The Court of Appeals stated that a preliminary injunction could only have been granted to the Plaintiffs if they could demonstrate that Aereo infringed upon their public performance right under the Transmit Clause (17 U.S.C. § 101) of the 1976 Copyright Act. The Defendants relied on the Cablevision analysis of the Transmit Clause, which the Court used in its analysis as precedent for what it found to be a “similar factual context.”  In Cablevision, the question was whether the company’s newly-designed Remote Storage Digital Video Recorder infringed copyright holders’ public performance and reproduction rights. In Cablevision, it was held that “unless a transmission itself is public, the transmitter does not infringe the public performance right.”  Since each subscriber is assigned a unique antenna in the Aereo business model, the transmissions were found to be private performances and did not violate the Plaintiffs’ copyrights.

The Court of Appeals decision fully affirmed the District Court’s denial of all motions for a preliminary injunction against Aereo. In a press release on April 1, 2013, Aereo’s CEO and founder Chet Kanojia declared that the Court of Appeals decision confirmed “that Aereo’s technology falls squarely within the law and that’s a great thing for consumers who want more choice and flexibility in how, when and where they can watch television.”

Mr. Kanojia’s statement may be partially true – the Aereo decision does indeed appear to be a “great thing for consumers” – but other courts already disagree with the Second Circuit on whether or not the technology is “squarely within the law”. In the Ninth Circuit, in Fox Television Stations Inc. v. BarryDriller Content Systems PLC, Plaintiffs were granted a preliminary injunction because the court found a likelihood of success on the merits. The court in BarryDriller rejected the reasoning in Cablevision, stating that in any event its holding was at odds with Ninth Circuit precedent set in On Command Video Corp. v. Columbia Pictures Industries (which held that transmissions from a hotel system to private rooms were public performances).

Unsurprisingly, several of the Plaintiffs in the Aereo case have announced their intention to continue fighting for damages and to “protect [their] copyrights …” (CBS and Fox have even threatened to become pay-for-cable channels, possibly paving the way for the other networks). The networks may be expecting the law to move in the Ninth Circuit’s direction, further motivated by the fact that even Aereo’s likely natural allies – such as Cablevision itself – are speaking out against the startup, criticizing the company’s decision not to pay for licensing and retransmission consent. The fight may not be over, but for now, Aereo and its investors are confident enough in their case to expand the service to a total of at least 23 cities across the United States.

In a niche where consumers and even certain experts feel that cable companies are running a “monopoly”, or at the very least an oligopoly, business models providing more consumer choice do meet a growing market demand. Aereo provides its services at costs much lower than those charged by cable companies – at rates starting at $1/day or $8/month. The goal of its founder is to give consumers the choice to “unbundle” packages, paying only for what they want to see (such as news or movies), when they wish to see it. However, providing a service that makes consumers happy does not resolve questions of legality, and in an online world where the east and west coasts are drawn ever closer together, it seems that the differing opinions presented by the Second and Ninth circuits will have to be reconciled before this new frontier of television can attract more conservative settlers.

The 1998 Digital Millennium Copyright Act (“DMCA”) criminalizes electronically decoupling a mobile phone from its contracted service provider, otherwise known as “unlocking”:“No person shall circumvent a technological measure that effectively controls access to a work protected under this title.”

“Section 1201 also makes it illegal to circumvent the access controls on DVDs, e-books and video games to make bootlegged copies for sale on the street or swapping online. It also makes it illegal to manufacture or sell devices whose main purpose is to circumvent the digital locks on copyrighted material.”

The DMCA was enacted to protect, and thereby enable the continued development of, copyrighted and copyrightable advances. The regulations surrounding electronic access to digitally-stored and digitally-created media serve to protect intellectual property in a highly interconnected world from improper use and illegal secondary markets.

Instead it is requiring that we choose between our phones and the freedom to switch to our desired new cellular phone service providers.

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In October 2012, the Library of Congress decided against renewing the exception to the DMCA, which allowed for cell phones to be unlocked by persons other than the phone-issuing service provider.

As of January 26 of this year, newly purchased phones may not be legally unlocked by anyone other than the provider.

The texting, tweeting, pinning, and instagramming public did not take the news sitting down. They exercised their e-voice through an online “We The People” Petition to the White House.

The White House responded in a statement by David Edelman, White House Senior Advisor for Internet, Innovation, and Privacy:

Thank you for sharing your views on cell phone unlocking with us through your petition on our We the People platform. …

The White House agrees with the 114,000+ of you who believe that consumers should be able to unlock their cell phones without risking criminal or other penalties. In fact, we believe the same principle should also apply to tablets, which are increasingly similar to smart phones. And if you have paid for your mobile device, and aren’t bound by a service agreement or other obligation, you should be able to use it on another network. It’s common sense, crucial for protecting consumer choice, and important for ensuring we continue to have the vibrant, competitive wireless market that delivers innovative products and solid service to meet consumers’ needs. …

The Obama Administration would support a range of approaches to addressing this issue, including narrow legislative fixes in the telecommunications space that make it clear: neither criminal law nor technological locks should prevent consumers from switching carriers when they are no longer bound by a service agreement or other obligation.

We also believe the Federal Communications Commission (FCC), with its responsibility for promoting mobile competition and innovation, has an important role to play here. FCC Chairman Genachowski today voiced his concern about mobile phone unlocking, and to complement his efforts, NTIA will be formally engaging with the FCC as it addresses this urgent issue.

Finally, we would encourage mobile providers to consider what steps they as businesses can take to ensure that their customers can fully reap the benefits and features they expect when purchasing their devices.

We look forward to continuing to work with Congress, the wireless and mobile phone industries, and most importantly you — the everyday consumers who stand to benefit from this greater flexibility — to ensure our laws keep pace with changing technology, protect the economic competitiveness that has led to such innovation in this space, and offer consumers the flexibility and freedoms they deserve.

In a similarly staunch yet meaningless statement, the FCC’s Chairman, Julius Genachowski, stated: “From a communications policy perspective, this raises serious competition and innovation concerns, and for wireless consumers, it doesn’t pass the common-sense test… The FCC is examining this issue, looking into whether the agency, wireless providers or others should take action to preserve consumers’ ability to unlock their mobile phones.” To paraphrase his words, “Cell phones are important to the FCC, but it’s not really for our problem. Let the providers and consumers, i.e. the market, take action.” If only Adam Smith’s invisible hand had a cell phone we could call, text, or FaceTime.

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But seriously. This is a lot of ruckus about nothing. The FCC’s response was lackluster because that is all that was necessary. Market forces take care of pricing and demand concerns.

As hard as it is to believe, there was a time when the service, and not the phone itself, was of supreme importance. Originally, home telephones were owned by Bell Telephone Company and leased to the lucky (and affluent) homeowners who could afford them. Cellular phones were clunky and expensive. Phones became cheaper and somewhat commoditized. Then, to allow service providers and hardware manufacturers to differentiate themselves, glitzier phones were made. Then, phones with data. But, by this point, cellular phones became a staple, but computing handheld devices were quite expensive. To incentivize purchases, service providers discounted the manufacturers’ price and the iPhone generation was born. Now consumers want to own the phones – which they purchased at a discount because of the attached strings – outright.

Presidential intervention in this war for “freedom to get free stuff” is ridiculous and potentially counterproductive. If you would like to own your phone – or anything else for that matter – outright, then buy it outright.

Edelman wrote, “if you have paid for your mobile device, and aren’t bound by a service agreement or other obligation, you should be able to use it on another network.” But that is precisely the issue. Purchasers of heavily discounted cellular phones are bound by another obligation. Unlocked phones are available directly from both the manufacturers and service providers at the retail price. By purchasing them through a contract plan, consumers agree to be bound to that provider, although both Verizon Wireless and AT&T Wireless have expressed their willingness to unlock phones and discharge the consumers from this “other obligation” at the end of the contract term.

The present situation is materially different from one in which unlocked phones could not be obtained and where all phones were necessarily bound to one provider. Consumers may choose to contract (or not) with any service provider they so choose, including discount providers which incentivize or require the consumer to bring his or her own device. Consumers cannot have their cake and eat it too, getting both the benefit of discounted phones provided by larger service providers to incentivize consumers to choose their service and the benefit of discounted service providers.

I cannot imagine what the People will want next.

Disclaimer: The opinions espoused are for the purposes of argument only. The author does not endorse any statements texted, tweeted, posted, or blogged in this article.

Under the Digital Millennium Copyright Act (DMCA), Congress set up a mechanism to allow copyright holders to enforce penalties against individuals who bypass “copyright protection systems” (i.e. the digital locks that copyright holders use to restrict access or manipulation to copyrighted content). DMCA § 1201 grants the Library of Congress the ability to grant exemptions for certain actions bypassing copyright protection systems if the Librarian of Congress believed that the system adversely affected the ability of users of the copyrighted work to make “non-infringing uses” of the work, for example, creating digital copies of computer games on obsolete hardware. Last October, the Library of Congress issued a final ruling that would decline to extend the exemption for unlocked smartphones after a 90-day transitional period. While there is some doubt as to whether unlocking smartphones is covered under the DMCA, under the current ruling, smartphones can now only be unlocked by the owner of the phone, who, in most cases, is the carrier, not the consumer. Consumers, the White House, and the Federal Communications Commission all came out against the ruling with worries about competition and consumer flexibility.

Why do carriers love it and consumers hate it?

Carriers see the exclusive power to unlock smartphones as a way to protect their initial investment of selling consumers smartphones at a deep discount. Prior to the final ruling, if a consumer was dissatisfied with her service, she could pay her early termination fee, unlock her phone and move to another carrier. Now, if the same consumer wants to walk she is welcome to, but she’ll have to leave her phone behind. For manufacturers, the strategy of partnering with a single carrier for high profile smartphone release is more feasible under the new ruling. While the legality of such practices has been challenged on antitrust grounds, a ban on unauthorized unlocking would make exclusive releases even more profitable for carriers, meaning more profit for manufacturers as well.

On the other hand, consumers fear that a ban on unlocking cellphones will reduce consumer choice, hurt international travelers and lower the resale value of devices paid for in full. For international travelers, the option to unlock the smartphone and purchase a short-term contract with a local carrier is no longer readily available. Now travelers must choose to either pay the high roaming charges levied by their current carrier or purchase an unlocked phone from the manufacturer at a much higher price than what is offered by carriers. The resale and gift markets would be negatively affected as well, since consumers in those markets will not have to choose between getting a locked smartphone with a potentially unsatisfactory carrier, or paying significantly more to get an unlocked smartphone.

What should you do?

For the majority of us, the answer is nothing. If you’re satisfied with your service and you’re still on contract, unlocking your smartphone won’t yield any benefits but it could yield complications. If you’re done with your contract but want to keep your device, many carriers will unlock your phone for free and let you decide whether you want to move to another carrier. If you’re looking to jump ship early, or unlock your phone for another reason, you may be in for a stern warning from your service provider with the force of law behind it (a fine up to $500,000 and up to 5 years in prison), but none of the major carriers have announced what their actual enforcement policy will be. James Baldinger, a lawyer for some of the wireless carriers, has said that “[t]he carriers’ position has always been, it’s never been about individual consumers. Individual consumers have never been the target of any of the lawsuits or enforcement proceedings or investigations.” So while it might be harder to find someone to unlock your device, its unlikely that Verizon will come knocking at your door if you do.

Background

In both Nat’l Ass’n and Cullen, the district courts analyzed whether Netflix violated the Americans with Disabilities Act (ADA), which requires that “[n]o individual shall be discriminated against on the basis of disability in the full and equal enjoyment of the goods, services, facilities, privileges, advantages, or accommodations of any place of public accommodation by any person who owns, leases (or leases to), or operates a place of public accommodation.” 42 U.S.C. § 12182(a). The basis for both lawsuits originated from Netflix.com offering only a limited amount of streaming media content available with closed captioning to assist the deaf and hearing impaired by providing readable text of the audio of movies and TV programs. According to the plaintiffs in both cases, the unavailability of closed captioning for all streaming media content on Netflix.com constituted a failure by the company to provide equal access to deaf and hearing impaired subscribers in violation of the ADA’s prohibition against discrimination on the basis of a disability.

Thus, the central inquiry facing the two district courts in Massachusetts and California was whether an Internet website fell under the umbrella of a “place of public accommodation” pursuant to the ADA.

Netflix’s Streaming Service Discriminatory in Nat’l Ass’n

In Nat’l Ass’n, the plaintiffs National Association of the Deaf, the Western Massachusetts Association of the Deaf and Hearing Impaired and Lee Nettles, a deaf person and a member of both non-profit organizations sought injunctive and declaratory relief requiring Netflix to provide closed captioning for all of its Watch Instantly content on its website. Netflix responded by filing a motion for judgment on the pleadings, arguing that the plaintiffs’ complaint failed to allege sufficient facts to establish a discrimination claim under the ADA.

The court held that Netflix.com was a place of accommodation underneath the ADA and rejected the motion for judgment on the pleadings. In reaching this conclusion, the court relied heavily on Carparts Distrib. Ctr. v. Auto Wholesaler’s Assoc., 37 F.3d 12 (1st Cir. 1994)(holding that places of public accommodation are not limited to actual physical structures), to rebut Netflix’s argument that websites and streaming video services were not intended to be places of public accommodation under the ADA. Citing Carparts, the court noted that “[i]t would be irrational to conclude that persons who enter an office to purchase services are protected by the ADA, but persons who purchase the same services over the telephone or by mail are not. Congress could not have intended such an absurd result.” Nat’l Ass’n, 869 F. Supp. 2d 200.

According to the court, the Carparts reasoning was also applicable to web-based services. Therefore, Netflix’s “Watch Instantly” website could potentially qualify for as many as three of the twelve enumerated ADA categories for “places of public accommodation”: A “service establishment” because subscribers are allowed to access the streaming video service via the internet; a “place of exhibition or entertainment” as Netflix.com offers movies, TV shows, and other media content; and a “rental establishment” in that Netflix engages subscribers to rent movies and TV shows.

The court also found unpersuasive Netflix’s argument that because the Watch Instantly website is accessed only in private residences, it could not be considered a place of public accommodation. As observed by the court, “the ADA covers the services “of” a public accommodation, not services “at” or “in” a public accommodation”. Id. at 201.

Cullen Court Finds Netflix’s Streaming Service Non-Discriminatory

Faced with essentially identical facts and claims as those presented in Nat’l Ass’n, the court in Cullen arrived at a different conclusion in regards to Netflix’s obligation to provide its subscribers with closed captioning for media content on its Watch Instantly website.

The named plaintiff David Cullen – representing a class of deaf and hearing-impaired Netflix subscribers – brought suit alleging violations of California’s Unruh Civil Rights Act (Unruh) and Disabled Persons Act (DPA), which by their statutory definitions are only violated when the ADA is violated. Netflix responded with a motion to dismiss Cullen’s action.

Despite acknowledging the decision in Nat’l Ass’n, the Cullen court recognized that as a district court, it was bound to adhere to Ninth Circuit precedent in the absence of a Supreme Court ruling on an issue. 880 F. Supp. 2d 1023. Consequently, the court relied heavily on the standard set forth in Weyer v. Twentieth Century Fox Film Corp., 198 F.3d 1104, 1114 (9th Cir. 2000), which held that only actual physical places could be considered places of public accommodation under the ADA.

In consideration that the media content on Netflix’s Watch Instantly website could only be accessed by subscribers via an internet connection, the court found that Netflix.com was not “an actual physical place”. Therefore, under the precedent established by Weyer, the court held that Netflix.com was not a place of public accommodation and granted Netflix’s motion to dismiss.

Future Implications of Both Cases

In an increasingly wireless world where many businesses offer diverse entertainment, services and products for purchase by consumers online, the development of the law on the issue of whether a place of public accommodation must be a physical establishment under the ADA will be a significant one to follow. As demonstrated in Nat’l Ass’n, some courts might consider the modern climate in which business and service transactions occur and apply the ADA to provide meaningful protections to disabled online consumers. Other courts might feel compelled to ignore the growing trend of e-commerce and follow traditional precedents, as was the case in Cullen. Either way, given the uncertainty that exists in regards to how courts will interpret and rule on the place of public accommodation issue, one thing appears clear: web-based businesses should begin to consider how to make their websites and services more accessible to the disabled in order to avoid finding themselves potentially defending against a violation of the ADA.

Facebook seeks to raise $5 Billion in its initial public stock offering, making it the largest Internet IPO on record.  It is believed that its stock offering will value the company $75 and $100 billion.  Mark Zuckerberg, however, will maintain his control over Facebook with voting power of almost 60 percent of total shares.  Meanwhile, Facebook is coming under a siege of patent lawsuits.  In 2011, Facebook was named as a defendant in 22 patent infringement suits.

Google announced its new privacy policy, which is set to become effective on March 1.  The new policy will allow it to track users’ activities across YouTube, Gmail, its search engine, and nearly all of its other sites.  Users will not be able to opt out, which may trigger more scrutiny from federal regulators.

On January 23, the Supreme Court held that attaching a GPS device to track a vehicle constitutes a search under the Fourth Amendment and requires a warrant.  The ruling is considered a victory for privacy rights in the age of advanced technology, but some argue it was too narrowly reasoned on the basis of the physical intrusion of attaching the device.

Congress indefinitely shelved the controversial antipiracy bills SOPA and PIPA after over 7,000 websites, including Wikipedia and Google protested the bills, handing a crushing blow to the traditional media industry.

Following the shutdown of file-sharing site Megaupload last month and arrest of 7 company employees, Federal prosecutors announced that Megaupload user data would be deleted as early as Thursday (Feb. 2).  However, a nonprofit group stepped in at the last minute, announcing on Wednesday that it would work with data-storage providers to create a website that will allow legitimate Megaupload users retrieve their data.