It is not yet clear what the rationale is behind Apple’s new policy, how Apple plans to implement the policy and what it means for consumers and other players in the mobile advertising space.  Whether the policy will act as a blanket prohibition on development of geo-spam apps used primarily as tools for serving ads (i.e., ad-serving engines) remains to be seen.  In light of Apple’s acquisition of Quattro, some have surmised that Apple could be trying to curtail competition with its own products as its integrated advertising strategy evolves.  On the other hand, perhaps Apple’s intention is simply to protect its customers from apps designed solely to deliver possibly unwanted ads. 

The updated terms of Apple’s iPhone Developer Program License Agreement give Apple the right to “revoke the digital certificate of any of Your Applications at any time” meaning it can essentially kill an app.  This is not uncommon for end-user license agreements but could have widely felt ramifications for the more than 100,000 developers of iPhone apps.  Steve Jobs confirmed in 2008 that there is an iPhone ‘kill switch’ which allows Apple to remotely disable apps already installed on a device.  The terms of this latest developer agreement seems to allow that.  So while the language of the Apple Store Tip leaves open some ambiguity about how Apple will apply its policy regarding mobile apps, it now appears that the agreement every developer of apps must sign gives Apple the right to reject any app, including location based apps if it “has reason to believe that such action is prudent or necessary.”

Although this sector of mobile-advertising is still currently a nascent business, it is quickly growing as the use of GPS-enabled smartphones and other similarly equipped mobile devices become increasingly popular.  Companies, particularly smaller, local businesses, could increase their ability to reach potential in-market consumers and consumers may be better served by an improved user-experience.  Mobile advertising spending was estimated at just $416 million in 2009, compared with $24 billion spent overall on online adverting, but is expected to reach $1.56 billion by 2013and possibly more with the synergies of smartphones and mobile advertising companies. 

Excitement in the mobile ad space is tempered by the scrutiny of the Federal Trade Commission (“FTC”) and various consumer protection groups trying to balance privacy challenges and protection of consumers against the beneficial uses of new technologies such as geo-targeted ads.  A complaint filed last year with the FTC by the Center for Digital Democracy and the U.S. Public Interest Research Group asks for an immediate investigation into mobile advertising and certain practices in particular, which include location-based targeting. 

Currently, behavioral advertising in the mobile space, including location-based advertising, is subject to self-regulation.  But the FTC is continuing to look into whether, how, and to what extent more formal regulations may be needed to regulate emerging technologies.  To that end, it has scheduled a series of public roundtables to discuss proposals for regulations, including for mobile marketing. 

The FTC has long been interested in trying to regulate consumer privacy in the online behavioral advertising space by establishing guidelines.  The 2009 FTC Staff Report, titled “Self-Regulatory Principles for Online Behavioral Advertising” (which was the subject of a previous post in connection with online behavioral tracking technology), updates the FTC’s 2007 guidelines and emphasizes principles of “transparency and consumer control”; “reasonable security, and limited data retention for consumer data”; “affirmative express consent for material changes to existing privacy promises” and “affirmative express consent to (or prohibition against) using sensitive data for behavioral advertising”.  The FTC has said that the first principle of transparency and user control, which requires companies to notify consumers and give them the opportunity to opt-out of data collection practices, also applies to mobile technologies.  In addition the FTC’s efforts in the mobile advertising space, industry groups like the Mobile Marketing Association have established policies and guidelines and consumer best practices guidelines in connection with mobile advertising as well.

As the FTC continues to grapple with defining the parameters of mobile marketing guidelines and turning them into industry standards, key market players like Apple and Google will likely shape the mobile ad experience for service providers, advertisers and consumers alike.  At stake in this growing mobile-advertising sector is the potential for big money for service providers and advertisers and improved user experience for consumers weighed against possible privacy concerns.  We will continue to follow the legal and economic developments in this mobile-ad space and its implications for our clients.

The cable providers who have invested in and implemented TV Everywhere trials deny the allegations that the initiative violates antitrust laws, and instead argue that TV Everywhere benefits consumers by making more content available on the Internet.   While advocates call it “innovative”, antagonists call it “incumbents protecting their turf,” – which as of late will ultimately boil down to a question for the Department of Justice.

Antitrust laws are meant to protect competition in the marketplace, recognizing that competition is necessary to ensure fair pricing and better quality for the consumer.  Therefore, the fundamental question from an antitrust perspective is, will TV Everywhere threaten or hinder competition in the online television content space?  The public interest groups calling for an investigation argue that it most certainly will stifle competition in the emerging market for online television programming.  They go so far as to allege collusion among the major video service providers networks, claiming that the TV Everywhere initiative rests on an illegal “horizontal” agreement among competitors.

In its complaint to the DOJ, Free Press asserts that the TV Everywhere alleged agreements amongst the cable providers are collusive horizontal agreements likely to be found illegal under the applicable per se rules governing antitrust law.  The per se rule applies only to practices that are themselves clearly unreasonable restraints of trade regardless of market facts, such as horizontal collusion, including horizontal price-fixing, market allocation, and certain group boycotts.  Additionally certain tying arrangements are also per se violations.  Antitrust case law has established each such activity as “unreasonable restraints of trade”.

Price Fixing

Price collusion among competitors has been determined by the Supreme Court to be a per se violation of Section 1 of the Sherman Act regardless of the actual impact on the market.  Typically, in order for a court to find per se illegal collusion there must be a “horizontal agreement” in place, i.e., an agreement among competitors.

National Cable and Telecommunications Associations Chief Executive Kyle McSlarrow publicly denounced the anti-competitive allegations in a statement issued in response to the filing of the DOJ complaint.  McSlarrow asserted that TV Everywhere is the result of true market player collaboration rather than collusion.  He defends TV Everywhere noting that antitrust authorities have encouraged collaboration in the past, sometimes even among competitors, for the sake of innovation and market stimulation.  “Distributors do not have the ability to unilaterally decide how content is distributed.  Content owners, through individual business arrangements with a growing array of distributors ultimately make those decisions.  All in all, Free Press and other parties are complaining about decisions content owners make about how their content should be distributed.”

McSlarrow also argued that with respect to the various TV Everywhere initiatives being tested the relationships are purely vertical (i.e., based on arrangements between one content company and one or more individual distributors) and not horizontal (i.e. based on agreements between distributors, one the one hand, and agreements between content owners, on the other hand) in nature.   As he said, “The fact that market participants are experimenting with models in addition to fee- or advertiser-supported models is not a sign of anti-competitive conduct.”

Dividing the Market

Deliberate and strategic division or allocation of customers, territories or portions of the market between competitors, i.e., “market allocation”, has also been deemed a violation of Section 1 of the Sherman Act.  Market allocations are subject to per se illegality findings whether or not price setting is involved, and whether or not the parties involved are actual or potential competitors.  Free Press and other public interest groups assert that the TV Everywhere “horizontal” arrangement amongst the cable providers illegally allocates geographic and product markets.

While the reality is that under the TV Everywhere model, competing distributors allocate markets geographically, that allocation is not a “voluntary” one but rather the result of the fact that each major cable provider has a de-facto “monopoly” in the geographic areas in which they have been granted a franchise to operate.  The cable providers plan to continue, through TV Everywhere, to serve only those consumers within the geographic areas to which they currently provide services, rather than branching out to compete with providers in other areas.  While critics may argue that this is an unlawful “market allocation”, cable providers view this as nothing more than a continuation of servicing their current customer base by including a premium content feature in addition to the services already being provided to such customers.

Tying

Free Press and other public interest groups have also accused the cable providers offering TV Everywhere of unlawful “tying”, which the Supreme Court has held occurs when a seller enjoys a monopolistic position in the market for the tying product and a substantial volume of commerce in the “tied” product is restrained.   Free Press stated that, “by tying online television to incumbent MVPD [multichannel video programming distributors] subscriptions, TV Everywhere is designed to undermine new forms of competition and consumer choice currently emerging over the Internet.”  Free Press, among others, believes that true competitive pressure should require existing cable TV providers to meet consumer demand for online TV, rather than allow them to resist the demand by tying online programming to what is being perceived as “inflated” cable TV subscriptions.

On the other hand, some say that TV Everywhere is not only good for consumers, who can choose to legally access high quality video content they are already paying for on the Internet, but is also good for program distributors because it opens up a gateway for new content that wasn’t previously (legally) available online, and ultimately that it represents a promising initiative for bridging old and new media.

Competition

Public interest groups also claim that TV Everywhere could be a threat to competition for video start-ups such as Vuze, Roku and Hulu.  However, this may not necessarily be a true apples-to-apples comparison since these video start-ups are not traditionally considered direct competitors of major cable operators, nor would it be possible to determine that the success or failure of non-TV Everywhere online television content providers is directly attributable to the business models of the major cable providers.  Ultimately, content providers, without whom both cable providers and on-line video providers wouldn’t have much of a business, still remain free to make their content available wherever they want.  Even before TV Everywhere initiatives were rolled out, those providers sought to distribute their content on competing cable, satellite, telephone and online platforms.  TV Everywhere appears to be an extension and evolution of those existing platform distribution models.

It is unclear at this stage whether or not the assertions made by the public interest groups will gain traction with DOJ or lead to further scrutiny or regulation.  It is clear, however, that the TV Everywhere initiative reflects a “dynamic and rapidly-changing market in which  no one knows the ultimate outcome”.   As the model evolves, it is likely that we will see its impact throughout the legal and regulatory landscape, including antitrust law, policies for an open Internet (i.e., net neutrality), content providers’ and distributors’ rights and interests and demand/consumption of online and traditional television content by consumers.

On March 11, 2010, the Digital HHR team is presenting “TV Everywhere–Is It Everywhere You Want to Be?”, a live, CLE-accredited Webinar exploring the legal and business issues surrounding TV Everywhere, including the antitrust issues we’ve discussed here.  We will also continue to stay abreast of these developments as an on-going effort to provide our clients with guidance to enable them to take advantage of the rapidly-changing environment in which they operate.

• Methodologies to authenticate subscribers and the technological burdens of implementing such authentication methodologies;
• Protection of personally identifiable information (PII) of subscribers and controlling access to such subscriber PII;
• Impact of the FCC’s proposed “net neutrality” rules on TV Everywhere initiatives; and
• Potential business models and revenue opportunities for stakeholders, including revenue streams from enhanced subscription fees, premium advertising fees, etc.

The one-hour Webinar will also feature “live chat” functionality to enable viewers to ask questions and comment on the presentation in real-time. Presentation materials will be available for download.

The Webinar will be held on Thursday, March 11th, 2010 from 12:30 p.m. to 1:30 p.m. EST. To register, click here.

Whether a dance routine or a martial arts demonstration, legal protection for the majority of athletic movements that will be incorporated into the forthcoming wave of motion detection-based games will likely fall under copyright law’s definition of “choreography”–a form of artistic creation which secured copyright protection in 1976 when the Copyright Act (the “Act”) was amended to include “pantomimes and choreographic works” (17 U.S.C. 102(a)). Prior to that time, choreography could only be protected under copyright statutes to the extent embodied within another copyrighted work that was eligible for protection. Although the Act extended protection to “choreographic works”, it failed to define the term and what types of movements qualified as same. Other copyrightable forms, including “architectural, audiovisual, literary, pictorial, graphic and sculptural works, motion pictures, and sound recordings” are defined in the Act, but “choreographic work” is the only copyrightable form whose meaning is left unclear. In fact, the House and Senate Reports surrounding the Act indicate that Congress’ decision not to define “choreographic work” was deliberate, as legislators believed the meaning to be “fairly well settled”. In fact, the only guidance provided by Congress with respect to the category of “choreographic works” was that it does not include “social dance steps and simple routines.”

In the absence of guidance from Congress or the copyright statutes on which activities qualify for protection under copyright law as “choreographic works”, the U.S. Copyright Office (the “Office”) offered a more technical definition of “choreography” in its Compendium of Copyright Office Practices, stating that “[c]horeography is the composition and arrangement of dance movements and patterns usually intended to be accompanied by music.”

While instructive, this interpretation is not binding on the federal judiciary, and there is little case law defining the precise scope of “choreographic works”. Moreover, even if the Office’s interpretation of a “choreographic work” does not capture the essence of certain athletic movements, the fact remains that the Act’s enumeration of copyrightable subject matter is not meant to be exhaustive, and is prefaced with the statement that “[w]orks of authorship include the following categories”; and since the Act defines the term “including” as “illustrative and not limitative,” the fact that Congress did not specifically list all athletic movements that fall within the realm of copyrightable subject matter does not mean that they are not covered (just as, for example, the absence of programming code and computer programs from the Copyright Act has not prevented the courts from finding same to be well within the range of copyrightable subject matter). Further, a separate category of copyrightable subject matter known as “dramatic works” also provides some applicability to the extent the athletic movements portray a story or narrative through action, but the underlying movements, which themselves are devoid of story, would not likely find refuge here if separated from the corresponding story or narrative in the context of an interactive game.

While some athletic movements remain close enough to the Office’s definition of “choreographic works” or “dramatic works” that they should be afforded copyright protection (e.g., figure skating, rhythmic gymnastics, synchronized swimming, etc.), there has been, in recent years, a push for the copyrightability of other athletic movements under the guise of “choreographic works.”  For instance, Open Source Yoga Unity v. Choudhury, specifically addressed the question of the copyrightability of yoga moves (see 2005 WL 756558 (N.D. Cal. Apr. 1, 2005).  While the court did not settle this question, it held that it is at least possible for individual yoga positions to be “arranged in a sufficiently creative manner” to merit copyright protection. In Ahn v. Midway Manufacturing Co., a district court held that dancers who performed martial arts routines for a software developer that later incorporated the routines into the “Mortal Kombat” video game did not become joint owners of the copyright in the game only because they assigned their rights to the copyrights pursuant to a work-for-hire contract (see 965 F. Supp. 1134 (N.D. Ill. 1997)).  The court deemed the martial art performances to be “choreographic works” and stated that these “choreographic works were all original works of authorship [and] choreographic works fall within the subject matter of copyright.”  In fact, in Baltimore Orioles, Inc. v. Major League Baseball Players Ass’n, the Seventh Circuit held that “[baseball] [p]layers’ performances possess the modest creativity required for copyrightability” (see 805 F.2d 663 (7th Cir. 1986)).

Based on the foregoing decisions, there may not be a significant enough distinction between a kung fu sequence, a skateboarding demonstration set to music and a figure skating routine that would warrant extending copyright protection to one and not the others. Ultimately, though, determining which choreography or movements actually fulfill the statutory criteria, and which on the other hand are too commonplace to qualify as copyrightable subject matter, will require a case-by-case, fact-specific analysis. That being said, as the above discussion indicates, it is certain that to qualify for copyright protection, an athletic movement will have to evince a certain degree of complexity and original expression, and routine-oriented athletic performances are more likely to warrant coverage as they generally embody sufficient amounts of artistic expression and each move is specifically choreographed and designed for repetition. As one commentator described, a sport like football, even where each play is diagrammed and practiced to some extent, depends more upon the interaction and improvisation of the participants throughout the natural course of the game. A running back, for example, may go fifty yards for a touchdown, eluding opponents, breaking tackles and navigating through the defense on one play, but the next time that play is called, he may fumble the ball or be tackled for a loss of yards. A figure skating routine, on the other hand, has a repetitive nature to it; the skater will often perform the same routine countless numbers of times with minimal variations.

Once the determination is made that the athletic movement likely falls within a class of protectable subject matter under the Act, the next step is licensing the rights for inclusion in the interactive game. The clearance process for music-based interactive games, for example, relies on a well-established framework with the licensing arms of the major labels, publishers, performing rights organizations and other collectives serving as long-standing clearing houses for securing rights from multiple artists and writers. However, there are no analogous industry clearing houses or collectives for licensing choreography rights and each applicable copyright, together with any corresponding moral, publicity or privacy rights, need to be licensed from the individual owner.

In fact, this may well be the first time that movements deemed “choreography” under the Act, whether in the form of modern dance or complex wrestling moves, will be exploited and licensed as individual works on a large scale–separate and apart from the play, the music video, the movie or even the person through which it entered the public consciousness. In other words, in order to develop an interactive title based on choreography on an operational level, each individual movement will need to be reperformed and recast by professionals and technicians who will recreate the movements in a green screen-reminiscent environment using motion sensors that will allow advanced computers to precisely track a new range of activity, in particular depth-based movement, which will then be digitized and incorporated into the video game. This process will ultimately allow for the comparison of the professional recreation against the end users’ movement on a television screen and allow the game to rate and track performance, alter difficulty settings, offer training functionality, etc., all of which have become standard functionality in interactive titles. Having now extracted and recreated the choreography as a stand-alone artistic creation, the publishers and developers of motion detection games will need to begin the process of securing the rights to those popular movements crucial to a successful gaming title.

This is where the legal confusion begins for licensing athletic movements and choreography. As an example, consider the implications of the inclusion of modern or popular dance into a motion capture video game. Dances have never been the subject of lucrative licensing outside the realm of dance companies and on-stage performances because dancers were often placed at a severe disadvantage for demonstrating ownership of copyrights. As a result, attribution and credit for a dance in the dance community is frequently not equated with ownership of the copyright given the lack of economic incentive in establishing and maintaining an accurate chain of title. In these muddy waters, who holds the necessary rights required to license the dance? The music label that owns the music video? The artist who performed the dance? The artist’s choreographer who conceived of the dance? Is it jointly owned by contributing dancers and the artist? Was it created pursuant to a work for hire agreement or within the scope of employment without an agreement? Was the dance based on a pre-existing dance which could invalidate ownership? Was the dance created outside the United States thus leaving the creator with moral rights over the work that cannot be assigned? Was it previously performed and recorded on stage or in dance studio, so that the movie studio or music label is left without ownership outside of their movie or video?

The foregoing dance hypothetical is just one example of the complications associated with one form of athletic movement destined to be incorporated into motion capture games. Once the worldwide popularity of a new line of these games takes hold and creators of all forms of movements claim copyright protection after realizing the new found economic value of their works, legal disputes over the nature of copyright and the bounds of statutory protection will force the courts to take a series of bold moves–ones that can be repeated.

As always, we will keep an eye out for developments in this area of the law, particularly as the technological bounds of interactive gaming continue to expand with the introduction of gesture-based gaming.

If adopted, the new Act would bar government employees and contractors from downloading, installing or even using P2P file sharing software, such as LimeWire, without official approval.  In response to the most recent leak, the bill would also require the White House to develop rules for employees working on home or personal computers.  In order to use file sharing networks, an agency head or CIO would have to make a special request to use the P2P software.  Furthermore, agencies would be obliged to establish P2P use policies, require that employees and contractors comply with them, and then create security mechanisms to detect and remove prohibited software. 

In 2004, the White House Office of Management and Budget advised federal agencies simply not to use any P2P software.  As evidenced by the most recent embarrassment, this “advice” was not sufficient and now hopes that putting the prohibition into federal law will grant it much greater weight.  Critics of P2P software complain that personal data including social security numbers, medical records and tax returns are being shared because users are unaware of how the software operates, primarily because inadvertent filing sharing occurs (for example, when a user wants to share music or video files from a specific location or folder on his/her PC, a variety of other personal data and files, in all different formats, may also be shared). 

Security industry experts appearing at Congressional hearings earlier this year testified that file sharing software has resulted in the release of personally identifiable information associated with members of the U.S. Military, including social security number of master sergeants, medical records and even surveillance photos.  In addition, information accidentally released from a Fortune 100 company included thousands of e-mails, contact addresses, phone numbers and passcodes.  Rep. Towns’ goal is to “put a referee on the field” in terms of regulating use of such software in response to what he deems as the file-sharing industry’s unwillingness and/or inability to ensure user safety.  It appears he will also dedicate resources to encourage the government to launch a national consumer education campaign about the dangers associated with the use file-sharing software. 

Rep. Towns also proposed that the Federal Communications Commission and Federal Trade Commission look to aid in preventing this growing problem.  Right now, however, it is unclear what kind of influence is statutorily granted to the FCC, if any at all. 

Regardless, it will also be very interesting to see if or when the specter of enacting this new bill into law will affect future P2P file sharing program use in the commercial sector, or lead to additional policy and regulatory initiatives in the area.

*  Kari Hirsch, who recently joined the DigitalHHR team, contributed to the preparation of this post.

The initiative is, in many ways, the product of a “perfect storm” of the realities, opportunities and challenges facing not just the cable/satellite tv industry and content owners, but the advertising industry and advertisers themselves. Here’s what is at play:

• Cable, satellite and telco TV is one of the few sources of subscription content that people are willing to pay for.

• That fact keeps most video content and programming off the Web as cable networks fight to preserve the 50% of revenue that comes from subscribers. Their fear is that, with content freely available on the Web, many viewers may decide to simply terminate their pay TV service.

• The content owners are often reluctant to put content directly online for fear that the value of their respective offerings to the cable/satellite companies will be diminished, thereby undermining the traditional cable/satellite subscription model.

• Yet the content owners and Web publishers recognize that there are ad dollars to be made by placing more and more content and programming on the Web.

TV Everywhere is based on a fairly simple premise:  since consumers are already paying for the content they are watching at home on their TVs, why not let them watch the same content wherever they have a screen that is web-enabled? 

But even as TV Everywhere seeks to gain traction, and by doing so strengthen the hand of pay TV providers, “Over The Top” (OTT) distributors continue to pull an end around these providers by enabling consumers to watch Internet video content (a sizable portion of which is free or provided at no additional charge) on their TVs.  OTT refers to video being delivered to homes over a broadband network that isn’t owned by the distributor itself.  For example, if you watch Hulu video in your home via a Verizon FiOS broadband connection, Hulu is going “over the top” of Verizon.  Hulu doesn’t own the broadband network, it simply rides on top of the one that’s there, essentially competing with the broadband provider’s own video service. 

Unlike TVE, OTT video services come in several different models from providers as diverse as Apple (Apple TV), Microsoft (Xbox Live), Sony (PlayStation Network), and Netflix.  OTT providers are looking to extend the Web beyond the computer screen and onto TV sets in living rooms using a mix of subscription, pay-per-view and ad-supported models.  

While enabling viewers to watch YouTube videos of cats jumping on trampolines on a giant plasma screen may not be of concern to pay TV providers, giving them the ability to watch movies on-demand and free and premium cable content (the bread and butter content for pay TV providers) through an OTT service surely is cause for alarm.  In what might be a pay TV providers worst nightmare, some OTT services could lead consumers to contemplate ditching their pay TV subscriptions altogether. 

For content owners, both TVE and OTT provide both opportunity and concern.  In the case of TVE, the implementation of authentication technologies–to ensure that only paid-up subscribers have access to video content–is a significant advance in preventing piracy, one of the highest priorities of content owners. In addition, content owners receive payments from pay TV providers, based on revenue those providers receive from their subscribers.  By making pay TV providers’ revenue pie larger, content owners may ultimately receive a larger slice of that revenue. 

However, by merely extending access, TVE may not provide enough of an economic benefit to content owners, even if TVE deals are non-exclusive.  For years those owners have been entering into agreements for the online distribution and syndication of their content, including deals for OTT services.  These agreements provide for a variety of revenue streams, including up-front advances and substantial participation in advertising revenue.  And although one of the future promises of TVE is the ability to serve targeted advertising to viewers–which could conceivably provide higher revenues–it is still too early to determine if that promise can or will be fulfilled. 

The situation is obviously very fluid, with the stakeholders (including pay TV providers, content owners, broadcast and cable networks, hardware and software providers, and yes, consumers) having multiple intersecting and conflicting interests.  Our upcoming webinar will take a closer look at TVE and some of these questions.  We will also keep abreast of developments and undoubtedly provide additional insight here in the future.

*  Kari Hirsch, who recently joined the Digitalhhr team, assisted in the preparation of this post.

The FCC’s inquiry involves Google’s call-blocking policy.  In June, Google began noticing extremely high-cost calls to a concentrated number of rural destinations which generated vastly disproportionate costs.  Its internal investigations, using data filters to sort out call patterns, revealed that the top 10 telephone prefixes (the area code plus the first three digits of a seven digit number) to US destinations generated more than 160 times the expected amount and accounted for 26.2 percent of its monthly U.S. costs.  By August, Google began restricting calls to certain high-cost destinations.  Google’s response letter to the FCC describes the Google Voice service and explains Google’s investigation into and rationale behind its call blocking policy.  It claims that its engineers developed a “tailored solution” so that Google Voice currently restricts calls to fewer than 100 specific phone numbers, a practice which Google’s counsel believes is necessary to “prevent these schemes from exploiting the free nature of Google Voice.” 

While Google has only recently began blocking costly calls, the practice whereby rural telecoms charge long distance carriers exorbitant rates to connect and terminate calls from their networks is not new.  In may cases these telecoms partner and share revenue with adult chat service, conference calling centers and others to attract traffic to their networks.  AT&T, and other long-distance carriers, have long complained and sued over these so-called traffic pumping schemes.  However, as common carriers subject to FCC regulations, they were banned in 2007 from blocking calls and are required to deliver phone calls without discrimination to all numbers dialed.  AT&T’s complaint to the FCC is rooted in its contention that Google’s call blocking policy is enabling it to dance around this ban that applies to other carriers.

However, this recent skirmish over Google Voice is really part of a larger debate currently playing out in the regulatory stage over “network neutrality” rules being reexamined by the FCC and AT&T has framed Google’s actions as part of the debate. 

In its Statement on Google Voice and Net Neutrality, AT&T stated that “By openly flaunting the call blocking prohibition that applies to its competitors, Google is acting in a manner inconsistent with the spirit, if not the letter, of the FCC’s fourth principle contained in its Internet Policy Statement.“   The FCC’s fourth principle on net neutrality states that “consumers are entitled to competition among network providers, applications, and service providers, and content providers.“  

Some members of Congress are also concerned about the adverse impact on the market and support for universal service if Google is allowed to operate its telephone services outside of the rules that govern carriers.  As they stated in their letter to the FCC “[I]t is our opinion that a company should not be able to evade compliance with important principles of access and competition set forth by the FCC by simply self-declaring it is not subject to them without further investigation.”

Google responded to these charges by stating that “The FCC’s open Internet principles apply only to the behavior of broadband carriers – not the creators of Web-based software applications.” Google claims that AT&T is attempting to blur the distinction between Google Voice and traditional phone service but maintains that web applications like Google Voice and Skype shouldn’t be treated like traditional phone service.

Google distinguishes Google Voice from traditional phone carriers by explaining that unlike traditional carriers which charge users for their services, Google Voice is a free, web-based software application similar to e-mail rather than a telecom service designed to “supplement and enhance existing phone lines, not replace them” and should therefore be exempt from common carrier rules.   The service is currently available to a limited number of users on an invitation-only basis.  Users are still required to have an existing land or wireless line in order to use Google Voice and are still able to make outbound calls on any other phone device.  Therefore, because Google Voice is a software application, not a telephone company, Google believes that its service is not and should not be subject to common carrier laws or the FCC’s jurisdiction.

Distinctions aside, with nearly 1.5 million users, the increasingly popular service is viewed by some as running a rival service to traditional phone companies.  The heart of the FCC’s inquiry is whether Google Voice is a telecom service or an online software application and whether this distinction really matters.  How different is a call traveling directly over carrier lines from one that goes through software applications?  As of now, the difference appears to be the ability to block less than 100 calls, an option not available to AT&T and other carriers.

Whether the FCC agrees with Google’s characterization of its service and its interpretation of the current open Internet principles may have a dramatic impact on both the telecom and internet marketplaces.  And the FCC’s newly proposed rules on network neutrality may also play a prominent role in this debate.  We will continue to monitor the proceedings and keep you posted.

Although in general the entertainment industry’s position is that imposing responsibility on ISP’s to monitor illegal activity is about educating users and responding to a higher standard of evidence for illegal activity via their networks, ISP’s have consistently argued that it is not their job to police the Internet.  Perhaps France’s implementation of  a separate agency to work with the ISP’s in enforcing piracy policies will serve to alleviate some of the concerns of ISPs.

The new French law, which initially empowered French ISPs to terminate user accounts,  was first rejected back in April by the French Constitutional Council, which said  that free access to public communication services online was a human right that only a judge should have the power to disconnect.  Without this protection, the court said that the law would have violated free speech provisions.  The latest version was approved due to the inclusion of an amendment that requires judicial review prior to any account suspensions. 

Critics of the new law argue that it denies the accused the right to due process, pointing out that Internet subscribers will be held liable if someone uses their Internet connection to illegally download copyright works, even if the computer was under someone else’s control.  The critics further argue that the discontinuance of Internet access is an unfair penalty because of the increasing importance of the Web as a channel for expression and commerce.  It is believed that this new law could result in sanctions against 50,000 people per year.  David El Sayegh, the director general of the French music industry association,  Syndicat National de l’Edition Phonographique, counters those arguments by saying that the laws are not meant as a punishment against Internet users but instead hopes that the mandated warnings will have a strong deterrent effect, rendering termination of access a rarely invoked penalty.          

Many policy makers across Europe agree with the bill’s critics and have been apprehensive toward France’s adoption of the solution since they believe it is more important to increase broadband access, not deny citizens their rights to it.  Despite such skepticism, it appears that Britain will introduce similar legislation next month.

Dan Glickman, Chairman and CEO of the Motion Picture Association of America (MPAA), applauded the French court’s decision and said that it is an enormous victory for creators everywhere.  In addition,  Rick Cotton, Executive Vice President and General Counsel at NBC Universal and Chairman of the U.S. Chamber of Commerce-led Coalition Against Counterfeiting and Piracy (CACP), acknowledges that the new French law recognizes that jobs in the creative industries are under assault by digital theft.  Copyright piracy has taken a huge toll on the U.S. movie and music industry due to the current global economic situation.  The MPAA has determined that illegal downloads/streams are responsible for about 40 percent of the revenue the industry loses annually due to piracy.

Although the U.S. entertainment industry has not been as aggressive as the French in lobbying for a “three-strikes” law, the music and film industries are proponents of instituting a graduated-response program, which encourages the implementation of a warning system similar to the warning notices that will be issued to potential copyright infringers under the French law. In addition, the CACP is currently seeking to change federal law enforcement emphasis so that intellectual property crimes are given priority over other kinds of crime.   Although it seems unlikely that we will see a “three strikes” policy instituted in the U.S. anytime soon, the developments in this area of the law will inevitably influence the terms under which content providers distribute and protect their content as well as how consumers access such content.

*    Kari Hirsch, , who recently joined the Firm, assisted in the preparation of this article.