How to Settle the iPad Lawsuits Now (Analysis)

With Viacom, Time Warner Cable and Cablevision mired in litigation over whether cable customers can watch on their iPads, here's a possible path to resolving the disputes.

Back in April, Viacom and Time Warner Cable sued each other; then last month Viacom sued Cablevision. Interestingly, that came just a day after Viacom and TWC filed a standstill agreement so that they could negotiate without the pressure of ongoing court deadlines.

In both sets of suits, the issue is the same: under license and distribution agreements, can  cable companies allow their customers to add another screen to their home viewing options: an iPad?

The iPad app, it should be emphasized, is usable only in the same home in which the customer already has cable service. It’s not usable on the go. For that reason, the cable companies argue that the iPad is simply another home screen – just like an additional television screen.

Viacom disagrees, arguing that such use exceeds the scope of the licensing language, and thus constitutes breach of contract and copyright infringement.

Viacom is also concerned that Nielsen doesn’t count iPad viewing (see Viacom complaint, para. 32) and claims it will be a long time before Nielsen is able to do so (although it doesn’t say why). That means ratings numbers could decline if a significant number of viewers switch from television sets to the wildly popular tablets. Channel providers’ concerns will only increase as the iPad continues to gain customers and if Android tablets become popular too.

Writing on this blog, Eriq Gardner predicted that the Viacom-TWC lawsuit will settle, possibly with TWC agreeing to paying a small mobile fee. I agree (and anticipate that the TWC-Cablevision suits will settle as well). Here’s a detailed look at why that’s likely to happen.

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Fundamentally, the licensing language that Viacom points to is probably ambiguous. I haven’t seen the language – it was redacted (blacked out) in the publicly-released Viacom v. Cablevision complaint. No doubt the same is true in the Viacom-TWC lawsuits, in both cases to ensure confidentiality. The licensing language is considered a trade secret by channel providers, and probably by cable and satellite companies as well.

But the language is bound to be ambiguous, because it almost always is. Whenever questions of this type arise – does preexisting licensing language cover an unanticipated new technology or usage pattern? – the language is ambiguous precisely because the new technology or usage was unanticipated.

These kinds of cases aren’t new: in fact, they date back to the commercialization of movies themselves about 100 years ago. The new technology was movies, and the preexisting license agreements were between stage producers and the authors of books to which the producers had acquired stage play rights.

At the time, those rights were termed “dramatic rights.” Stage producers argued that this terminology was broad enough to encompass movies as well: after all, movies, like stage plays, are dramatizations of the underlying book. In both cases, actors perform a script that’s been adapted from the book. Then – in the case of both stage plays and movies – an audience sits in a public theater and watches the dramatization.

The stage producers wanted to control the movie rights, so that they could license them to motion picture producers. Authors argued that this would give the producers an unfair windfall – but producers made the same argument: if authors were allowed to keep the rights that producers argued were theirs, the authors would reap a windfall when they licensed out the rights. And both sides disagreed over the legitimate scope of the language.

This problem arose over and over again in the next century. For instance, did the preexisting licensees of television rights own home video rights when that technology came along? The answer’s not obvious. After all, both involve playing a motion picture on a television set in the home. Litigation ensued. Sound movies (i.e., talkies), cable, satellite, video games and the Internet were the subjects of lawsuits as well.

In all of these cases, court decisions turned on subtle interpretations of phrasing in the licensing language. A comma here, a wording choice there, would influence the judge’s decision. Subjective judgments also played a part: how similar, in the judge’s mind, were the preexisting and new technologies or usages?

The parsing of language was so subtle that, even when the licensing agreements granted rights related to “all other technologies hereafter devised,” courts sometimes found that the license agreement didn’t encompass new technologies.

Conversely, when the license agreement included language that “all rights not granted in this agreement are reserved to the rights holder,” courts differed in the weight they gave this language. Some courts found that the language indicated a desire to reserve the rights in new uses, while other courts found the language tautological: of course rights not granted are reserved, they said; after all, the rights didn’t simply evaporate.

To make matters more confusing, different federal circuits developed different lines of precedent, with the Second Circuit (encompassing New York) tending to favor the original rights holder more often than the California-based Ninth Circuit did.

So, if the Viacom licensing language is ambiguous, and the new usage is similar but not identical to the old (both television sets and iPads are screens within the home), each party to the dispute has good reason to fear a loss. And neither party wants to set a bad precedent – not only for itself, but for other members of its industry as well.

In addition, each side – channel providers and channel distributors – ultimately gains if they provide paying customers what they want.

These circumstances are exactly the sort that drive settlements.

I’m guessing Viacom is likely to extract a small mobile fee. That fee might be different in the two sets of cases, depending on whether the licensing language tilts a little more in one direction or the other.

It’s also possible that the parties will agree to a cashless settlement, depending on how broad the language actually is. We’ll probably not know – at least until leaks develop – since the settlement terms will be confidential.

But what about the ratings problem? Assuming it’s true that Nielsen doesn’t measure tablet viewing, that could become a real issue for Viacom as tablet viewing grows.

There’s a solution to this one too though: another fee for Viacom, this one to compensate for lost advertising revenue due to artificially low ratings. The fee might even be keyed in some way to the number of hours on average that consumers use the iPad viewing app to watch the various Viacom channels. After all, there’s seemingly no reason why the cable company can’t determine who’s watching which channel when a tablet is in use.

The cable companies in turn will probably insist that the ratings makeup fee expire after a certain period, or once Nielsen begins measuring tablet viewership.

That supplementary fee, particularly in combination with the mobile fee (if any), suggests that the cable companies may start charging customers for iPad access, just as some do for additional receivers. Of course, they'll probably tell customers that they’re just passing on increased programming fees.

When the ratings makeup fee expires, will the charge to customers be reduced? Probably not explicitly - when has a cable company ever explicitly reduced its fees? - but customers might (and ought to) see at least a de facto reduction, in the form of free tablet access at certain tiers, or by way of bundling free access for a year with the purchase of a tablet.

There’s a lot of detail to all this, which suggests that settlement might not be quick. Let’s hope the companies on both sides of the table are moving as fast as they can though, because meanwhile, some of those tablet users are probably already watching unauthorized downloads and streaming – and that’s not good for channel providers or cable companies.

Email: jhandel@att.net

Twitter: @jhandel

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