September 26, 2019 – Free online streaming service provider Locast has answered the copyright infringement complaint filed against it by a group of U.S. broadcast television networks.[1] Along with answering the complaint, Locast makes six counterclaims against the broadcaster plaintiffs which are largely an attack on the current retransmission consent system.

The broadcasters sued Locast in July 2019, alleging unauthorized transmissions of their copyrighted works.

The copyright infringement lawsuit names David R. Goodfriend and Sports Fans Coalition NY, Inc. as the Defendants, but for simplicity, this post will refer to Locast as the defendant. Mr. Goodfriend is the founder of Locast, and Sports Fans Coalition NY, Inc. is a non-profit advocacy group which initially launched the Locast service in New York City in January 2018.[2]

In its answer, Locast generally argues that as a 501(c)(3) non-profit organization, it fits squarely within the Congressionally-designated exception to infringement in Section 111(a)(5) of the Copyright Act, and therefore may retransmit local over-the-air broadcasts to the public. Whether Locast’s service falls within this “non-profit exemption” is what the lawsuit is all about.

Locast’s counterclaims allege broadcasters use retransmission consent to harm competition, consumers, and Locast’s service. Locast says the counterclaims “arise from the broadcasters’ unlawful and collusive efforts to stifle competition in the retransmission of over-the-air broadcasts and to entrench the interests of the four largest television networks and their stations at the expense of consumers.”[3] They contain Federal and state claims alleging antitrust violations.

First off, the response indicates Locast is going to take this thing all the way to trial, and probably an appeal too, if Locast can afford it or get enough donations to fund it, rather. Does Locast meet the requirements for the Section 111(a)(5) exemption? I don’t know. But what I do know is that when Congress added the non-profit exemption, the Internet wasn’t around and OTT streaming services like Locast didn’t exist. It seems like Locast is covered by Section 111(a)(5) – the Locast service helps consumers watch broadcast TV networks who otherwise would not be able to because they live in areas where signal reception is crummy. I’ve also heard Locast was created with just this statutory provision in mind. Right?

Regardless of that, there are some great arguments against the current retransmission consent regime. That’s a topic that’s been lately due to the expiration of STELAR at the end of 2019 and the proposed renewal of the legislation. Retransmission consent has been driving up the cost of cable TV service for years, not to mention causing significant blackouts because of failed negotiations. This year there has been a number of high-profile blackouts due to failed retrans negotiations.

Anyway, below is a high-level summary of the important parts of Locast’s answer and counterclaims.

Locast’s Answer

To sum up Locast’s answer, Locast argues the case involves the application of unambiguous statutory language – Section 111(a)(5) of the Copyright Act, which provides that “it is not an infringement of copyright” when a “non-profit organization” makes a secondary transmission of a performance of a copyrighted work, “without any purpose of direct or indirect commercial advantage, and without charge to the recipients of the secondary transmission other than assessments necessary to defray the actual and reasonable costs of maintaining and operating the secondary transmission service.” Locast claims its service “fits squarely within this Congressionally-designated exception to infringement.”[4]

Locast asserts a number of affirmative defenses to the broadcasters’ claims, including the complaint fails to state a claim upon which relief may be granted because, among other reasons, Plaintiffs’ claims are barred by 17 U.S.C. § 111(a)(5), and the claims against Mr. Goodfriend are barred by New York Not-For-Profit Corporation Law, Section 720-a. And, as is standard, Locast responds to the allegations in each paragraph of the complaint by admitting them, denying them, and stating that the allegations state conclusions of law to which no answer is required. I won’t bore you with those. Instead, here are some of the best quotes from the first few pages of Locast’s answer: 

“Every American has the right to access broadcast television for free.”

“Plaintiffs’ claims against SFCNY and Mr. Goodfriend are objectively baseless and constitute an unlawful sham.”

“This case involves the application of unambiguous statutory language.”

“Locast fits squarely within the Congressionally-designated exception to infringement [in Section 111(a)(5)].”

“Although the service was launched in January 2018, Plaintiffs delayed filing suit, or raising any legal concerns whatsoever, until July 2019.”

“Plaintiffs have colluded to limit the reasonable public access to the over-the-air signals that they are statutorily required to make available for free, and have opted instead to use their copyrights improperly to construct and protect a pay-TV model that forces consumers to forgo over-the-air programming or to pay cable, satellite, and online providers for access to programming that was intended to be free. A large portion of the fees paid by the public is then handed over to Plaintiffs in the form of retransmission consent fees.”

“This is classic copyright abuse.”

“By limiting access to the over-the-air signals that Plaintiffs have committed to make freely available, and simultaneously using the copyrights in their programming to drive revenue for the local programming that consumers cannot now effectively receive over the air through their pay-TV model, Plaintiffs have colluded and misused copyrights to expand their market power beyond what those copyrights were intended to protect. The pay TV providers get rich. Plaintiffs get rich. The public gets fleeced.”

Locast’s Counterclaims

Locast’s counterclaims can be summed up as a full-on attack of the current retransmission consent system that governs the secondary transmission of broadcast television. The ’92 Cable Act created retransmission consent – the law requiring cable TV providers to obtain permission from broadcasters before retransmitting their programming. As explained by the Federal Communications Commission, “[c]able operators, satellite operators and other pay TV service providers carry local television broadcast stations through "retransmission consent" contracts negotiated with the broadcasters. These agreements are usually extended or renewed before they expire, with no service interruption. However, if the contract expires, the pay TV service provider must stop carrying the station until an agreement is reached.”

Locast says its counterclaims “arise from the broadcasters’ unlawful and collusive efforts to stifle competition in the retransmission of over-the-air broadcasts and to entrench the interests of the four largest television networks and their stations at the expense of consumers.”[5]

To support its counterclaim arguments (and its answer to the complaint), Locast lays out a lengthy legal history of broadcasting and retransmission, and ties all of that to what it describes as broadcasters’ failure to live up to the public interest obligations of their broadcast spectrum licenses. Here’s the failure Locast is talking about:

In particular, the broadcasters are failing to transmit over-the-air signals strong enough to cover local television markets (as required to fulfill their obligation to operate in the public interest). The broadcasters have also taken steps to ensure that local independent affiliates cannot retransmit the local over the-air signals by other means to the public, ensuring that the signals are not fully accessible.[6]

This poor service, Locast claims, has forced consumers to pay for video services from cable or satellite providers or online service providers, including over-the-top streaming services offered by broadcasters for a monthly fee.

If you are an opponent of retransmission consent, you are going to looooooovvvvvve the section containing Locast’s counterclaims. If you are a small cable TV operator, you will definately want to read it. Here are some of Locast’s best quotes attacking the retransmission consent regime:

“[T]he copyright provisions that specifically cover broadcast programming were adopted by Congress with the expectation that the broadcasters would transmit signals in a manner that would make them reasonably and efficiently available to the entire local market, and not seek to discourage free access to those signals. By failing to live up to their promises, and then simultaneously using their copyrights to, as a practical matter, force the public to pay for the programming that it is supposed to be able to receive for free (or to forgo access to that programming), [broadcasters] are committing classic copyright abuse.”

“[T]he broadcasters perceive Locast as a threat to their business interests.”

“The broadcasters have substantial market power. The broadcasters individually and together control the rights to programming, such as live sports, that is not substitutable with other programming. These rights give them leverage to demand higher retransmission fees or to bundle over-the-air programming with non-broadcast programming channels for pay-TV services. Industry estimates put retransmission consent rights revenues at nearly $11 billion in the U.S. last year, an amount that is expected to increase another 11% this year. Industry analysis shows that Counterclaim-Defendants together are estimated to account for more than roughly 60% of the aggregate revenue in retransmission consent rights expected nationally in 2019 and possess market power in each of the relevant markets and submarkets alleged herein.”

“In fact, the broadcasters are so dominant in these markets that they have been able to increase nationwide retransmission rights revenues roughly 5000% since 2006, when they were only about $215 million. These price increases are not tied to any corresponding increase in broadcast programming output—for example, a December 2018 FX Networks Research Annual Report showed that the number of original scripted series airing on broadcast networks declined 1% from 2014 to 2018 and, over a longer time horizon, from 2002 to 2018, was up from only 135 to 146 shows.”

“[T]he broadcasters’ intent is to restrain competition in providing over-the-air signals to the public to protect their broadcast franchise and the billions of dollars it allows them to reap from licensing retransmission rights—costs that are then passed on to the consumer.”

“[T]he broadcasters’ conduct, which constitutes both per se and unreasonable restraints of trade, violates Section 1 of the Sherman Act, 15 U.S.C. § 1, related New York State unfair competition and deceptive trade laws, related California unfair competition laws, and tortious interference laws. Counterclaim-Plaintiffs seek to enjoin the anticompetitive conduct of the broadcasters to restrain trade in the relevant markets and submarkets defined herein and to remedy the broadcasters’ harm to competition and to Counterclaim-Plaintiffs through their unlawful conduct.”

Here are the six counterclaims made by Locast against the broadcasters:

• Count I: Conspiracy In Restraint Of Trade  In Violation Of § 1 Of The Sherman Act

• Count II: Violation Of The Donnelly Act (N.Y. Gen. Bus. Law § 340)

• Count III: Violation Of N.Y. Gen. Bus. Law § 349

• Count IV: Unfair Competition  In Violation Of Cal. Bus. & Prof. Code § 17200, Et Seq.

• Count V: Unlawful Competition  In Violation Of Cal. Bus. & Prof. Code § 17200, Et Seq.

• Count VI: Tortious Interference With  Prospective Economic Advantage

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[1] American Broadcasting Companies, Inc., et. al., v. David R. Goodfriend and Sports Fans Coalition NY, Inc., Answer and Counterclaims, Case 1:19-cv-07136, U.S. District Court for the Southern District of New York (Sep. 26, 2019) (“Answer” and “Counterclaims”). The Plaintiffs are American Broadcasting Companies, Inc., Disney Enterprises, Inc., Twentieth Century Fox Film Corporation, CBS Broadcasting Inc., CBS Studios Inc., Fox Television Stations, LLC, Fox Broadcasting Company, LLC, NBCUniversal Media, LLC, Universal Television LLC, and Open 4 Business Productions, LLC.

[2] https://en.wikipedia.org/wiki/Locast; https://www.sportsfans.org/bringing_the_public_interest_back_to_sports.

[3] Counterclaims at ¶ 1.

[4] Answer at p. 2.

[5] Counterclaims at ¶ 1.

[6] Answer at ¶ 3.