Appellate court rejects cable license for FilmOn

In its long-running bid to transform broadcasting, controversial firm fails to persuade judges to extend protections granted to cable companies. TV networks complained high-tech company’s through-air, content “capture,” and re-transmissions constitute infringement.

FilmOn boasts that it provides its customers through its website with an impressive access to “600 free live TV Channels” as well as “45,000 complimentary movies.” While Internet streaming services like Hulu and Netflix often say they have been forced to raise their prices to cover expensive content-licensing fees how, then, can FilmOn offer online such a wide, no-cost offering of copyright protected entertainment?

The answer—or so FilmOn thought, at least—rests in Section 111 of the Copyright Act. It allows bona fide cable systems to secure licenses that permit them to re-transmit a “performance or display of a work” previously broadcast by others—but without securing consent of the material’s copyright holder. Cable systems are protected against infringement claims, provided they pay fees to the U.S. Copyright Office, as spelled out by statute.

For FilmOn, which has become something of a broadcast copyright bad boy, Section 111 was a key legal step to advance the company’s controversial ambitions to transform broadcasting. But the U.S. Court of Appeals for the Ninth Circuit has pulled the plug on yet another aspect of its complex, continuing technology-based arguments in its battle with competitors and the TV networks. The appellate judges in Pasadena, Calif., recently ruled in favor of Fox, NBC, ABC, CBS and other broadcasters, finding that FilmOn can’t qualify as a cable system and thereby can’t obtain federal licenses allowing it to re-transmit copyrighted material from the networks.

Are we near the end of the long-running battle over what happens with free signals pulled from the air by thousands of tiny antennas at a central site, then sent onward? Hasn’t the highest court in the lands settled the contentious “Aereo” argument?

Hollywood players’ bid to transform broadcasting

It’s too long a story to recount in full. But two rich and powerful Hollywood players sought in recent years to transform the cable industry, employing technology to tackle, among other issues, rising customer subscription costs. Mogul Barry Diller bet the future on his company, Aereo. His competitor, Alkiviades David, a shipping heir, created Aereokiller, which, in an industry saga survives now as the company known as FilmOn.

Both Diller and David advocated for what they termed their companies’ innovative content delivery systems, aimed at also cutting licensing costs. Aereo, in particular, told the courts in reply to TV broadcasters’ legal challenges, that its systems didn’t infringe on others’ protected materials. That’s because it claimed these were put out to the public and simply pulled from the air at a central site, where the company had thousands of tiny antennae, which routed fairly used programming to subscriber homes.

The argument, which also included ivi, another streaming service, split the appellate courts. But the U.S. Supreme Court eventually weighed in, and said a big No to Aereo and its broadcast copyright theories. That decision pulled the plug on Aereo, but not before that firm briefly raised the possibility that legally it might be considered a cable system.

Meantime, Aereokiller—David’s company whose very name was deemed by many to be a poke in the nose to Diller—underwent changes of its own. It became FilmOn X, then just FilmOn. And while it, like Aereo, lost battles over its claims to legally air broadcast networks’ protected content, again with the tiny antennae tech argument, it also picked up the theory that it should be considered for cable licenses and their infringement protections. FilmOn not long ago persuaded U.S. District Judge George Wu of the merits of its cable licensing argument. But the broadcasters appealed—and have prevailed.

Appellate rejection

The appellate judges said lawmakers provided the compulsory license, as described in Section 111, during cable’s early days to “relieve cable systems of the need to sit down with every copyright holder before re-transmitting their copyrighted broadcast works.” That license also benefited rights holders, allowing them to reach “geographically distant and isolated communities.” In contrast, FilmOn does not provide them such a benefit, the appellate judges found. The firm’s actions may harm their interests, as its re-transmissions likely cannibalize other licensing options for right holders—for example, their options to negotiate deals with companies like Netflix and Hulu. The appellate court found that Congress did not intend for companies like FilmOn to be cable licensed.

Can FilmOn now live on, yet again, perhaps by striking licensing deals with thousands of content owners? That’s a Herculean task, and it doesn’t address the issue of whether FilmOn can hang tough, say, while it sees if the U.S. Supreme Court might someday take up its case. (This was a big point of discussion even before the appellate ruling.) It’s a long shot, and the company also has to consider the costs of its tech investments, such as its  antenna farms, those thousands of tiny antennas key to the firm possibly persuading courts that its approaches and views of copyright law should be adopted.

The disputes with Aereo and FilmOn have highlighted how the Copyright Act, and its application, can be unclear on new technologies. The means for disseminating copyrighted material are ever-changing, and doing so fast. That leaves courts and judges to scratch their collective heads about current applicability of provisions of a sprawling act fully unmodified in decades. Regulators also are involved, as the FilmOn case amply illustrated with the companies interactions with the U.S. Copyright Office and the Federal Communications Commission. The FCC, in particular, is in flux, with the new presidential Administration. But the agency has launched a review of its regulations in response to lightening changes in technology in cable and other transmission means. It’s a big, tough topic, and the FCC is moving slowly in getting public comment and thinking through any changes.