Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 1 of 36 No. 12-57048 IN THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT FOX BROADCASTING COMPANY, INC., TWENTIETH CENTURY FOX FILM CORP., AND FOX TELEVISION HOLDINGS, INC., Plaintiffs-Appellants, v. DISH NETWORK L.L.C. AND DISH NETWORK CORP., Defendants-Appellees. ON APPEAL FROM UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA CASE NO. 12-CV-04529 BRIEF FOR AMICUS CURIAE NATIONAL ASSOCIATION OF BROADCASTERS IN SUPPORT OF APPELLANTS Jane E. Mago Jerianne Timmerman Bart Stringham Benjamin F. P. Ivins National Association of Broadcasters 1771 N Street, N.W. Washington, DC 20036 (202) 429-5430 Mark J. Prak Charles F. Marshall Julia C. Ambrose Laura S. Chipman BROOKS, PIERCE, McLENDON, HUMPHREY & LEONARD, LLP 150 Fayetteville Street, Suite 1600 Raleigh, NC 27601 (919) 839-0300 December 20, 2012 Attorneys for National Association of Broadcasters
Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 2 of 36 TABLE OF CONTENTS TABLE OF CASES AND AUTHORITIES... ii STATEMENT OF CONSENT TO FILE... 1 INTEREST OF AMICUS... 1 SUMMARY OF ARGUMENT... 2 ARGUMENT... 4 I. AUTOHOP AND SIMILAR AD-STRIPPING SERVICES WILL CAUSE IRREPARABLE INJURY TO FREE, OVER-THE-AIR LOCAL TELEVISION SERVICE... 6 A. Congress Has Long Recognized the Importance of a Free, Local Broadcasting Service... 7 B. Advertising Is the Lifeblood of Free, Local Television Service... 12 C. Ad-Stripped Television Services Harm the Continued Viability of Free, Local Television Service... 17 II. AUTOHOP IS EMPLOYED BY DISH FOR ANTICOMPETITIVE PURPOSES THAT RUN COUNTER TO CONGRESS S CAREFULLY CONSTRUCTED LEGAL FRAMEWORK DESIGNED TO PRESERVE ACCESS TO FREE, LOCAL TELEVISION SERVICE... 23 CONCLUSION... 30 CERTIFICATE OF COMPLIANCE CERTIFICATE OF SERVICE i
Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 3 of 36 CASES TABLE OF CASES AND AUTHORITIES CBS Broad., Inc. v. EchoStar Communs. Corp., 450 F.3d 505 (11th Cir. 2006)... 29 Satellite Broadcasting and Communications Association v. FCC, 275 F.3d 337 (4th Cir. 2001)... 26 Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417 (1984)... 16 TiVo, Inc. v. EchoStar Corporation, 640 F. Supp. 2d 853 (E.D. Tex. 2009), rev d and rem. in part, 646 F.3d 869 (11th Cir. 2011)... 29 Turner Broadcasting System, Inc. v. FCC, 512 U.S. 622 (1994)... 12 United States v. Sw. Cable Co., 392 U.S. 157 (1968)... 7-8 WPIX, Inc. v. ivi, Inc., 691 F.3d 275 (2d Cir. 2012)... 18, 22, 23 STATUTES 17 U.S.C. 106... 25 17 U.S.C. 111... 26 17 U.S.C. 119... 26, 28 17 U.S.C. 122... 25, 26 47 U.S.C. 309.... 7 ii
Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 4 of 36 REGULATIONS 47 C.F.R. 76.66.... 26 OTHER AUTHORITIES Cable Television Consumer Protection and Competition Act, Pub. L. No. 102-385, 106 Stat. 1460 (1992)... 7, 12, 28 Cable Television Consumer Protection and Competition Act, S. Rep. No. 102-92 (June 28, 1991) (Conf. Rep.)... 28 EchoStar Satellite Corp. v. Young Broadcasting, Inc., 16 FCC Rcd 15070 (2001)... 29 In the Matter of Broadcast Localism, Notice of Inquiry, 19 FCC Rcd 12425 (2004)... 7 In the Matter of Broadcast Localism, Report on Broadcast Localism and Notice of Proposed Rulemaking, 23 FCC Rcd 1324 (2007)... 7 Intellectual Property and Communications Omnibus Reform Act of 1999, H.R. Rep. No. 106-464 (Nov. 9, 1999) (Conf. Rep.)... 7, 28 Lisa Lapan, Note, Network Television and the Digital Threat, 16 UCLA Ent. L. Rev. 343 (2009)... 19, 21 Satellite Home Viewers Act of 1988, H.R. Rep. No. 100-887, pt. 2 (Sept. 29, 1988).... 11 Satellite Television Extension and Localism Act of 2009, S. Rep. No. 111-385 (Dec. 22, 2010)... 28 RULES Fed. R. App. P. 29... 1 iii
Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 5 of 36 STATEMENT OF CONSENT TO FILE All parties to this case have consented to the filing of this brief pursuant to Federal Rule of Appellate Procedure 29(a). No party or counsel thereof authored this brief; no person other than amicus contributed money that was intended to fund preparing or submitting this brief. INTEREST OF AMICUS The National Association of Broadcasters ( NAB ) is a non-profit, incorporated trade association of radio and television stations and broadcasting networks. NAB serves and represents the American broadcasting industry, advocating before Congress, the Federal Communications Commission ( FCC ), and the courts on behalf of its members. NAB submits this brief in support of Petitioners Fox Broadcasting Company, Inc., Twentieth Century Fox Film Corp., and Fox Television Holdings, Inc. (collectively, Fox ). On behalf of its members, NAB has a strong interest in assisting the Court to understand the potential severity of the harm visited upon the local television industry by the AutoHop service and, in turn, by the District Court s Order denying a preliminary injunction to suspend that service. NAB has concerns about the impact of this case on the advertising revenue that is essential to the viability of the local television industry and the availability of free, over-the-air television as a valuable product to consumers. Specifically, 1
Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 6 of 36 NAB firmly believes that allowing Dish s ad-skipping AutoHop service to continue during the pendency of the present case will cause immeasurable and irreparable harm to local television stations as well as networks. The continued financial viability of our nation s system of free over-the-air television is a matter of significant public interest. SUMMARY OF ARGUMENT Local television broadcasters have long served the public interest by providing highly-valued, locally-oriented television programming responsive to the specific needs and interests of their local communities. Broadcasters ability to produce and deliver local programming, as well as national news, sports, and entertainment programming produced by the television networks, relies significantly on the revenue generated by television ads. But advertising provides value to advertisers and can produce revenue for broadcasters only if the advertisements actually reach television viewers. Dish Network s PrimeTime Anytime with AutoHop technology service ( AutoHop ) strips every advertisement from network affiliates copyrighted primetime programming streams but, tellingly, not from competing primetime cable programming streams. If not enjoined, the AutoHop service will cause irreparable injury to local broadcasters ability to continue delivering valuable local and network programming to viewers free of charge. If advertising spots in 2
Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 7 of 36 broadcast programming particularly the most popular network primetime programming cannot reach viewers, broadcast programs will lose their value to advertisers, who will move their ads to competing platforms. Broadcasters, in turn, will have fewer financial resources to invest in producing and acquiring expensive local and network programming, including local news and critical emergency information. Taken to its logical end, ad-stripped television could spell the end of free, over-the-air broadcast television and the important public interests it serves. Dish s ad-stripping service is anticompetitive and upsets the careful balance crafted by Congress through decades of telecommunications and copyright legislation. Dish makes the infringing copies at issue for AutoHop use. Dish also strips commercials from broadcast programming in violation of various copyright laws and its contract with Fox. This infringing conduct is used to further Dish s own self-interest at broadcasters expense. The District Court s refusal to enjoin the AutoHop service effectively will grant Dish a blank check to engage in anticompetitive conduct that will undermine the foundations of our nation s local broadcast service that is built upon advertising. 3
Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 8 of 36 ARGUMENT Ever since the Bulova Watch Company purchased a 10-second television advertisement that aired on NBC on July 1, 1941, advertising has served as the principal means by which television stations ensure that the public has access to free, local news, weather, sports, public affairs, and life-saving emergency information, as well as top-rated national network news, public affairs, and entertainment programming. More than seventy years later, Dish boasts of providing commercial-free television for its paying subscribers. While Dish s pitch of commercial-free television may sound, at first blush, like a boon for consumers, it is actually adstripped 1 television that represents an unlawful body blow to the long-term viability of local broadcast television service. By marketing a service that automatically strips commercials from television s most-watched programming (that is, ABC, CBS, Fox, and NBC network primetime programming) viewed by millions of Americans, Dish is, in an unlawful and anticompetitive fashion, 1 Dish s promotional materials referring to commercial free television reflect its desire to recast its subscription service in a populist fashion. The service, however, is more properly described as ad-stripped television given Dish s unilateral decision to strip commercials that are otherwise a component of the broadcast signals made available to Dish. While all consumers of television have the right to select what programs to watch and what programs to ignore, the commercial advertising component of free, local television s business model is critical to the regulatory structures carefully crafted by Congress and the FCC to govern the video distribution ecosystem. 4
Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 9 of 36 intentionally attempting to strip the lifeblood from local stations ability to fund important local programming and to acquire popular network and syndicated programming. Two significant errors in the District Court s opinion raise serious concern for local television stations. First, the District Court failed to apprehend the immediate, inestimable, and irreparable harm that ad-stripped television could wreak on the advertising-supported model for free, local television service. A trial and subsequent appeals in this matter could take years. And, like other infringing technologies, copycat ad-stripped television services will undoubtedly arise to hasten the demise of broadcast advertising revenues. Indeed, DirecTV is already positioned to pounce in the event that this Court does not enjoin Dish s illegal activity. 2 Second, the District Court s refusal to acknowledge that Dish, rather than the consumer, actually makes the copies of the broadcast programming at issue reflects a fundamental mischaracterization of Dish s AutoHop service and encourages the very anticompetitive conduct that Congress has sought to prohibit in the television distribution marketplace. If allowed to stand, the District Court s decision will make it next to impossible for any broadcaster to enforce its intellectual property 2 See ER 265-66 (Brennan Decl. 30, 33). 5
Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 10 of 36 rights against Dish or any other multichannel video programming distributor ( MVPD ) who makes copies of broadcast programming. 3 I. AUTOHOP AND SIMILAR AD-STRIPPING SERVICES WILL CAUSE IRREPARABLE INJURY TO FREE, OVER-THE-AIR LOCAL TELEVISION SERVICE Fox correctly argues that the injury in this case flows from both the adskipping AutoHop service used with Prime Time Anytime and Dish s copying of broadcast programming required for the consumer to employ AutoHop. 4 More importantly, the irreparable injury to local broadcast television service from the use of AutoHop will reverberate far beyond the decline in the Fox Network s primetime advertising revenue. Widespread use of AutoHop and similar technologies by other MVPD services would decrease the advertising revenue streams of local television stations, which would, in turn, threaten the continued viability of free, over-the-air, local broadcast television service that Congress has sought to promote and preserve for more than 70 years. 3 CBS executive Leslie Moonves recently explained that CBS simply cannot produce episodes for $3.5 million apiece and have the people at Dish say they will pull out the commercials. Harry A. Jessell, Take Your Cue From Moonves: Skip Dish, TV NewsCheck (Sept. 14, 2012, 3:33 PM), http://www.tvnewscheck.com/article/62203/take-your-cue-from-moonves-skipdish. 4 The District Court itself acknowledges the seamless connection between the making of the quality assurance (QA) copies and the functioning of AutoHop: Dish also makes QA copies of the primetime line-ups to ensure that AutoHop, when enabled, functions properly on PTAT recordings. ER 650. 6
Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 11 of 36 A. Congress Has Long Recognized the Importance of a Free, Local Broadcasting Service. The foundation of local television broadcasting was laid in the Communications Act of 1934, which required local broadcast stations to serve the public interest. 5 A cornerstone of broadcasters public interest obligation is to promote localism by offering programming that is responsive to the specific needs and interests of the local communities that they serve. 6 Congress and the FCC have repeatedly affirmed the importance of promoting and preserving localism in broadcast television programming when legislating on issues affecting carriage of local broadcast stations. 7 5 See 47 U.S.C. 309(a). 6 In the Matter of Broadcast Localism, Notice of Inquiry, 19 FCC Rcd 12425 (2004), 1, 4 ( [L]ocalism has been a cornerstone of broadcast regulation for decades. ). 7 Cable Television Consumer Protection and Competition Act, Pub. L. No. 102-385, 2(a)(10), 106 Stat. 1460, 1460-61 (1992) ( A primary objective and benefit of our Nation s system of regulation of television broadcasting is the local origination of programming. There is a substantial governmental interest in ensuring its continuation. ); accord Intellectual Property and Communications Omnibus Reform Act of 1999, H.R. Rep. No. 106-464, at 92, 101 (Nov. 9, 1999) (Conf. Rep.) (containing Satellite Home Viewer Improvement Act) ( SHVIA Report ) ( [T]elevision broadcast stations provide valuable programming tailored to local needs, such as news, weather, special announcements, and information related to local activities. ); In the Matter of Broadcast Localism, Report on Broadcast Localism and Notice of Proposed Rulemaking, 23 FCC Rcd 1324 (2007), 6 ( [O]ur broadcast regulatory framework is designed to foster a system of local stations that respond to the unique concerns and interests of audiences within the stations respective service areas. ); see also United States v. Sw. Cable 7
Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 12 of 36 Television stations promote localism through locally-produced news and investigative reporting, coverage of local weather, traffic, and sports, and various local political affairs programming, including candidate debates and interviews. This local programming is highly valued and trusted by viewers across the country. 8 NAB has repeatedly chronicled the countless hours that local television stations have invested in locally-originated programming and community outreach initiatives to further broadcast localism. 9 Co., 392 U.S. 157, 177 (1968) (declaring local broadcasting to be demonstrably a principal source of information and entertainment for a great part of the Nation s population ). 8 Indeed, Americans get their local news from local TV more than any other source. See Pew Research Ctr., Pew Internet & American Life Project, Understanding the Participatory News Consumer 3 (Mar. 1, 2010), available at http://www.pewinternet.org/~/media//files/reports/2010/ PIP_Understanding_the_Participatory_News_Consumer.pdf (explaining that on a typical day, 78% of Americans say they get news from a local TV station ); Television Bureau of Adver., TV Basics Report 25-26 (June 2012), available at http://www.tvb.org/media/file/tv_basics.pdf ( TV Basics ) (noting that most consumers choose local stations for this information); National USC Annenberg- Los Angeles Times Poll Shows Local Television News Rules With Voters, USC Annenberg News (Aug. 24, 2012), http://annenberg.usc.edu/news%20and%20 Events/News/120824LATimesPoll.aspx (reporting voters relying more on local broadcast television news for daily news than any other source); Pew Research Ctr. for People & the Press, Further Decline in Credibility Ratings for Most News Organizations (Aug. 16, 2012), available at http://www.peoplepress.org/files/2012/08/8-16-2012-media-believability1.pdf (finding higher credibility ratings for local TV news outlets compared to cable news outlets). 9 See, e.g., Comments of the National Association of Broadcasters, In the Matter of Broadcast Localism (FCC Docket No. 04-233) (filed Apr. 28, 2008); see 8
Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 13 of 36 Local emergency programming is a critical component of localism a veritable lifeline to a community in times of crisis. Local television stations work hand-in-hand with local governments, charities, and first responders to help communities avoid, prepare for, and survive a disaster, and even to help rebuild communities that are torn apart. 10 The administrator for the Federal Emergency Management Agency ( FEMA ) made this telling observation prior to Hurricane Irene s landfall: Those local broadcasters are going to be giving you the best information, real time, from those local officials out of those press conferences. So make sure you[ ve] got your radio and television. 11 Dish and other subscription television services provide nothing akin to this level of emergency information. Without access to broadcasters local emergency programming, local citizens would lose a lifeline of trusted information for which there is no ready replacement. also Hurricane Sandy, Licensed To Serve: A Chronicle of Broadcasters Community Service Initiatives, http://www.nab.org/xert/2012emails/publicservice/ sandylts.html (last visited Dec. 20, 2012) (compiling examples of Hurricane Sandy relief efforts nationwide) ( Hurricane Sandy ). 10 See Brian Stelter, Rare Footage Indeed: Tornadoes, In Real Time, N.Y. Times, Apr. 29, 2011, at A20, available at http://www.nytimes.com/2011/04/29/ us/29forecast.html?_r=0 (reporting extraordinary efforts of local stations to provide live coverage of tornadoes to save lives in Alabama); see also Hurricane Sandy. 11 Interview by Ali Velshi with Craig Fugate, Administrator, Fed. Emergency Mgmt. Agency, CNN American Morning (Aug. 25, 2011), transcribed at http://transcripts.cnn.com/transcripts/1108/25/ltm.02.html. 9
Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 14 of 36 Production of this locally-originated programming is expensive. It requires a significant investment in newsgathering resources by local stations teams of reporters and staff, camera crews, satellite trucks, state-of-the-art weather radar systems, local studios, and, most recently, an expensive upgrade to all-digital broadcasting equipment. Today, television broadcasters continue to increase their investment in local newsgathering resources despite challenging economic conditions. 12 By contrast, MVPDs, such as Dish, have far fewer public interest obligations and offer only a tiny fraction of the type of local programming produced by a single local television station. Beyond providing uniquely focused local television programming, local stations also provide viewers access to top-rated national news, sports, and entertainment programming through their affiliation with television networks such as Fox. This programming is also very expensive to produce or acquire. As a result, networks contract with local television stations, as network affiliates, to broadcast network programs in local markets throughout the country which leads to more viewers and, correspondingly, greater advertising revenues for networks. Network programming includes both network spots that generate advertising 12 In the last year, broadcast television news staffing has grown to near record levels, and stations have maintained or increased their news budgets. See Bob Papper, RTDNA/Hofstra University, 2012 TV and Radio Staffing and News Profitability Survey, Part I, available at http://www.rtdna.org/uploads/files/ vv1.pdf. 10
Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 15 of 36 revenue for the network that produces the programming (e.g., Fox s X-Factor) and a smaller number of local spots that generate valuable and critical advertising revenue for the local stations affiliated with the network. This network-affiliate relationship benefits both local stations and national networks, and it has flourished in a fashion that also yields tangible benefits for the American public. Networks receive the benefit of national coverage of their programs to increase advertising revenue. Affiliates receive top-rated programming throughout the broadcast day to complement local programming and provide advertising inventory to sell within network programming. The public receives a mix of local and national programming that is selected and delivered by local television stations at no charge to the consumer. Congress has recognized that the unique combination of national and local interests fostered by the network-affiliate relationship has served the country well. 13 Dish s AutoHop service compromises the Fox Network s ability to acquire, produce, and monetize quality news, sports, and entertainment programming. It also undermines the advertising availabilities of local television stations affiliated with Fox. The effect is to impact directly and adversely the financial viability of local network-affiliated television stations. Without the revenue flowing from the 13 Satellite Home Viewers Act of 1988, H.R. Rep. No. 100-887, pt. 2, at 20 (Sept. 29, 1988). 11
Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 16 of 36 sale of advertisements in network programming, local stations financial ability to produce local news and other important public interest programming will be compromised. B. Advertising Is the Lifeblood of Free, Local Television Service. Unlike subscription-based MVPD services, local television stations offer programming free of charge. Congress and the Supreme Court have specifically acknowledged the government s interest in ensur[ing] that every individual with a television set can obtain access to free television programming. 14 More than 53 million consumers rely solely on free, over-the-air broadcast television 15 a number that is growing, not shrinking, due to the multiple and diverse offerings that local television stations are able to provide in high-definition 14 Turner Broadcasting Sys., Inc. v. FCC, 512 U.S. 622, 647 (1994); Cable Television Consumer Protection and Competition Act, Pub. L. No. 102-385, 2(a)(12), 106 Stat. 1460, 1460-61 (1992) ( There is a substantial governmental interest in promoting the continued availability of such free television programming, especially for viewers who are unable to afford other means of receiving programming. ). 15 NAB Press Release, Over-the-air TV Viewership Soars to 54 Million, http://www.nab.org/documents/newsroom/pressrelease.asp?id=2761 (June 18, 2012) (quoting GfK-Knowledge Networks, Home Technology Monitor 2012 Ownership Survey and Trend Report (Spring 2012)) ( NAB Press Release ); ER 256, 330-31 (Brennan Decl. 8, Exhibit C). 12
Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 17 of 36 (HD) format, on multiple channels, and, increasingly, on mobile platforms. 16 In addition, minority households make up 44 percent of over-the-air viewers. 17 Twenty-eight percent of all Asian households, 23 percent of African-American households, and 26 percent of Latino homes are broadcast-only. 18 Advertising is the only business model capable of funding the enormous capital and operating costs necessary to provide free local programming. Approximately 90 percent of television station revenues are derived from advertising. 19 Television networks, such as Fox, also rely on advertising to fund the expense of producing popular national news, entertainment, and sports programming. 20 In the 70 years since the first television advertisement was aired on NBC in 1941, advertisements have often been as integral a part of television history as the 16 See Comments of the National Association of Broadcasters, In the Matter of Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, pp. 10-13 (FCC Docket No. 12-203) (filed Sept. 10, 2012). 17 See NAB Press Release. 18 See id. 19 See Local TV, Pew Research Ctr. Project for Excellence in Journalism, The State of the News Media 2010: An Annual Report on American Journalism (2010), at 9, available at http://stateofthemedia.org/2010/local-tv-summaryessay/economics/. 20 ER 256 (Brennan Decl. 10). 13
Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 18 of 36 programming that they support especially during high-profile events such as the Super Bowl. 21 Television advertisements also include public service announcements ( PSAs ), station promos, and political and issue advertising. Station promos promote important local programming such as news, weather, sports, and emergency information. PSAs are generally aired, at no cost, to promote community awareness of important issues such as cancer prevention. 22 Political and issue advertisements are an important vehicle by which candidates and interest groups advocate their positions to the public. Advertising only works, of course, if the advertisements actually reach the viewers. Although some percentage of viewers may take steps to avoid watching an advertisement e.g., by changing the channel, taking a break to grab a snack, 21 Suzanne Vranica, Higher Prices Don t Keep Marketers Away from Ad Time for the Super Bowl, Wall St. J., Jan. 3, 2012, available at http://online.wsj.com/article/sb10001424052970203899504577130940265401370.html (reporting on importance to marketers and popularity of Super Bowl television advertisements); Stuart Elliott, Early Kickoff for Marketers at Super Bowl, N.Y. Times, Dec. 11, 2012, at B3, available at http://www.nytimes.com/2012/12/12/business/media/marketers-start-super-bowlcampaigns-early.html?_r=0 (quoting a marketer regarding viewer interest in commercials at Super Bowl time: [W]e know viewers are engaged in the watching of the commercials. There is no other place where you get so many purposeful eyeballs. ). 22 Broadcasters Support Health Initiatives, Licensed To Serve: A Chronicle of Broadcasters Community Service Initiatives, http://www.nab.org/xert/ 2012Emails/publicservice/102012LTS.html (October 2012) (compiling examples of broadcaster community outreach and service on health issues). 14
Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 19 of 36 making a phone call television advertisements continue to reach a remarkably large number of consumers, and television remains a top-tier platform for national, regional, and local businesses. 23 The same is true for PSAs, station promos, and political advertising. Television advertisers rely on a measuring stick called the C3 rating to evaluate the effectiveness of a particular television program to reach viewers. 24 The C3 rating measures the average number of commercials viewed during the live broadcast of a particular television program and for the subsequent three days on a DVR. 25 As a result, C3 ratings have a direct impact on the price advertisers are willing to pay to place an advertisement in a particular program. 26 Advances in technology have enabled viewers to watch television programs on a variety of different platforms after the live broadcast. Unlike AutoHop, many 23 Industry reports show that television advertising is the most effective at reaching consumers. TV Basics 24. And advertisers know that [a]dvertising on television satisfies most large marketers goals better than alternatives, and its advantages hold as more consumers watch more TV more often than any other medium. Stuart Elliott, In Evolving Media Landscape, Television Holds Sway, N.Y. Times, May 13, 2012, at B9, available at http://www.nytimes.com/2012/ 05/14/business/media/in-evolving-media-landscape-television-holds-sway.html? pagewanted=all&_r=1& (quoting Brian Wieser, an advertising research analyst). 24 See ER 256 (Brennan Decl. 10); ER 342 (Liodice Decl. 7). 25 See id. 26 See id. 15
Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 20 of 36 of these platforms include advertising or, at the very least, require the viewer to manually fast-forward through the advertisements (a functionality that provides value to advertisers because the viewer can still view, and may even play, certain commercials during the fast-forwarding process). 27 Invariably, the terms and conditions under which advertising is (or is not) included in the platforms is governed by contract. The growth of these new advertising platforms has led broadcasters and advertising agencies to consider changing the advertising rating metric to better capture the viewers who watch time-shifted programming through DVR and similar technologies. 28 Even as the video on demand ( VOD ) submarket is rapidly evolving, Dish s AutoHop service threatens to eliminate networks and local stations ability to sell advertising in this developing market. 27 Furthermore, because AutoHop unlike traditional fast forward functionality skips through advertisements entirely, consumers do not even have an opportunity to see which commercials they are missing. This takes away consumer choice and also eliminates some of the branding and impressions that users would otherwise be exposed to if using a standard fast forward function. Advertisers will view this negatively. ER 266 (Brennan Decl. 32); see also ER 342 (Liodice Decl. 6). The Sony case permits consumers personally to make a copy of a program for home use and fast forward as they wish. Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417 (1984). Dish s AutoHop service goes far beyond the bounds of the conduct permitted by Sony. It is a commercial service made available for a fee. 28 See Wayne Friedman, Nets Consider C7 Standard, ABC Cuts Deal, MEDIA DAILY NEWS, Dec. 18, 2012, http://www.mediapost.com/publications/ article/189620/nets-consider-c7-standard-abc-cuts-deal.html#axzz2ft0npjp8. 16
Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 21 of 36 Dish s AutoHop service does far more than time shift when viewers can watch certain broadcast programming. It effectively removes all advertisements from those programs. Moreover, Dish has opted to offer AutoHop only with respect to the product offerings of the Big Four networks (ABC, CBS, Fox, and NBC) and to do so by providing the necessary equipment and service for a fee. By stripping commercials out of popular broadcast programs such as American Idol, The Big Bang Theory, Modern Family, or Sunday Night Football but not cable programs such as Mad Men or The Daily Show Dish is intentionally endeavoring to undercut the value of local stations advertising spots on broadcast programming. C. Ad-Stripped Television Services Harm the Continued Viability of Free, Local Television Service. AutoHop eliminates all commercials in primetime network programming thereby eliminating any advertising value of those programs when they are viewed on Dish s AutoHop service or any similar service offered by other MVPDs. Worse, by targeting primetime programming, Dish has targeted the very programming that generates the most advertising revenue, per advertising spot, for both national networks and local stations. 29 29 See ER 257 (Brennan Decl. 11) ( Primetime is the evening block of television programming that attracts the most viewers, and advertisers therefore are willing to pay the highest prices to have their commercials shown during this time. ). 17
Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 22 of 36 The harm that will befall broadcasters from Dish s ad-stripped television service can hardly be overstated. If AutoHop is allowed to continue, nothing will prevent Dish from expanding its use into other popular programming, and nothing will prevent DirecTV, cable systems, or other competitors from offering similar ad-stripping services. 30 With no commercials in popular broadcast programming retransmitted by MVPDs, the ratings for those programs will plummet. 31 When those ratings plummet, the broadcast programs will, obviously, be far less attractive to advertisers. 32 Indeed, the only audiences guaranteed to receive 30 See WPIX, Inc. v. ivi, Inc., 691 F.3d 275, 286 (2d Cir. 2012) (recognizing the substantial likelihood of copycat infringers in holding that the illegal Internet streaming of television broadcast signals by ivi tv caused irreparable harm to television stations). 31 Dish subscribers using PrimeTime Anytime and AutoHop will no longer see the advertisements paid for by advertisers. This will lower the number of viewer impressions for commercials... and negatively impact the C3 ratings.... Because advertisers typically pay less for commercials with less viewers, Fox s ability to sell advertising will suffer. While I am confident that low C3 ratings translate into lower revenues, it would be very difficult to calculate Fox s precise financial loss. ER 265-66 (Brennan Decl. 31). 32 See ER 266 (Brennan Decl. 33) ( If competitors do the same thing, which is inevitable if Dish is not enjoined, then many millions of television viewers will stop seeing commercials. As a result of this massive reduction in viewer impressions, many advertisers will be unwilling to pay the same rates for commercials. ). 18
Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 23 of 36 television advertisements and possibly retain advertising are the 18 percent of television viewers that rely exclusively on free, over-the-air television. 33 Faced with such a drastic reduction in their audience reach for television commercials, advertisers will move their advertising to competing platforms direct mail, online, social media, and, worse, the competing television distribution platforms such as Dish that strip broadcast advertisements in the first place. 34 The record in this case is replete with knowledgeable testimony that the financial losses from the elimination of advertising revenue from primetime and other popular programming will undermine the entire viability of the advertising-based model that has sustained free, local television service. 35 Television executives, Moody s rating service, and other industry researchers and experts all confirm, in their own descriptions, how this chain of events can rapidly destroy the advertising model that supports broadcast television service. 36 33 See NAB Press Release (quoting GfK-Knowledge Networks, Home Technology Monitor 2012 Ownership Survey and Trend Report (Spring 2012)) (approximately 17.8% of television households rely solely on over-the-air broadcast television). 34 See ER 343 (Liodice Decl. 8); see generally Lisa Lapan, Note, Network Television and the Digital Threat, 16 UCLA Ent. L. Rev. 343 (2009) ( Lapan Note ) (discussing television s prominence in viewership and advertising sales). 35 See, e.g., ER 252 (Smith Decl. 6-7); ER 266 (Brennan Decl. 32). 36 AutoHop has the potential to devour the ad model. ER 265-66, 332-334 (Brennan Decl. 32, Exhibit D); Moody s Investors Service Announcement, 19
Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 24 of 36 Without access to advertising revenue from their top-rated programming, local stations will have fewer financial resources to invest in expensive local programming, including news and emergency information programming, and broadcast networks such as Fox will no longer be able to afford to produce expensive network programming. To the extent lower-rated broadcast programming may continue to attract advertisers, that revenue could not possibly support the high costs of producing critical local news and public affairs programming or of acquiring the rights to popular network programming. To add insult to injury, broadcast networks and their affiliates cannot recoup their losses through their own VOD services because of AutoHop. Networks often employ their own VOD Internet technologies for consumers to access popular programming after its original air date, and they often insert additional commercial spots (that some networks split with affiliates) to help fund these additional platforms for accessing free, over-the-air broadcast programming. But AutoHop Moody s Says Dish Network s AutoHop Feature Has Negative Credit Implications Across the TV Industry (May 25, 2012), http://www.moodys.com/research/moodys-says-dish-networks-autohop-featurehas-negative-credit-implications--pr_246977; ER 252 (Smith Decl. 6); ER 332-334 (Haslingden Decl. Exhibit D). Moreover, studies have shown advertising losses to television stations and programmers to be immediate losses, while distribution services might feel the impact more gradually. See, e.g., Jeffrey A. Eisenach, Video Programming Costs and Cable TV Prices, filed by The Walt Disney Company in FCC MB Docket Nos. 10-71, 09-191, 07-52, p.28 (April 23, 2010) (citing research that advertising revenues [to programmers] are lost right away ). 20
Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 25 of 36 will draw viewers away from such platforms. To the extent broadcasters use their VOD Internet offerings to control the distribution of their video programming, broadcasters will still face competition from a distributor making unlawful use of their own product. In short, ad-stripped television taken to its logical end, could spell the end of free broadcast television. And the end could come quickly once Dish s competitors offer their competing ad-stripped television services. Given the average time for trial and appeals in the respective jurisdictions in this case, 37 local broadcasters could face ad-stripped television for more than 3 years more than enough time to destroy the necessary flow of advertising revenue to keep broadcast television healthy and alive. 38 37 The median time interval from filing to disposition by trial of a civil case in the U.S. District Court, Central District of California, is 20.1 months. See Administrative Office of the United States Courts, 2011 Annual Report of the Director: Judicial Business of the United States Courts (2012) (Table C5), available at http://www.uscourts.gov/uscourts/statistics/judicialbusiness/2011/ appendices/c05sep11.pdf. The median time interval for merit termination of appeals from filing in lower court to final disposition in appellate courts in the Ninth Circuit is 36.3 months. Administrative Office of the United States Courts, 2011 Annual Report of the Director: Judicial Business of the United States Courts (2012) (Table B-4A), available at http://www.uscourts.gov/uscourts/statistics/ JudicialBusiness/2011/appendices/B04ASep11.pdf. 38 See, e.g., Lapan Note at 366-67 (2009) (discussing the fall of the music industry due to digital piracy and the television industry s ability to beat the pirates based solely on commercial advertising and control of content); see also Blockbuster s Fall and Netflix s Rise, in Pictures, Dealbook (Feb. 24, 2011), http://dealbook.nytimes.com/2011/02/24/blockbusters-fall-and-netflixs-rise-in- 21
Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 26 of 36 The Second Circuit has recently recognized the irreparable harm that unlawful, infringing technologies can have on local broadcast television service. In WPIX, Inc. v. ivi, Inc., the Second Circuit upheld a preliminary injunction granted to broadcasters against ivi tv, a company that retransmitted the signals of local television stations over the Internet without the consent of the stations and without paying any compensation to the stations for the retransmission of those signals. 39 The Court determined that ivi s retransmissions could harm broadcasters advertising revenue by reducing, fragmenting, and diverting the number of viewers, which would drastically change the industry especially as copycat services emerged. 40 The Court described a chain of events that would threaten to destabilize the entire industry that is very much like the chain events that will almost certainly occur if Dish is not enjoined in this case: The absence of a preliminary injunction would encourage current and prospective retransmission rights holders, as well as other Internet services, to follow ivi s lead in retransmitting plaintiffs copyrighted programming without their consent. The strength of plaintiffs negotiating platform and business model would decline. pictures/ (chronicling the rise of Netflix and Blockbuster s steep decline to bankruptcy in less than 2 years); see also ER 343 (Liodice Decl. 8). 39 691 F.3d at 285-286. 40 See id. at 286. 22
Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 27 of 36 The quantity and quality of efforts put into creating television programming, retransmission and advertising revenues, distribution models and schedules all would be adversely affected. These harms would extend to other copyright holders of television programming. Continued live retransmissions of copyrighted television programming over the Internet without consent would thus threaten to destabilize the entire industry. 41 The loss of substantial advertising resulting from AutoHop could cause at least as much if not greater harm as the unauthorized retransmissions at issue in ivi because AutoHop and similar ad-stripped television services could ultimately strip all advertisements from broadcast programming immediately. When broadcast programs lose their value to advertisers, the injury to broadcasting is far more than the initial losses in advertising revenue. Rather, the injury extends downstream to jeopardize the important local broadcast programming that is funded by a station s ability to access (and generate revenue from) popular network programming, which, in turn, jeopardizes the continued financial viability of local television broadcast service. II. AUTOHOP IS EMPLOYED BY DISH FOR ANTICOMPETITIVE PURPOSES THAT RUN COUNTER TO CONGRESS S CAREFULLY CONSTRUCTED LEGAL FRAMEWORK DESIGNED TO PRESERVE ACCESS TO FREE, LOCAL TELEVISION SERVICE The District Court s most egregious error was likening AutoHop to the Sony Betamax home video cassette recorder and other services which allow a 41 Id. 23
Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 28 of 36 consumer to make copies of broadcast programming to conclude that AutoHop does not infringe Fox s reproduction right in its copyrighted primetime programming. That conclusion does not square with the facts of this case or existing law, and it runs counter to Congress s clear intent to preserve free, overthe-air broadcasting against anticompetitive practices by MVPDs. The District Court s conclusion that the consumer, rather than Dish, makes the copies of the broadcast programming is not supported by Sony or the Cablevision decisions relied upon by the District Court. A Betamax was a home recorder popular in the 1980s that allowed consumers to manually record all or part of any television program on a Betamax tape without being able to delete the commercials during a recording. Here, by contrast, Dish is the entity that (1) preselects only broadcast programs to be recorded, (2) makes an illegal copy and records those programs on its own technology, (3) decides the length of time each copy is available for viewing, and (4) strips the commercials from the programs. There is, in fact, nothing that Dish does not do in copying the programs once a consumer chooses to enable or activate Dish s AutoHop service. The fact that the consumer initiates the service does not make the consumer the copier of the program any more than it makes a consumer the copier of a book or a song that she orders from an online bookseller or music retailer by pushing a button on her computer. 24
Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 29 of 36 More troubling is the District Court s admission that Dish has a degree of discretion over the copying process beyond that which was present in Cablevision, but the Court s refusal, nevertheless, to find that Dish actually made the copies because it required consumers to enable Dish s illegal copying. 42 The District Court plainly misapprehended both the law and facts underpinning the technology on this point, and its refusal to issue the requested injunction effectively gives Dish (and other MVPDs) a blank check to copy all or part of any broadcast program on its own technology, for any purpose, so long as a consumer clicks a button, checks a box, or otherwise assents to the copying process. This logic simply cannot stand. Dish s stripping of advertisements from broadcast programs also infringes Fox s exclusive right to prepare derivative works under 17 U.S.C. 106. Dish s AutoHop copies unlawfully create derivative works that are decidedly different than the broadcast programs that are transmitted from Fox to Dish pursuant to their retransmission consent agreements because those programs include several commercial breaks with multiple commercials within each break. Also, by stripping commercials from Fox s programming without authorization, Dish separately violates 17 U.S.C. 122(e). Because network-affiliated television stations do not give Dish (or other MVPDs) a private copyright license for 42 ER 650. 25
Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 30 of 36 distribution of television content, Dish (and other MVPDs) must rely on a statutory copyright license to do so. That license, however, prohibits the content of the particular program in which the performance or display is embodied, or any commercial advertising or station announcement transmitted by the primary transmitter during, or immediately before or after, the transmission of such program, [from being] in any way willfully altered by the satellite carrier through changes, deletions, or additions, or is combined with programming from any other broadcast signal. 43 Dish s infringing conduct is patently anticompetitive. It is well established that [t]he broadcasters principal competitors in the television programming delivery market are the cable and satellite industries. 44 Cable and satellite providers compete with broadcasters for advertising revenues by selling advertising spots during certain live programming on their respective systems. By designing a commercial service that effectively strips advertisements in broadcast programming but does not strip the commercials in cable programs that it distributes, Dish attempts to advantage itself while harming the advertising revenue streams that are so critical to supporting local television service. Consumers who 43 17 U.S.C. 122(e) (emphasis added); see also 17 U.S.C. 119(a)(6) (similar provisions for satellite retransmission of distant broadcast signals); 17 U.S.C. 111(c)(3) (similar anti-stripping provisions for cable retransmission of broadcast programming); see also 47 C.F.R. 76.66(j). 44 Satellite Broadcasting and Communications Ass n v. FCC, 275 F.3d 337, 344 (4th Cir. 2001). 26
Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 31 of 36 enjoy local stations broadcast of news, weather, and sports will ultimately be worse off. Dish s copyright infringement also allows it to pursue another anticompetitive aim to drive down retransmission consent fees for broadcast programming. The law governing satellite retransmission of broadcast signals provides television stations with the option to elect between must carry and retransmission consent. If must carry is elected, the station is guaranteed carriage but is not compensated. If retransmission consent is chosen, carriage is not guaranteed, but all terms and conditions of carriage are negotiated. It is common practice in the television industry for broadcasters to negotiate retransmission agreements for MVPDs to redistribute the entirety of their broadcast signals. MVPDs have long sought to reduce retransmission consent fees in order to maximize their own profits. If MVPDs were able to cherry pick the portions of the broadcast signals they wanted to retransmit, they would have both the incentive and ability to do so for their own self-interest. And by unilaterally stripping valuable advertising from broadcast programming through AutoHop and similar technologies, the quality of broadcast programming will suffer, and MVPDs will attempt to use the decline of broadcast programming to reduce the rates they pay for broadcast signals. 27
Case: 12-57048 12/20/2012 ID: 8448478 DktEntry: 23 Page: 32 of 36 In sum, Dish s copyright infringement creates an anticompetitive outcome that disrupts the very careful and deliberate balancing of interests that Congress has achieved through decades of telecommunications and copyright legislation. Congress has repeatedly sought to curb illegal and anticompetitive conduct by subscription-based MVPD services in order to preserve all Americans ability to access free, local over-the-air television service. 45 The District Court s decision, if allowed to stand, will severely harm the public interest by effectively giving Dish a blank check to destroy the foundation of the Nation s local television service that Congress, the FCC, and the courts have long sought to preserve. Dish has a long and well-documented history of 45 See Cable Television Consumer Protection and Competition Act of 1992, Pub. L. No. 102-385, 2(a)(16) (1992) ( As a result of the economic incentive that cable systems have to delete, reposition, or not carry local broadcast signals coupled with the absence of a requirement that such systems carry local broadcast signals, the economic vitality of free, local broadcast television and its ability to originate quality local programming will be seriously jeopardized. ); S. Rep. No. 102-92, at 99-109 (June 28, 1991) (Conf. Rep.) (discussing the threat of anticompetitive cable practices to the viability of local television stations and their service to their local communities); SHVIA Report at 100 ( The Committee reasserts the importance of protecting and fostering the system of television networks as they relate to the concept of localism. ); 17 U.S.C. 119 (limiting compulsory copyright license for satellite retransmission of distant signals); see also Satellite Television Extension and Localism Act of 2009, S. Rep. No. 111-385, at 2 (Dec. 22, 2010) ( The reason for this [distant signal] limitation was to preserve localism and to prevent non-local or distant signals from taking viewers away from local stations that provide community-focused programming such as local news and weather. ). 28