Appeals Court Rules TV Streamers Don't Get Compulsory License to Broadcast Networks

How TV Can Weather the “Skinny Bundle” Storm of Streaming Services -Illo -H 2016
Illustrated by Chris Madden

On Tuesday, the 9th U.S. Circuit Court of Appeals reversed a seismic victory in favor of streaming company FilmOn, handing significant relief to broadcasters like CBS, Fox, NBC and ABC who were aghast by a federal judge's decision in July 2015 that streamers could be deemed to be a "cable system" eligible for a compulsory license under the Copyright Act.

The battle took place after the U.S. Supreme Court determined in June 2014 that another streamer, Aereo, had publicly performed the copyrighted work of broadcasters. The high court, though, left some room for further litigation upon Justice Stephen Breyer's opinion that compared unlicensed Aereo to licensed cable systems.

After this decision, which ultimately brought down Aereo, FilmOn argued that it was entitled to perform copyrighted works without consent of copyright holders by taking advantage of Section 111 of the Copyright Act, which was enacted by Congress in the 1970s thanks to a perception of the burdensome nature of requiring cable systems to negotiate with every copyright owner over the retransmission of channels on public airwaves.

In a huge surprise, U.S. District Court Judge George W. Wu then agreed with FilmOn, writing that "courts consistently reject the argument that technological changes affect the balance of rights as between broadcasters and retransmitters in the wake of technological innovation."

Other judges around the nation including in the District of Columbia came to a different conclusion, while the broadcasters appealed the California federal judge's decision in a high-stakes fight that attracted friend-of-the-court briefs from the major professional sporting leagues, music industry trade associations, SAG-AFTRA, public interest groups and others.

Today, a three judge panel led by Diarmuid O'Scannlain overturns Wu by holding that a service that captures copyrighted works broadcast over the air, and then retransmits them to paying subscribers over the internet without the consent of copyright holders, is not a "cable system" eligible for a compulsory license. (Read the full opinion here.)

O'Scannlain rejects FilmOn's proposition that Section 111 should be interpreted in a technology agnostic manner, writing that "if Congress had intended § 111 to service the entire secondary transmission community, doling out statutory licenses without regard to the technological makeup of its members, it would have been easy enough for Congress to say so."

The judge then writes that Congress defined "cable system" in a "detailed, if arguably ambiguous way," and that it would be strange for lawmakers to have meant to sweep in secondary transmission services (like digital streamers) given that it provided a separate compulsory system for satellite carriers. In short, Congress' intention is deemed as narrow instead of broad.

O'Scannlain also distinguishes this case from Aereo by saying that the Supreme Court dealt with "an altogether different provision of the Copyright Act, the Transmit Clause," which, the judge notes, unlike the compulsory system for broadcast television, "refers in sweeping terms to transmissions or communications made 'by means of any device or process,' and broadly defined 'device' and 'process' to mean 'one now known or later developed.'”

"Nor can we conclude that the Copyright Act’s broad purposes compel the conclusion that internet-based retransmission services are eligible for compulsory licenses under § 111," continues the 9th Circuit opinion. "Rather, we see powerful arguments that such a reading could very well undermine the balance of interests Congress attempted to strike when it designed § 111."

In particular, O'Scannlain writes that extending the compulsory license scheme to internet-based retransmission services could "jeopardize" the cable TV ecosystem by granting rights to digital operations that have no geographic boundaries.

He also accepts the parade of horribles submitted by broadcasters and their amici ranging from making content vulnerable to piracy and risking putting the United States in violation of treaty obligations.

Additionally, the 9th Circuit judge accepts the "longstanding, consistently held" position of the administrative agency — the U.S. Copyright Office — as also concluding that retransmitters like FilmOn aren't entitled to a compulsory license under Section 111.

"FilmOn and other Internet-based retransmission services are neither clearly eligible nor clearly ineligible for the compulsory license § 111 makes available to 'cable systems,'" concludes the opinion. "The Copyright Office says they are not eligible. Because the Office’s views are persuasive, and because they are reasonable, we defer to them."

In reaction to today's opinion, FilmOn attorney Ryan Baker said he was disappointed and pointed out that the 7th Circuit and D.C. Circuit will also be addressing similar issues soon. He adds, "FilmOn X remains hopeful that those appellate courts will apply the statute as written and shun any attempt to impose extratextual limitations on the compulsory license."