FCC Issues Broadcast Flag Order To Protect Digital Content

Sunday, February 1, 2004 - 00:00

Having observed the "Napsterization" of the music industry, its dramatic decline in revenues and the unsuccessful attempts by the Recording Industry Association of America (RIAA) to control consumer Internet downloading, the film and television industries have chosen a more proactive approach to piracy and unauthorized distribution. Led by the Motion Picture Association of America (MPAA), industry groups have argued that current copyright laws are insufficient in the Internet age to protect digital content. The MPAA reports that as a result of piracy, the U.S. motion picture industry loses more than $3 billion each year in potential worldwide revenue, not including Internet piracy losses. According to the MPAA, "It is safe to assume Internet losses cause untold additional damages to the industry."

As a result of the advocacy of the MPAA and others, the Federal Communications Commission quietly issued an order in early November designed to protect content broadcast digitally by requiring the implementation of a mechanism called the "broadcast flag" (the Order). The FCC hopes that the broadcast flag will adequately secure content and thereby encourage owners and broadcasters of digital content to make it available to consumers.

Encouragement from Congress was key to the FCC's decision to implement a technical standard for digital broadcast protection. Congress facilitated the "digital transition" by enacting the 1996 Telecommunications Act. A complete transition to digital broadcasting technology is also core to the current Commission agenda firmly supported by Commission Chairman Michael Powell.

An inter-industry group started its work to develop the broadcast flag in 1996. In 2002, as a result of the group's proposed technology and lobbying efforts of the MPAA and others, the FCC considered adopting the technology as a standard. It first raised several issues for public comment, however, including (1) whether protection is necessary to motivate content providers to broadcast digitally, (2) what technology is appropriate, (3) what the legal and policy implications of such a standard are, and (4) whether the FCC has jurisdiction to make such a determination.

The FCC concluded in its Order that the threat of unauthorized redistribution will deter content providers from broadcasting digitally without protection. It further concluded that although the risk is not imminent, it needed to take protective action now. "In a few years it will take less time to download a high definition movie than to watch it." And, "We conclude that, of the mechanisms available to use today, a ... flag-based system is the best option for providing a reasonable level of redistribution protection at a minimal cost to consumers and industry."

The FCC Order adopted a technical standard for the broadcast flag, but did not require broadcasters to insert the flag into the broadcast stream. It neither mandated nor prohibited the flag for any type of content.

Digital television (DTV) reception devices that contain demodulators and are manufactured after July 1, 2005, must contain flag recognition technology. This will be required of computers, cell phones and other hand-held devices if they evolve to include DTV reception devices. The FCC order and the broadcast flag itself will have no effect on current receivers not designed to observe and obey the flag.

The Commission has adopted an interim policy to approve technologies that recognize and give effect to the broadcast flag. It has also issued a Further Notice of Proposed Rule Making to establish a permanent process for approving flag recognition technologies.

FCC Chairman Michael Powell has specifically recognized the difficult and complex technical and policy issues in the FCC's attempt to strike a balance between content protection and technology with the ultimate goal to promote consumer interests. Key issues still being debated, however, including the following:

• Whether the broadcast flag is too weak a security mechanism to prevent unauthorized distribution;

• How to solve the "analog hole" problem that exists because analog broadcast transmissions are not required to be protected by the broadcast flag (Analog files can be converted to a digital file and later copied and redistributed, and digital files can be converted to analog files, with the same effect);

• Whether the flag impacts or circumvents the copyright balance Congress attempts to maintain by allowing "fair use" of copyrighted works by consumers;

• How to solve the problem with a broadcast flag system that is ineffective with existing equipment;

• Whether the FCC had proper jurisdiction to enter an order that for the first time requires manufacturing changes to consumer electronics receiving devices, including computers;

• Whether the broadcast flag decision will ensure "continued access to high value programming content on free, over-the-air TV";

• Whether the order will motivate competition and the creation of multiple flag recognition technologies as the FCC intends;

• Whether the order will ultimately facilitate the transition to digital technology.

As these and other issues are debated and the full implications of the FCC Order come to light, owners of digital content, digital broadcasters, technology companies, consumer electronics companies and institutional providers of digital material will require qualified legal assistance. Owners of digital content will need to consider special licensing provisions with respect to digital distribution. Technology companies will need to prepare technology certification proposals to the FCC. Technology companies, broadcasters and consumer electronics companies will need licensing agreements for new technologies. Content owners and consumers will question copyright and consumer use implications of the broadcast flag. All those affected will also be well advised to consider transactions and alliances to maximize the domestic and international implications of a chosen technological standard.

Kristen E. Fligel is an attorney in the Chicago office of Holland & Knight. She is a business transactional attorney and obtained an LL.M. in May, 2003 from Georgetown University Law Center in intellectual property, media and entertainment law. She wrote her thesis on the copyright, broadcast regulation and standards setting implications of the broadcast flag. She can be reached at 312-715-5791.

Please e-mail the author at kristen.fligel@hklaw.com with questions about this article.