FCC Permits Copy Protection in Retailers' Host Navigation Devices; 11th Circuit Refuses to Reconsider Ruling Finding Pole Attachments Carrying Internet Services Unregulated; Copyright Office Issues Notice Adopting Increases to Cable Fees

I. FCC PERMITS COPY PROTECTION TO BE PLACED WITHIN RETAILERS’ HOST NAVIGATION DEVICES

The FCC moved on September 14, 2000 to break part of the logjam it believes is delaying the sale of consumer “navigation devices” by third party retailers. A Commission Declaratory Ruling held that allowing some cable industry security technology to be installed on host “navigation devices,” such as set-top boxes and remote control units, would not violate Commission Rules requiring the segregation of navigation device security components from other navigation device components. This ruling is expected to facilitate the digital delivery of copy-protected programming to digital converters sold directly to consumers.

The Commission’s Rules require that cable operators must segregate security and non-security components in new navigation devices sold or leased that descramble digital signals beginning January 1, 2005. The Commission has said this restriction is intended to prevent cable operators from having a competitive advantage vis-a-vis third party retailers selling only the non- security host devices, and to thereby foster creation of a competitive navigation devices market. Another provision of the rule that took effect July 1, 2000 required cable operators to make the “point of deployment” (“POD”) security modules available so that customers using navigation devices such as digital converters, or a hybrid analog/digital converter, could purchase the host box from a third party retailer.

Consumer electronics retailers argued that a copy protection licensing agreement under development by the CableLabs cable industry research group, the Dynamic Feedback Arrangement Scrambling Technique (“DFAST”), would violate the Commission’s rules because it would be located in the host set-top box, rather than in the PODs supplied by cable operators. While not ruling on whether DFAST would violate the Rule, the Commission concluded more narrowly that some measure of anti-copying encryption technology located within a host navigation device is consistent with the Commission’s navigation devices Rules.

In response to requests from retailers that the 2005 deadline be accelerated to 2002, the Commission also began a review of its navigation devices Rules by adopting a Further Notice of Proposed Rulemaking in the navigation devices proceeding. Among the topics to be examined in the Rulemaking are:

• whether navigation device interface specifications developed by CableLabs allow consumer electronics manufacturers to build equipment that provides consumers a viable alternative to the equipment provided by cable operators;
• the effect cable operators’ continued provisioning of navigation devices with both security and non-security components has had on the development of a competitive navigation devices market and whether the 2005 bar on the sale or lease of integrated navigation devices by cable operators should be accelerated;
• whether there are obstacles and barriers preventing or deterring development of a navigation devices market; and
• what other actions the Commission can take to spur development of a competitive navigation devices market.

The date for filing comments will be announced shortly.

II. ELEVENTH CIRCUIT DENIES REHEARING AND DECLINES TO REHEAR EN BANC ITS APRIL RULING THAT THE FCC HAS NO JURISDICTION OVER POLE ATTACHMENTS CARRYING INTERNET TRAFFIC

Last April the Eleventh Circuit issued a divided opinion finding that Internet service is neither cable service nor telecommunications service, and that the FCC therefore has no authority to set or limit pole attachment rents charged for cable lines that carry Internet traffic—as though the Pole Attachment Act protected only narrowly defined services, rather than physical facilities. See our advisory dated April 12, 2000. The FCC and NCTA petitioned for rehearing before the panel that heard and decided the case and also suggested that the entire court rehear the case en banc. On September 12th, the Court issued its formal orders denying the requests for rehearing and the suggestion for rehearing en banc, but in an unusual move Judge Carnes complained in dissent that the en banc rules as interpreted in the Eleventh Circuit improperly foreclose the court from rehearing the case even if all the active non-recused judges wanted to rehear the case. Judge Carnes noted that this case is one of exceptional and national importance. Because there is a conflict now among the circuits on the underlying issues and the decision pertained to multiple petitions that had been consolidated in the 11th Circuit from other circuits, Judge Carnes noted that Supreme Court review would be appropriate.

In the meantime it is expected that a stay of the mandate will be sought while petitions for certiorari to the Supreme Court are prepared. Such petitions must be filed within 90 days and the Supreme Court would likely decide whether or not to hear the case during the upcoming term.

III. COPYRIGHT OFFICE ISSUES FEDERAL REGISTER NOTICE ADOPTING INDUSTRY AGREED INCREASE TO CABLE COMPULSORY LICENSE FEE

As set forth in CRB Memorandum dated July 21, 2000, the copyright owner groups and NCTA agreed to increases in the cable compulsory license rates and gross receipts limitations that are used to calculate cable systems’ copyright payments under the cable compulsory license. The Copyright Office this week issued a notice proposing to adopt the agreed upon increases after a 30-day comment period has expired. Because the Copyright Office will accept comments or objections only from those that pay or receive cable copyright royalties, and the payers and recipients of cable royalties negotiated the agreed increases, it is unlikely there will be any accepted challenge to the proposed increases.

The effective date for the increased rates is set for July 1, 2000, thus requiring all cable systems to pay the increased rates for the current copyright accounting period 2000/2, which covers July through December 2000.

If you have any questions concerning cable compulsory license payments, please contact us.