FilmOn X Loses in Latest Bid to be a Cable System

Ninth Circuit is the latest to say that Internet-based services are not cable systems.

Remember Aereo? Sure you do, if you were a regular CommLawBlog reader pretty much anytime between 2012 and 2015. Aereo was the upstart looking to revolutionize the way cord-cutters watched TV: its dime-sized antennas were designed to receive and capture local broadcast signals for viewing (either virtually "live" or delayed, i la a DVR) through the Internet. It flew high for a while, thanks to an accommodating Second Circuit, but was eventually shot down when the Supreme Court refused to embrace Aereo's view of the copyright law. (For a trip down Memory Lane, click here for a collection of our Aereo-related posts.)

One of the interesting sub-plots of the Aereo saga was the appearance of other Aereo-like services that sprang up nearly simultaneously with Aereo. They included, most notably, a service initially dubbed "Aereokiller". It was the brainchild of one Alkiviades "Alki" David. Like Aereo, Aereokiller - which has since changed its name to FilmOn X - was promptly sued for copyright infringement by the major broadcast networks. The Supreme Court's Aereo decision gutted FilmOn X's copyright argument just as it did Aereo's, forcing FilmOn X to come up with a Plan B.

Under that Plan B, FilmOn X claimed that it was a "cable system" under Section 111 of the Copyright Act.

For those unfamiliar with the Section 111, a brief refresher. Under Section 111, a "cable system" is allowed to retransmit a performance or display of a copyrighted work without having to go directly to the copyright owner for permission. The cable system needs only pay a statutory fee to the Copyright Office and comply with a few relatively minor requirements. It's a pretty sweet deal for the cable systems, and FilmOn X wanted to hop on that gravy train - especially since, following the Supreme Court's beat-down of Aereo, that was pretty much the only way forward for it (and Aereo and any similar services).

The bad news for FilmOn X, though, was that courts had repeatedly refused to classify Internet-based services as cable systems. In particular, when Aereo tried that gambit, it got nowhere: the U.S. District Court for Southern District of New York held that Aereo did not qualify for a Section 111 compulsory license because Aereo did not resemble a cable system as defined in the statute.

That, however, didn't deter FilmOn X, and, sure enough, it met with some initial success in one court. The U.S. District Court for the Central District of California preliminarily found that FilmOn X was "potentially" entitled to a Section 111 compulsory license.

(No such luck elsewhere: the District Court in D.C. held that it was not a cable system under Section 111. And it's worth noting that the California decision is the only instance in which a court has held that an Internet-based retransmission service qualifies as a cable system. District Courts in D.C., Illinois and New York went the other way, as have the Second and D.C. Circuits. In addition, the United States Copyright Office has repeatedly said that an Internet-based retransmission service is not a cable system for Section 111 compulsory license purposes.)

But now the Ninth Circuit has weighed in with some bad news for FilmOn X. The Ninth Circuit has reversed the one decision that had provided any hope to FilmOn X.

Let's take a closer look at the opinion (authored by Ninth Circuit Judge Diarmuid O'Scannlain). It starts with Section 111's definition of a "cable system":

A "cable system" is a facility " that in whole or in part receives signals transmitted or programs broadcast by one or more television broadcast stations licensed by the Federal Communications Commission, and makes secondary transmissions of such signals or programs by wires, cables, microwave, or other communications channels to subscribing members of the public who pay for such service.

Pretty simple, right? Of course each side envisioned a "cable system" differently.

Fox argued that under Section 111 a "cable system" encompasses an entire transmission service (including both the receiving "headend" and the means of transmitting to end users) that must be under the service's control. Because (a) FilmOn X uses the Internet to retransmit its programming to subscribers and (b) the Internet is not under FilmOn X's control, Fox concluded that FilmOn X does not qualify as a cable system.

Judge O'Scannlain didn't agree that Section 111 compels the conclusion that a service must have control over the entire system - from soup to nuts, so to speak - in order to qualify as a cable service. After all, the word "control" doesn't actually appear in the statutory definition. And, interpreting this definition of a 20th Century technology as applied to a distinctly 21st Century service, Judge O'Scannlain reached well into the past, noting that snail mail is transmitted without the sender controlling the entire process to delivery.

But, by the same token, he didn't agree with FilmOn X, either. FilmOn X argued that Section 111 should be interpreted in a "technologically agnostic manner" to include any facility that retransmits broadcast signals, without regard to the particular technology involved. O'Scannlain countered that, had Congress wanted to create a compulsory license applicable to all technologies, it would have done so rather than limiting this license to cable systems.

FilmOn X also argued that the inclusion of "other communications channels" in the list of possible transmission methods supports the notion that Internet-based transmission services should qualify as "cable systems". Again, though, Judge O'Scannlain disagreed, opining that it is not clear that the Internet is a "communications channel" (and in fact, seeming to say it is not). He also cited the legal canon of ejusdem generis "which instructs that 'when a statute sets out a series of specific items ending with a general term, that general term is confined to covering subjects comparable to the specifics it follows.'"

In Judge O'Scannlain's view, reading Section 111 to include Internet-based services would undercut Congress' intent in passing the statute. He noted that Section 111 was included in the Copyright Act of 1976 as a means of bolstering the fledgling cable industry, which at the time had little financial power or ability to overcome the costs of direct licensing with all copyright owners while also building out its infrastructure to reach distant viewers. This also benefitted broadcasters, who could reach audiences they hadn't been able to reach before. Extending Section 111 to Internet-based services would jeopardize that balance, primarily because the Internet is not geographically limited in the same manner as a traditional cable system. In addition, broadcasters have the ability to transmit on their own via the Internet; thus, no assistance is needed to reach viewers through this medium.

Judge O'Scannlain's bottom line was that the plain text of Section 111 was not unambiguous and, thus, did not resolve the question one way or the other. Accordingly, he turned to the Copyright Office. He noted that on two occasions - in 1992 and 1997 - the Copyright Office applied Section 111 to services distinct from the traditional wired format: satellite and microwave retransmission services. In each instance, the Copyright Office clearly identified as a key characteristic of a cable system the fact that the system consisted of an "inherently localized transmission media". The Internet being less than "inherently localized" as media go, this would seem to rule out an Internet-based service. Moreover, on four occasions since 1997, the Copyright Office has "specifically and unequivocally said that 'Internet-based retransmission services'" are not cable systems, and Congress had not taken any steps to overrule or otherwise reverse those decision. Overall, Judge O'Scannlain concluded that the Copyright Office deserved deference.

What now? It's never been in FilmOn X's - or Alki David's - nature to quit. So it wouldn't be out of the realm of possibility for FilmOn X to seek rehearing en banc before the full Ninth Circuit, or possibly even review by the Supremes. As to the latter, it's unlikely the court would agree to such review unless there's a "circuit split" which, as of this decision, doesn't exist.

But wait! FilmOn X still has cases pending before the Seventh and D.C. Circuits. The D.C. Circuit heard oral argument just a week before the Ninth Circuit issued its ruling. Originally allocated a total of 30 minutes of time (15 minutes per side), the argument lasted nearly two hours. (You can listen to it here, or check out a recap of the argument from Broadcasting and Cable here.) Obviously, the D.C. judges had a lot of questions for both parties - which could signal that this is far from a slam dunk for either side. If either the D.C. or the Seventh Circuit were to rule in favor of FilmOn X, the result would be circuit split, meaning that it would very likely be "game on" at the Supreme Court.