After Ten Years, Round Two Of The Legal Battle Over Internet TV Is Here

Editor’s Note: The following is a guest post by Matthew Scherb, an attorney at the San Francisco office of Winston & Strawn LLP. He litigates complex copyright, trademark, and Internet-related disputes.

In 2000, the now-defunct iCraveTV allowed its users to watch live television over the Internet.  It retransmitted broadcast television without obtaining permission from or paying broadcasters, framed the retransmission with paid advertisements, and users watched while paying nothing.  A federal court in Pennsylvania found iCraveTV was likely on the hook for copyright infringement.  iCraveTV shut down, and the court’s decision appears to have had a blanket chilling effect on Internet-based television.  No one came along to take iCraveTV’s place.

Fast forward to 2010: Seattle-based ivi has arrived.  Like iCraveTV, ivi lets you watch live television on the Internet.  Also like iCraveTV, ivi has not sought permission from or paid broadcasters.  Unlike iCraveTV, there is no paid advertising: ivi draws revenue from a flat monthly fee.  For a premium, ivi offers DVR “time sifting” features such as pause, rewind, and fast forward.  ivi currently streams programs from New York and Seattle affiliates of ABC, CBS, NBC, Fox, and a few other networks.  So, next Thursday you could watch an episode of The Office as it airs on WNBC (an NBC station in New York) or, next month catch Major League Baseball’s World Series on KCPQ (a Fox station in Seattle).  You might cheer the return of Internet television.  You might be glad to see a potential competitor to your cable or satellite provider.  But does ivi’s retransmission of broadcast television run afoul of copyright law?  Will it face the same fate as iCraveTV?

We may soon find out.

In mid-September, broadcasters and copyright owners (including the major networks and Major League Baseball) sent ivi a cease-and-desist letter.  They accused ivi of copyright infringement and demanded that ivi stop streaming their television programs.  Fearing a lawsuit from its accusers, ivi preemptively filed a lawsuit in Seattle federal court on Monday, September 20.  ivi seeks an order declaring that its Internet television service is legal.  In quick response, the broadcaster and copyright owners filed their own lawsuit against ivi in New York federal court on September 28.  If ivi wins or obtains a favorable settlement in these cases before it runs out of money, it can proceed with a stamp of approval from a federal judge or from its accusers.  A loss could torpedo its ambitions.

ivi’s legal hopes likely rest, in the first instance, on a rarely-invoked but potentially powerful exception to copyright liability: the “passive carrier exemption.”  The exemption makes it lawful to retransmit a transmission intended for the public so long as the retransmitter lacks control over the content of the original transmission or over the recipients of the retransmission. ivi believes that by retransmitting freely-available, over-the-air broadcasts and offering basic DVR-like services, it is nothing more than a passive carrier and exempt from copyright liability.

The iCraveTV case never dealt with the passive carrier exemption.  Because iCraveTV framed its retransmissions with advertisements, it probably could not have claimed the passive carrier exemption in any event: by adding advertisements, it was arguably modifying and exercising control over the original broadcast transmission.

Major court decisions involving the passive carrier exemption are, like the iCraveTV case, also a decade old.  They offer mixed signals.

In 1999, the same New York federal court now hearing the broadcasters’ and copyright owners’ lawsuit against ivi denied the exemption to a company called Media Dial-Up.  Media Dial-Up retransmitted radio broadcasts via telephone to its customers who paid a fee for access.  Even though Media Dial-Up did not control the content of the radio broadcasts or limit reception to particular individuals, the court refused to classify Media Dial-Up as a “carrier.”  “In an era of rapid technological change,” the court wrote, “possibilities for the capture and retransmission of copyrighted material over the Internet . . . are enormous.”  If Media Dial-Up could be a passive carrier, it “would threaten considerable mischief.”  The court called this “common sense.”

Just two years later, in 2001, a Massachusetts court reached the opposite result.  It applied the exemption to Insight, a company that facilitated retransmission of Boston-area television broadcasts, including National Football League games, to Bell Canada for a fee.  It noted that Congress had intended courts to give “carrier” an “expansive” definition.

Will ivi distinguish itself from iCraveTV and Media Dial-Up and align itself with Insight?

If it can, ivi will have succeeded in making the passive carrier exception a powerful shield for itself and others, perhaps other Internet retransmitters such as Ustream or looking to offer new services or cable and satellite retransmitters looking to make the leap to the Internet.

As for television broadcasters, though they may prefer to control the market for Internet television themselves, they may actually benefit financially from having their broadcasts retransmitted on the Internet and other media.  They will reach more eyeballs and could presumably demand higher advertising fees.

Stay tuned for the court’s decisions and also keep an eye on Congress, which can revoke or modify the passive carrier exception.  Congress created special, compulsory licensing regimes for cable and satellite retransmitters as those technologies matured.  Cable and satellite retransmitters do not infringe copyright when they retransmit a television broadcast, but they must pay a royalty fixed by statute.  Congress could choose to impose a similar regime on Internet retransmitters. Meanwhile, if ivi cannot qualify as a passive carrier, it can argue that it qualifies as a “cable system” and try to take advantage of the compulsory license.

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