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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.

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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.

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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.

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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:

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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.