectively and find ways to improve it to foster an environment for innovation, consumer choice, and economic growth. The white paper released today focuses on broad thematic concepts for updating the Communications Act.
The White Paper, which can be found here, summarizes the history of, and regulatory structure created by, the Communications Act. The Energy & Commerce Committee is asking for input from interested parties on a "series of questions posed in the white paper and is also offering an opportunity for interested parties to comment on any aspect of the Communications Act." The specific questions include:

1. The current Communications Act is structured around particular services. Does this structure work for the modern communications sector? If not, around what structures or principles should the titles of the Communications Act revolve?

2. What should a modern Communications Act look like? Which provisions should be retained from the existing Act, which provisions need to be adapted for today's communications environment, and which should be eliminated?

3. Are the structure and jurisdiction of the FCC in need of change? How should they be tailored to address systemic change in communications?

4. As noted, the rapidly evolving nature of technology can make it difficult to legislate and regulate communications services. How do we create a set of laws flexible enough to have staying power? How can the laws be more technology-neutral?

5. Does the distinction between information and telecommunications services continue to serve a purpose? If not, how should the two be rationalized?

While the scope of these questions is immense, the time to respond is not. The announcement of the White Paper asks that comments be submitted by January 31, 2014. Even with Christmas just behind us, it is a safe bet that numerous industry players are hastily drafting their wish lists now in hopes that Congress will be bringing them lots of legislative goodies in any Communications Act rewrite, while leaving their competitors only lumps of regulatory coal.

Comment Dates Set for FCC's Proposal to Mandate Captioning of IP-Delivered "Video Clips"

Paul A. Cicelski

Posted December 26, 2013

By Paul A. Cicelski

As I have noted on several occasions in the past, the FCC requires that certain video programming delivered online by television stations be captioned if that programming previously aired on television with captions (for a quick refresher you can view my posts "FCC Seeks Greater Clarity on IP Video Captioning Rules", "Second Online Captioning Deadline Arrives March 30", and "First Online Video Closed Captioning Deadline Is Here").

All video programming that appeared on television with captions after April 30, 2012, is considered "covered Internet Protocol (IP) video" and is required to be captioned when shown online. In January of 2012, the FCC released an Order exempting "video clips" and outtakes while requiring that television stations display captioning for prerecorded full-length programming delivered via IP if the programming had aired on television with captions. Where a captioned TV program is streamed on the Internet in segments, it must be captioned if substantial portions of the entire program are shown via those segments.

However, in the latest turn, the FCC is now asking for updated information regarding whether it should remove the "video clip" exemption. It is seeking public comment on the issue, with comments due on January 27, 2014, and reply comments due on February 26, 2014. The FCC's Public Notice asks commenters to answer a number of questions regarding the current state of captioning of IP-delivered video clips, including:

  • What portion of IP-delivered video clips generally, and of IP-delivered news clips specifically, are captioned?
  • Has the availability of captioned versions of such clips been increasing?
  • What is the quality of the captioning on IP-delivered video clips?
  • Should the FCC require captioning of IP-delivered video clips?
  • How are the positions of commenters consistent with the 21st Century Communications and Video Accessibility Act (CVAA), its legislative history, and the intent of Congress to provide video programming access to people with disabilities?
  • What are the potential costs and benefits of requiring captioning of IP-delivered video clips?
  • How have consumers been affected by the absence of closed captioning on IP-delivered video clips, particularly news clips?
  • To the extent that some entities have already captioned these clips, what technical challenges, if any, had to be addressed? How does the captioning of IP-delivered video clips differ from the captioning of full-length IP-delivered video programming?
  • What are the differences between captioning live or near-live IP-delivered video clips, such as news clips, and prerecorded IP-delivered video clips?
  • If the FCC imposes closed captioning obligations on IP-delivered video clips, should the requirements apply to all video clips, or only to a subset of such clips?
  • If only to a subset, what subsets would be most appropriate and what would be the rationale for excluding others?

The FCC also asks for comment on any additional issues relevant to its determination of whether closed captioning of IP-delivered video clips should be required.

TV stations have been making greater use of their websites over the last few years to deliver video programming, and that use is only likely to increase in the years ahead as TV stations expand their use of mobile applications to reach viewers. As a result, the FCC's new proceeding raises important issues that will affect stations' video streaming, online marketing, and bottom line. As the saying goes, you're not entitled to complain about an elected official if you didn't bother to vote, and broadcasters need to speak up now if they want to avoid having to complain later about any complex or burdensome online captioning requirements that might be adopted in this proceeding.