FSF Responds to Calls for Harmful, Stringent Set-Top Box Tech Regulation
Free State Foundation President Randolph May and Senior Fellow Seth Cooper submitted reply comments today to the Federal Communications Commission in response to the comments submitted to its set-top box rulemaking proceeding that offer unjustified calls for harmful, stringent regulation of video devices and apps. The complete set of Free State Foundation reply comments, with the footnotes, is here. Immediately below is the "Introduction and Summary" to the reply comments, without the footnotes.
These reply comments are submitted in response to comments submitted in this proceeding that offer unjustified calls for harmful, stringent regulation of video devices and apps. In particular, these reply comments respond to pro-regulation comments that fail to address the significant legal and policy problems raised by the Commission's proposed rulemaking. The Commission should not impose the video device and app regulations proposed in its Notice.
The principal points raised in these reply comments are: (1) the Commission lacks statutory authority for its proposed video device and app regulations; (2) the proposed standards body poses improper sub-delegation, an unworkable timeline, and patent litigation concerns; (3) the lack of cost-benefit analysis is a strong indicator of arbitrary policymaking, offering illusory benefits and likely harms that would distort a video market the Commission already has recognized as effectively competitive; (4) banning MVPDs from subsidizing the video devices they offer would harm consumers by depriving them of options for avoiding up-front costs for devices; (5) the proposed regulations raise serious copyright concerns that comments supporting regulation do not take seriously; and (6) the proposed regulations pose free speech problems under the First Amendment, despite the unconvincing arguments of pro-regulatory comments to the contrary.
Regulations proposed in the Notice go far beyond the Commission's authority under Section 629 of the Communications Act. That Section is directed toward ensuring commercial availability of "equipment" for accessing MVPD service, not a wide-ranging mandate to regulate "information flows" or video apps. Both the Commission and comments supporting its regulation misguidedly urge that software or apps be "read into" the term "equipment." But such a reading is not within the ordinary meaning of "equipment" and nothing in the statutory context alters the ordinary meaning. Further, legal precedent does not permit the expansive reading of Section 629 offered by the Commission and by comments supporting the proposed technical mandates. The U.S. Court of Appeals for the District of Columbia Circuit decision in
EchoStar v. FCC (2013), for instance, "refuse[d] to interpret ancillary authority as a proxy for omnibus powers limited only by the FCC's creativity in linking its regulatory actions to the goal of commercial availability of navigation devices."
Unfortunately, the Notice appears premised on the erroneous idea that numerous unresolved issues regarding technical mandates and rule implementation can be circumvented by passing the buck to a proposed external "Open Standards Body." But the Commission's overreliance on an external standards body would constitute an improper delegation of agency authority. Mandating a set of technical standards for making "information flows" available to third parties necessarily involves substantial regulatory decision-making power. Legal precedent, including the U.S. Court of Appeals decision in U.S. Telecom Association v. FCC (2004), disfavors sub-delegations of authority such as the Notice's proposed conferral of authority on the standards body. Courts will not read such authority into Section 629, which lacks a clear statement authorizing the kind of sub-delegation proposed in the Notice.
Further, the Commission has given the standards body an unrealistic and unworkable 2-year timeline for establishing new standards to comply with the Notice's technical mandates. For that matter, standards bodies typically include members that have voluntarily, even if reluctantly, come to the table to participate in the development process. The membership dynamic will not hasten the contemplated standards body's completion of its proposed assignment. Needless to say, the Commission's proposal to develop its own technical standards as a backstop will likewise hamper the standards body's progress. Members that favor the Commission's backdrop would have little to no incentive to compromise.
Given the magnitude of the proposed rulemaking's impact on the technology, business model, and economic arrangements of the video services and device markets, the absence of any cost-benefit analysis of the proposed regulations by the Commission constitutes strong evidence that its proposal is arbitrary and capricious. When markets are demonstrably competitive and innovative, it is unwise to distort them by overriding existing trends benefiting consumers with government mandates whose cost-benefit calculus is unknown or unknowable. In its Effective Competition Order (2015), the Commission recognized the competitiveness of the video services market. Data collected in the Seventeenth Video Competition Report confirms that competitive conclusion. The Commission's lack of any estimate of the costs and benefits of its proposed regulation surely weighs against imposing technical mandates on video devices, information flows, and apps in the competitive environment now known to exist.
Nor should the Commission ban MVPD providers from subsidizing the costs of video devices they make available to their subscribers. Cross-subsidies might be a concern if market power existed and facilitated higher rate charges to provide subsidies. But no market power problem has been shown to exist. It is anti-consumer to ban MVPDs from offering subscribers the ability to avoid paying up-front costs for equipment for accessing video services. A ban would also impose burdens on MVPDs that third-party device manufacturers would avoid. And such a ban would impose special burdens on DBS providers that would have no choice but to charge subscribers up front the costs for video devices. DBS services require set-top box devices for interfacing with dishes. Unlike other MVPDs, DBS providers could not work around such a ban by an exclusively apps-based model for content delivery. Initial comments that we filed in this proceeding explained that the proposed regulations would undermine the exclusive rights of video programmers in copyrighted content. Some comments filed in this proceeding have confirmed these concerns by their insistence that third-party device makers should not be subjected to licensing terms regarding the display of copyrighted video content because they are not contracting parties with the video programmers. Other comments all but ignored or downplayed this serious concern. Yet the concern is real. Simply put, the Commission proposes to force MVPDs to make their information flows available to third-party device makers, leaving MVPDs without the means to enforce their contracts and intellectual property rights. The proposed regulations would benefit third-party device makers that choose to use video programming content in ways inconsistent with licensing terms accepted by MVPDs as a condition of carriage and inconsistent with copyrights. Pro-regulatory comments in this proceeding do not articulate a reasoned defense of the Commission's proposed rulemaking on free speech grounds. But the Commission's proposal should, at minimum, be subject to intermediate scrutiny under the Supreme Court's First Amendment jurisprudence. Given the state of competition in the video market, the Commission cannot establish a substantial government interest to support its proposed regulations. And it is highly doubtful the Commission can justify its rejection of careful tailoring in its proposal, which sweeps so broadly with intrusive technical mandates. The Commission should jettison its proposed regulations and allow market entrepreneurs and innovators to lead us into an apps-centric future for viewing MVPD and other video services. Consumers will be better served by the availability of new choices for video viewing under a policy favoring continued operation of the innovative and competitive forces. * * * Randolph J. May, President of the Free State Foundation, is a former FCC Associate General Counsel and a former Chairman of the American Bar Association's Section of Administrative Law and Regulatory Practice. Mr. May is a current public member of the Administrative Conference of the United States, and a Fellow at the National Academy of Public Administration. Mr. May is a nationally recognized expert in communications law, Internet law and policy, and administrative law and regulatory practice. He is the author of more than 180 scholarly articles and essays on communications law and policy, administrative law, and constitutional law. Most recently, Mr. May is the co-author, with FSF Senior Fellow Seth Cooper, of the recently released The Constitutional Foundations of Intellectual Property and is the editor of the book, Communications Law and Policy in the Digital Age: The Next Five Years. He is the author of A Call for a Radical New Communications Policy: Proposals for Free Market Reform. And he is the editor of the book, New Directions in Communications Policy and co-editor of other two books on communications law and policy: Net Neutrality or Net Neutering: Should Broadband Internet Services Be Regulated And Communications Deregulation and FCC Reform.
Seth L. Cooper is a Senior Fellow at The Free State Foundation. He previously served as the Telecommunications and Information Technology Task Force Director at the American Legislative Exchange Council (ALEC), as a Washington State Supreme Court judicial clerk and as a state senate caucus staff counsel. He is an attorney, and he graduated from Seattle University School of Law with honors. Mr. Cooper's work has appeared in such publications as the San Jose Mercury News, the Iowa Des Moines Register and the American Spectator.
The Free State Foundation is a non-profit, independent free market-oriented think tank.
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