May 14, 2012 1:12pm PT by Eriq Gardner
How the TV Industry Blew Its Best Chance to Kill Dish's Ad-Skipping Technology
Last week, in what must have seemed for many in the entertainment industry to be a case of history replaying, Dish Network introduced the Auto Hop, its new device that will let subscribers watch recorded television programming without the commercials.
The technology isn't exactly a new idea. But for more than a decade, cable and satellite distributors have been careful about going too far with DVR functionality, not wanting to upset programmers worried about the future of the 30-second commercial.
This changed after Dish broadcast news of the Auto Hop to its 14 million customers. "I think this is an attack on our eco-system," said NBC Broadcasting chairman Ted Harbert on a conference call Monday. "I'm not for it."
Will a lawsuit commence?
Before addressing that question, let's examine whether entertainment companies might have made a mistake eight years ago.
For many, the controversy over Auto Hop will be reminiscent of the industry's battles against ReplayTV, which introduced its own time-shifting DVR device in 1999 and two years later was sued by copyright holders. Two years after that, ReplayTV owner Sonicblue declared bankruptcy, and the common perception was that the industry sued the technology out of existence.
But upon a second viewing of the dispute, the lawsuit against Sonicblue never led to any substantial judicial determination about the merits of the plaintiffs' argument: that ReplayTV's technology facilitated infringements of copyrighted programming and represented unfair competition by attacking the "fundamental economic underpinnings" of TV's ad-supported business model. Nor did the lawsuit go very far in weighing the defense: that the device was a jazzed-up version of the VCR, which was blessed as "capable of substantial noninfringing uses" by the U.S. Supreme Court in the famous Sony Betamax case.
Instead, after Sonicblue declared bankruptcy, the lawsuit was stayed. And then, a bunch of ReplayTV consumers sought to substitute their own claims so as to get a judgment about the legality of the device. The entertainment industry resisted the invitation to drag the dispute out, signing a covenant not to sue the new plaintiffs, which led a judge in 2004 to dismiss the case because there was no controversy left to adjudicate.
Now, eight years later, if the entertainment industry wants to bring a new lawsuit, it must do so against Dish, led by its chairman Charlie Ergen, who industry insiders portray as a very stubborn individual who isn't afraid to spend tens of millions of dollars and countless years in court in a given dispute. Instead of taking on a handful of consumers post-Napster, the industry now has to decide whether its test case will be against a guy willing to pony up for the best lawyers.
Although the commercial-skipping technology really hasn't changed, the interpretation of the law certainly has, and if there is a lawsuit against Dish over the Auto Hop, don't expect it to be like the ReplayTV litigation.
When Hollywood studios sued ReplayTV, the biggest question at the time was a service provider's vicarious responsibility for its users. In the Supreme Court's Grokster ruling, it was affirmed that there was responsibility, but then broadcasters sued Cablevision over a remote-storage DVR system, and the 2nd Circuit found that the system was "akin" to the VCR and that Cablevision's system was only acting at the best of its users.
Michael Elkin, a partner at Winston & Strawn, currently defending Aereo against claims made by broadcasters, believes the Cablevision case "validated the DVR functionality" and also gives another reason why a potential Auto Hop lawsuit is more likely to resemble Cablevision than ReplayTV. "Here, Dish is a licensee of the major television broadcasting companies and intends as I understand to limit the commercial-skipping device to discrete TV programs just on the major networks," he says.
In other words, Dish has a licensing agreement over programming, and the threshold question will be whether the company has breached the agreement.
Of course, the question of possible copyright infringement wouldn't be ignored in a lawsuit over Auto Hop. Elkin adds the broadcasters likely would claim the device is altering the content of its copyrighted programming. Copyright authority allows users the ability to control derivatives, and it likely will be argued that no matter Dish's agreements with broadcasters, the satellite giant is trafficking in unlicensed works.
There are many reasons why a case against Dish is a more fearsome proposition than the one against ReplayTV -- the nature of the defendant, licensing agreements and the precedent of the Cablevision case -- but there's at least one way in which things really haven't changed much at all during the past decade.
"Commercials are the lifeblood of the broadcast networks, and the new Dish commercial-skipping feature, if not enjoined, would undermine the economic underpinnings of the broadcast networks," says Lawrence Iser, a partner at Kinsella Weitzman, who says he expects a lawsuit to come.
Will it? The anxiety by Herbert and others suggests yes. But the decision to pass up the chance eight years ago to determine this question once and for all leaves some doubts as to whether the broadcasters are ready to hit the play button on legal action against Dish.