Ivi TV Loses Major Court Decision — But Shouldn’t Have

Seattle startup ivi TV sought to build a business by transmitting the most popular network TV shows over the internet, but today that idea looks like a dead end, at least for now. ivi TV CEO Todd Weaver has vowed to fight on and seek an appeal, but in the meantime, ivi TV will have to shut down most of its broadcasts, following an order issued today by a New York federal judge.

Judge Naomi Buchwald’s order has a tone of astonishment that ivi TV was even bold enough to set up such a system. “To place defendants’ argument in real-world context, they assert that for the payment of approximately $100 a year to the Copyright Office (the payment for a Section 111 compulsory license) and without compliance with the strictures of the Communications Act or plaintiffs’ Consent, that they are entitled to use and profit from the plaintiffs’ copyrighted works.”

ivi TV argued that it should have been classified as a cable system under U.S. law, and a few weeks ago several public-interest groups weighed in to support the Seattle company. But Buchwald was nowhere near accepting that argument. ivi TV isn’t a cable system, she wrote, and “absent defendants’ skewed interpretation of the statutory text and administrative record, there is absolutely no basis for holding otherwise.”

The court battles began quickly after ivi TV’s launch last year, but this decision was delayed because of a skirmish over venue; the parties disagreed whether the case should be heard in Seattle or New York.

Lawyers representing the TV networks weren’t authorized to comment on their win, but forwarded my inquiry to their clients. ivi TV CEO Weaver struck a combative pose in his statement on the verdict, saying that people want more than the “one-size-fits-all television offerings” currently available: “This fight is for the people and their right to choice and control over their own entertainment — and it will continue. The oppressive big media networks must open their doors to innovators or they will inevitably fall.”

If you ask me, the demise of U.S. television networks is far from a sure thing. But having said that, Buchwald’s decision strikes me as short-sighted for a few different reasons. When I interviewed ivi CEO Todd Weaver last year I was initially very skeptical of his whole project. Sure, offering a ton of channels for $4.99 a month online sounds like it could be a great business. But how on earth is devising a system to grab TV programs, re-transmit them, and charge for them not an obvious copyright violation? Of course, there was an exception (a compulsory license) for cable systems. But isn’t it a huge stretch to claim that broadcast over the internet is a “cable system?” The architecture of the internet is wholly different than television cable systems. Surely, I said, Congress knew what a cable system was when it last revised the relevant law in 1976. If it had wanted to use broad language that would include all kinds of technologies, it could have simply done so.

Here’s the kicker: That’s exactly what Congress did. Weaver offered some background on how satellite TV systems had to fight a similar battle to win recognition years ago, but what really convinced me that ivi should have a case was just reading the relevant section of the law. The definition of “cable system” is near the bottom of Section 111 of the U.S. Copyright Code. A cable system is a facility that “makes secondary transmissions of such signals or programs by wires, cables, microwave, or other communications channels to subscribing members of the public.” It would have been easy enough to write that section without putting in “other communications channels.” That phrase didn’t get in by mistake.

Why this broad definition? When copyright law was being revised in 1976, cable service was developing as something of a natural monopoly in most places, since it wasn’t feasible to have six different entities running wires into homes. So Congress revised copyright law to give the semi-monopolistic cable industry the right to get the best TV content available for a low, low price–it only makes sense to “future-proof” the law by making sure that if new technologies eventually come about that compete with cable, they should be able to get that same deal.

Buchwald suggested that part of the whole bargain Congress was authorizing was that the cable companies would have to be regulated by the FCC. True enough, but her suggestion that ivi TV was trying to avoid FCC regulation seems off-base. Weaver has said he approached the FCC when setting up his business but they basically refused to regulate him, because his business was on the internet and they don’t want to appear to be regulating the internet. (That’s consistent with the current political firestorm over net neutrality, where the FCC and supporters of the new rules run from the phrase “internet regulation” like it’s a forest fire.)

The judge’s decision also relies heavily on Copyright Office interpretations and rules about what constitutes a cable system. That’s very close to letting the rooster guard the proverbial hen house. The Copyright Office, like the Patent and Trademark Office, has a strong tendency to view the established, incumbent businesses that pay various fees as “customers,” and to adopt their view of the world. Consulting the Copyright Office about who should win in a legal dispute between the biggest copyright holders in the world and a brand new company that could upset their business model is bound to be a self-fulfilling prophecy.

Buchwald should have given at least given ivi TV a chance to show that the short phrase “other communications channels” truly has the broad meaning that Congress intended. It’s likely that they had new technologies and new companies in mind when they wrote that–and that would be the best outcome for a competitive market, for consumers, and in the long run, for industry.

ivi Ruling 02.22.2011