DC Circuit Reverses FCC's Broadcast Flag Rules

May 6, 2005. The U.S.Court of Appeals (DCCir) issued its opinion [34 pages in PDF] in American Library Association v. FCC, overturning the Federal Communications Commission's (FCC) broadcast flag rules.

This case arises out of the efforts of the Congress and the FCC to plan a transition in the market from analog to digital television (DTV). Unlike analog broadcasts, digital copies of movies and other programming provides would be infringers with perfect copies that can be saved, stored, and retransmitted over the internet. This gives content owners a disincentive to make their works available in digital format. Moreover, to the extent that content owners do not provide digital content to broadcasters, TV viewers have less incentive to purchase DTV equipment. In order to remove this disincentive for content owners, and at the request of content owners, the FCC promulgated broadcast flag rules.

A broadcast flag is digital code embedded in a digital broadcasting stream. It signals digital television (DTV) reception equipment to limit redistribution. For it to be effective, DTV equipment must give effect to a broadcast flag. Hence, the FCC wrote rules that contains technology mandates for equipment manufacturers.

The FCC has statutory authority to license and regulate the use of electromagnetic spectrum, including devices that transmit and receive radio frequency signals. It does not have statutory authority to protect copyrights, or to regulate consumer electronic equipment for the purpose of protecting copyrights.

The FCC recognized that it faced this problem from the outset. See, story titled "FCC Debates Its Authority to Promulgate Broadcast Flag Rule" in TLJ Daily E-Mail Alert No. 489, August 12, 2002. Nevertheless, the FCC proceeded to promulgate broadcast flag rules. The foreseen challenges came, and the Court of Appeals has ruled with blunt and broad language that the FCC lacks statutory authority to write broadcast flag rules.

The Court of Appeals began its opinion with the statement that "It is axiomatic that administrative agencies may issue regulations only pursuant to authority delegated to them by Congress. The principal question presented by this case is whether Congress delegated authority to the Federal Communications Commission ... in the Communications Act of 1934 ... to regulate apparatus that can receive television broadcasts when those apparatus are not engaged in the process of receiving a broadcast transmission. In the seven decades of its existence, the FCC 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."

The FCC did not attempt to argue that it had specific statutory authority to regulate devices after a broadcast transmission is complete. Rather, it relied exclusively on its limited ancillary jurisdiction under Title I of the Communications Act of 1934.

The Court of Appeals held that "Title I plainly encompasses the regulation of apparatus that can receive television broadcast content, but only while those apparatus are engaged in the process of receiving a television broadcast. Title I does not authorize the Commission to regulate receiver apparatus after a transmission is complete. As a result, the FCC's purported exercise of ancillary authority founders ..."

It continued that "There is no statutory foundation for the broadcast flag rules, and consequently the rules are ancillary to nothing. Therefore, we hold that the Commission acted outside the scope of its delegated authority when it adopted the disputed broadcast flag regulations."

The Court wrote in its conclusion that "The FCC argues that the Commission has ``discretion´´ to exercise ``broad authority´´ over equipment used in connection with radio and wire transmissions, ``when the need arises, even if it has not previously regulated in a particular area.´´ ... This is an extraordinary proposition. ``The [Commission's] position in this case amounts to the bare suggestion that it possesses plenary authority to act within a given area simply because Congress has endowed it with some authority to act in that area. We categorically reject that suggestion."

It concluded that "the FCC has no authority to regulate consumer electronic devices that can be used for receipt of wire or radio communication when those devices are not engaged in the process of radio or wire transmission."

The Court of Appeals has not yet held that there is a constitutional defect with broadcast flag rules. Hence, the Congress could enact legislation that gives the FCC authority to write a broadcast flag rule.

The opinion of the Court of Appeals may also have the effect of precluding the FCC from regulating the technology used in other equipment, where the regulation does not pertain to transmission. For example, the FCC raised the subject of ancillary jurisdiction in its discussion of voice over internet protocol (VOIP) services in its CALEA NPRM [100 pages in PDF], released on August 9, 2004. See story titled "Summary of the FCC's CALEA NPRM" in TLJ Daily E-Mail Alert No. 960, August 17, 2004.

That is, the FCC asked, "To the extent an entity is not a ``telecommunications carrier´´ under CALEA, is there any legal basis for exercising ancillary authority to impose some type of law enforcement assistance requirements on these entities?". The FCC also raised its "authority to exercise ancillary jurisdiction over non-subject entities?" See, page 35.

The FCC adopted its broadcast flag notice of proposed rulemaking (NPRM) on August 8, 2002. The FCC released the text [12 pages in PDF] of this NPRM on August 9, 2002. See, story titled "FCC Issues NPRM on Broadcast Flag" in TLJ Daily E-Mail Alert No. 489, August 12, 2002.

The FCC adopted and released, on November 4, 2003, its rules mandating the broadcast flag in its Report and Order and Further Notice of Proposed Rulemaking [72 pages in PDF]. See, story titled "FCC Releases Broadcast Flag Rule", also published in TLJ Daily E-Mail Alert No. 772, November 5, 2003, and story titled "More Reaction to the FCC Broadcast Flag Item" in TLJ Daily E-Mail Alert No. 773, November 6, 2003.

This case is American Library Association, et al. v. FCC, respondent, and Motion Picture Association of America, intervenors, No. 04-1037, a petition for review of a final order of the FCC. Judge Edwards wrote the opinion of the Court of Appeals, in which Judges Sentelle and Rogers joined.

In addition to the American Library Association, the plaintiffs also include Public Knowledge, Consumers Union, Consumer Federation of America, Electronic Frontier Foundation, Association of Research Libraries, American Association of Law Libraries, Medical Library Association and the Special Libraries Association.

Public Knowledge, a Washington DC based interest group that favors the weakening of intellectual property rights, wrote in its web site that "This was a case that Public Knowledge organized and financed."

The interest groups that challenged the FCC broadcast flag order are pleased with the opinion. Gigi Sohn, President of Public Knowledge, stated in a release that "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."

Harris Miller, President of the Information Technology Association of America (ITAA), stated in a release that "the marketplace, not federal regulators, is the best arbiter of technology standards ... In deciding that the FCC had overstepped its legislative authority, the DC Circuit's decision underscores the Commission's lack of authority to regulate technology applications and services. Congress never intended the FCC to be the Federal Technology Commission. Just as video recorders and DVD players have created substantial new markets for motion picture producers, we believe that copyrighted digital broadcasts will build substantial new markets and new business opportunities for a wide range of copyright owners."

In contrast, Dan Glickman, the P/CEO of the Motion Picture Association of America (MPAA), wrote in a release [MS Word] that "This is a disappointing decision and could create a digital television divide by slowing or eliminating access to high quality digital programming for some consumers. Television audiences -- whether they subscribe to cable or satellite service or not - are benefiting from the higher quality picture of digital programming. If the Broadcast Flag cannot be used, program providers will have to weigh whether the risk of theft is too great over free, off-air broadcasting and could limit such high quality programming to only cable, satellite and other more secure delivery systems. It is important to remember that this decision is only about the FCC’s jurisdiction, not the merits of the Broadcast Flag itself."