In biblical times, locusts were one of the plagues visited upon Egypt so the pharaoh would free the Israelites. In today’s streaming era, it’s Locast being unleashed upon the television industry.
What’s Locast? It’s a digital app that streams over-the-air television stations. Meaning, if a cord-cutter wanted to watch last night’s Oscars on ABC and didn’t have an ol’ rabbit ears antenna handy, this individual could go to Locast.org and sign up to see the local affiliate retransmitted online. It’s free. Well, sorta. A wrinkle may soon play a major role in an important copyright case. Broadcasters are now preparing to ask a federal judge for a sweeping legal victory against Locast.
In July 2019, ABC, CBS, Fox and NBC filed a lawsuit over Locast. Nodding to a big Supreme Court decision a few years earlier, the complaint stated, “Locast is simply Aereo 2.0, a business built on illegally using broadcaster content.”
The Aereo case was a victory for broadcasters because a majority of justices essentially saw an unlicensed cable operator. What makes Locast potentially different is that it’s a self-proclaimed nonprofit, and copyright law allows a limited exception when a secondary transmission of broadcast programming is “made by a governmental body, or other nonprofit organization, without any purpose of direct or indirect commercial advantage.”
The legal battle over Locast has been a rather sleepy one in the nearly two years since filing, but that’s about to change as both sides will in the next couple of weeks be filing summary judgment briefs.
On Tuesday, dueling letters teased what’s coming to U.S District Court Judge Louis Stanton.
The broadcasters are seizing upon specifically how Locast operates.
“Like many for-profit companies, Locast employs a ‘freemium’ business model,” writes Williams & Connolly partner Gerson Zweifach. “Specifically, following an introductory period, Locast interrupts a user’s television stream every 15 minutes on a given channel with an advertisement asking the user to pay $5 per month (which Locast labels a ‘donation.’). If the user does not agree to pay the monthly charge, he or she is sent back to Locast’s program guide and must navigate back to the channel he or she was watching. If, however, the user pays, he or she receives uninterrupted service for the month or a pro-rated portion thereof.”
According to the broadcasters (see the full letter here), this impacts the copyright analysis in several respects.
The plaintiffs say the copyright liability exception is meant for “localized media like broadcast translators and boosters that serve viewers in an immediate vicinity,” and that the relevant statute “prohibits any charge to ‘recipients’ of a transmission.” While Locast uses “geo-fencing” technology to ensure that its users only see local programming in particular markets (e.g. Baltimore users will see ABC affiliate WMAR-TV), Zweifach argues “the fact that Locast uses it only underscores that its service is not inherently localized.”
Even otherwise, the broadcasters say that Locast can’t show it’s transmitting TV programming without commercial advantage given its solicitation of “donations” to attract new members. Given this, Locast is also imposing charges on its users, they say.
“Although Locast calls the amounts it extracts from users ‘donations,’ courts ‘look beyond mere formal labels and consider the substance of the transaction,'” continues the letter. “Here, the substance of the transaction is clear: Locast demands users pay a monthly fee in exchange for uninterrupted services.”
The letter from Locast’s parent company Sports Fans Coalition NY (see here) seems pleased that the broadcasters are not at least likening the service to a cable system (“as they must”).
As for the issue of “commercial advantage,” besides holding up its undisputed nonprofit status, the defendant stresses what it sees as most consequential.
“No one owns SFCNY,” writes Orrick partner R. David Hosp. “It pays no dividends, no distributions, and no salaries. It pays typical, market prices for its costs, such as physical space, equipment, technical upkeep, and internet access. And it defrays those costs by seeking and accepting donations, including donations from viewers, for the actual and reasonable costs of maintaining and operating the secondary transmission service. Plaintiffs cannot dispute any of these facts.”
Hosp adds that “courts do not equate commercial activity with commercial ‘purpose,’ instead recognizing that most nonprofits engage in commercial activities in order to further their charitable mission.”
The defendant also reveals that “more than half of … active users (and more than 90% of its members) use the system without making donations.”