Big Media's Supreme Victories
Court rulings to limit P2Ps and ISPs
By Bill McConnell -- Broadcasting & Cable, 7/3/2005 8:00:00 PM
Big media just swept a double header.
In two separate decisions last week, the Supreme Court set ground rules for two of the most important new communications technologies.
The first ruling upheld FCC rules allowing cable companies to bar competing Internet service providers (ISPs) from their high-speed Web services.
In the second decision, the justices ruled that Grokster and other peer-to-peer (P2P) networks that allow unrestricted swapping of audio and video files can be held liable for copyright infringement if they encourage users to make illegal downloads.
The Grokster ruling will likely shut down the most popular use of P2P networks: downloading the latest music, movies and TV shows for free. Going forward, P2P networks must charge for downloads and pay royalties to copyright holders. The ruling also takes the pressure off music labels and film studios to lower prices and offer content online. The cable ruling gives cable operators more incentive to invest the billions necessary to expand their fiber broadband networks but could also give them power to exercise monopoly control over high-speed networks.
The Grokster decision reversed a lower-court ruling that P2P networks face no liability as long as a network has some potential for legitimate use, such as distributing public-domain content.
Movie studios and broadcasters cheered the decision after arguing that more than 90% of the digital-file sharing over P2P networks is illegal and threatens their industries' survival. Motion Picture Association of America President Dan Glickman called the ruling “a reaffirmation of common law in the digital age.”
Ian Ballon, co-chair of the intellectual property and internet practice at law firm Manatt, Phelps and Phillips, predicts networks like Grokster will be forced to pay billions of dollars in potential damages and will go out of business unless they implement digital-rights management software that requires users to pay for copyrighted content the way Apple's iTunes and the resurrected Napster do.
Whether Grokster itself faces any potential damages must now be decided in a federal appeals court, where judges will determine whether the network operators “induced” users to make illegal downloads.
“Peer-to-peer users will have to start paying for content,” Ballon says. “Grokster's model of earning advertising revenue based on the number of eyeballs seeing the site is dead.”
In the cable-modem case, the justices ruled that cable operators, at least for the foreseeable future, are free to bar competing Internet providers from their broadband networks. ISPs like Earthlink have been trying since 1998 to win government-mandated access to cable lines, a delivery platform that can be 50 times faster than dial-up phone access.
The ruling preserves a 2002 FCC decision to keep cable broadband free of access rules while the business is still in development. The agency has reserved the right to impose access mandates later if cable abuses its network control by, for instance, restricting access to content that competes with cable TV programming or Web sites that vie with cable-owned sites.
The federal appeals court in San Francisco rejected the FCC's “hands-off-for-now” approach and declared that the 1996 Telecommunications Act binds cable broadband to the same access obligations that require phone companies to lease their DSL capacity to others.
But Justice Clarence Thomas, writing for the majority, said the FCC should have been given deference to interpret the 1996 law as it saw fit. He also noted that the FCC is reviewing whether to eliminate access mandates imposed on telephone DSL. “The commission is in a far better position to address these questions than we are,” Thomas wrote.
The Bell companies are hoping the court's ruling will finally give the FCC enough legal certainty to end DSL access obligations. “The commission can now craft rules for all broadband providers that will allow them to invest in and compete against one another in a way that benefits consumers,” says Jim Olson, general counsel for the U.S. Telecom Association.
FCC Chairman Kevin Martin has insisted that the commission has dragged its feet in providing level competition between cable and telephone broadband. He said, “This decision provides much-needed regulatory clarity and a framework for broadband.”
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