Supreme Court Cable Modem & Copyright Infringement Rulings

June 2005 Supreme Court Decisions

On Monday, June 27, the United States Supreme Court announced two major decisions affecting broadband industries.

First, in FCC v. Brand X Internet Services,[1] the Court, in a 6 to 3 decision, reversed a federal appeals court decision and upheld the FCC’s determination that cable modem service is an unregulated “information service” and exempt from the common carrier regulatory regime that governs traditional telephone service.* The decision represents a victory for the cable industry, because it means that cable operators that offer internet connectivity cannot be required, at the local (franchise) level, to allow competing ISPs to use the cable company's broadband transport facilities. The decision is a defeat for independent ISPs hoping to compete in the market for broadband services, and highlights a host of unresolved issues.

For example, the decision clears the way for the FCC to completely de-regulate DSL services, a goal the Commission has been edging toward for the past few years. This would introduce symmetry into the regulatory framework for broadband, allowing the owners of high-capacity transport facilities to leverage that ownership to consolidate their power in the ISP and possibly other downstream markets, without regard to the transport technology used. However, it also raises a question of how far large cable operators and ILECs can escape legacy regulation of traditional services (like voice and video) by bundling those services with unregulated next-generation “information services.”

The implications of the above sentence are numerous and far reaching for IMCC members, both service providers and MDUs/REITs.

In Metro-Goldwyn Mayer Studios v. Grokster,[2] the Court unanimously decided that Internet file sharing services can be held liable for copyright infringement if they market their software as a means to exchange songs or movies illegally. While the decision is likely to intimidate U.S. software companies offering free file-sharing services into altering their marketing strategies – thereby boosting pay-download services such as Apple’s iTunes and Napster – its impact on file sharing practices is uncertain, because it remains unclear what constitutes “promoting” or “encouraging” illegal file sharing, and software companies abroad are not subject to American copyright laws.

*Pursuant to the 1996 Communications Act, common carriers, i.e. telephone companies, were forced to allow Competitive Local Exchange Carriers (CLECs) to lease the telco's infrastructure elements to provide service in MDUs.  In the Brand X matter, ISPs and telcos wanted the same right thereby being able to use the cable company's infrastructure.