May 9, 2005

A federal appeals court Friday said the Federal Communications Commission had no authority to require manufacturers to engineer their products to enable TV broadcasters to send digital TV signals with a flag to prevent copying.

In essence, the court said the FCC is not authorized by Congress to implement the requirement.

"The principal question presented by this case is whether Congress delegated authority to the FCC to regulate apparatus that can receive TV broadcasts when those apparatus are not engaged in the process of receiving a broadcast transmission.

In the seven decades of its existence, the commission has never before asserted such sweeping authority.

Indeed, in the past, the FCC has informed Congress that it lacked any such authority. In our view, nothing has changed to give the FCC the authority that it now claims," wrote Judge Harry Edwards for the U.S. Court of Appeals for the District of Columbia Circuit.

The FCC imposed the broadcast-flag rule, effective July 1, as a way to jump start the DTV transition, agreeing with broadcasters who claimed content producers would be unwilling to develop digital content if a person could copy it from free-over-the-air TV and then send it over the Internet.

The rules meant the manufacturers had to install flag decoders to prevent illegal copying and distribution.

The ruling "sets back the TV industry's ability to battle digital piracy," said George Reed-Dellinger of Washington Analysis in a note to investors.

"The broadcasters fear that the more attractive programming will flow to the cable and satellite operators, who already have encryption technology in place. The broadcasters must now turn to Congress for relief, where the industry is likely to face an uphill battle."

The TV industry is ready to go to battle on Capitol Hill.

"Without a broadcast flag, consumers may lose access to the very best programming offered on local TV. This remedy is designed to protect against unauthorized indiscriminate redistribution of programming over the Internet.

We will work with Congress to authorize implementation of a broadcast flag that preserves the uniquely American style of free, local TV," said Edward Fritts, president of National Association of Broadcasters.

Public-interest advocates and the Consumer Electronics Association both said the broadcast-flag rule violated the concept of fair use.

"This case is a great win for consumers and for technology innovation. It's about more than simply broadcasting.

It is about how far the FCC can go in its regulations without permission from Congress. Had the flag been implemented, Hollywood, acting through the FCC, would have been able to dictate the pace of technology in consumer electronics. Now, thankfully, that won't happen," said Gigi Sohn, president and co-founder of Public Knowledge.

The U.S. Supreme Court is expected to rule soon on a similar matter dealing with the ability to download content from the Internet.

Metro-Goldwyn-Mayer Studios Inc. v. Grokster Ltd. pits the movie industry against Grokster, a peer-to-peer software provider. MGM charges Grokster software enables people to be able to download movie content illegally.

During oral argument in March, the U.S. Supreme Court seemed to be skeptical that a test could be developed to determine when innovations are used primarily for copyright infringement.

If the court rules in favor of Grokster, a positive result for those who worry about innovation, it could have a chilling impact on content just as the U.S. wireless industry is starting to gain real traction with data applications.

Source: RCR News