FTC's Online Privacy Rules for Children Clarified

By Nickolas Milonas and Marc Martin

The Federal Trade Commission recently released guidance on its December 2012 updates to the Children’s Online Privacy Protection Act (COPPA).  COPPA regulates the collection and use by website operators and application developers of personal information from children under the age of 13.  COPPA also requires website operators and application developers to obtain parental consent before collecting a child’s personal information.  The guidance touches upon several issues, including geolocation data; services directed towards children vs. mixed-audience services; parental access to children’s personal information; and disclosure of information to third parties.

As we previously reported, the December changes to the COPPA regulations are scheduled to take effect this July and contain definitional changes; expand the scope of permitted operations to include the collection of certain personal information through the use of persistent identifies; clarify the use of age screens for content targeting a broad audience vs. content specifically targeting children; heighten parental notification requirements; and implement more-stringent requirements regarding the retention and disposal of personal information.

In advance of the FTC’s guidance, industry groups voiced concerns that the complex changes could deter innovation and asked the FTC to delay implementation until 2014 to ensure compliance.  However, privacy groups advocated rejecting any delays, stating that the changes are necessary to protect children and companies have had plenty of lead time to revise their policies and products.

Updated (5/6/13): In a letter to representatives of the advertising, application, and e-business industries, the FTC confirmed that it will not delay implementation of the new COPPA rules scheduled to take effect this July. The FTC stated that all stakeholders were afforded a sufficient opportunity to raise their concerns with the new rules but did not present any facts to warrant delaying implementation.

U.S. and EU Trade and Investment Partnership Negotiations Present Opportunities for TMT Sector

By Frank J. Schweitzer, Barton J. Gordon, and William A. Kirk

The United States and the European Union are set to launch negotiations this summer on a comprehensive agreement covering cross-Atlantic trade and investment known as the Transatlantic Trade and Investment Partnership (TTIP). In March, the Administration notified Congress that the President would initiate the TTIP negotiations, which will encompass a broad range of issues covering rules and disciplines related to cross-border trade in services, investment, telecommunications, electronic commerce, information and communication technology services, regulatory coherence, competition, technical barriers to trade, transparency, and intellectual property, among many others.

Both sides want to achieve a very high standard bilateral agreement that will also help to establish more broadly rules and principles to strengthen the multilateral trading system. The decision to launch the TTIP negotiations follows completion of a February 2013 Final Report by the U.S.-EU High Level Working Group on Jobs and Growth, which examined options for increasing U.S.-EU trade and investment.

Companies competing globally in the telecom, media, and technology sectors face a host of issues as they conduct business cross-borders, seek to enter new markets, or manage their operations in existing markets abroad. The issues are varied.

For example, telecom companies have to grapple with issues related to the following, among others: cross-border data flows; Internet-enabled trade in services; privacy considerations; the independence and effectiveness of foreign regulators; limits on the types of legal entities that may be established, owned, or controlled; competition issues (including those related to state-owned enterprises); international termination rate issues; satellite services; submarine cable systems; as well as a broad range of issues affecting trade in telecommunications equipment.

Likewise, media companies and others operating in the audio-visual sector must contend with issues such as piracy, enforcement of intellectual property rights, screen quotas, cultural exceptions, or other trade barriers that protect domestic movie producers and the local music industry.

More broadly, technology companies of all types and across all economic sectors face market barriers, increased costs, or logistical inefficiencies from government measures, including those in the form of technical regulations, licensing requirements, or standards. Reduced market access, burdensome costs, and needless inefficiencies come not only from regulatory protectionism, but also from well-intended regulatory measures that may be unnecessary, redundant, or inefficiently applied.

The TTIP negotiations present an opportunity for the United States and the European Union to reconcile their differences with respect to regulatory approaches, conformity assessment procedures, and standards-related development processes, including those related to interoperability. Achieving convergence in these areas would benefit telecommunications, media, and technology companies in terms of facilitating the services and products they provide on both sides of the Atlantic. The United States and the European Union will also look to foreign investment liberalization and investment protection provisions that are based on the highest standards that each side has negotiated.

The TTIP negotiations provide companies on both sides of the Atlantic with a unique opportunity to assess their current cross-border operations and market presence in the United States and the European Union. Among other things, the negotiations provide companies with an opportunity to determine where their interests would be enhanced by increased regulatory cooperation, the harmonization of standards, or the elimination of measures that distort competition, impede trade, or frustrate foreign investments.

FCC Proposes to Extend Outage Reporting Rules to Internet-based Services [Updated: 6/9/11]

Update [6/9/11]:  The FCC's Notice of Proposed Rulemaking extending outage reporting requirements to interconnected VoIP and broadband-based services was published in today's Federal Register.  Comments are due by AUGUST 8, 2011 and reply comments are due by OCTOBER 7, 2011.  As we previously noted, the proposed rules raise a number of the same jurisdictional issues as the FCC's net neutrality order and other Commission initiatives extending various regulatory requirements to IP-based services, and will likely be hotly contested. 

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The FCC believes Internet-related outages are a growing problem for which providers lack sufficient accountability and consumers lack appropriate notice. To address these issues, yesterday the FCC adopted a Notice of Proposed Rulemaking which would require interconnected VoIP, broadband Internet, and broadband backbone providers to report service outages lasting longer than 30 minutes. The proposal would impose reporting obligations similar to those currently borne by wireline and wireless carriers, cable operators, and certain satellite providers, and represents the latest example of FCC efforts to layer traditional carrier regulations on VoIP and broadband providers. The Commissioners voted 4-0 in favor of the proposed rules (Commissioner Meredith Baker recused herself following her announced upcoming departure from the FCC to join NBC/Universal). Citing the recent natural disasters affecting Japan and the Midwest and Southern states of the United States, Chairman Julius Genachowski stated the reporting obligations would provide the FCC with the data necessary to rapidly respond to emergency situations.

Leading Internet service and VoIP providers immediately criticized the proposed new rules, arguing that regulations designed for traditional circuit switched phone service are ill-suited for Internet-based technologies. By contrast, public service commissions of states like California and New York hailed the proposal as an effective means of improving local emergency communications.

A threshold issue is whether the FCC possesses the authority to apply the new rules to interconnected VoIP and broadband-based services. In his partial concurrence to the proposed rules, Commissioner Robert McDowell stated that while he believed the reporting requirements exceeded the FCC’s authority, he “look[ed] forward to learning more” as the rulemaking progressed. Commissioner Michael Copps also voiced his displeasure with the agency’s attempt to utilize its ancillary authority under Title I of the Communications Act to support the new rules and reiterated his preference to reclassify VoIP as a Title II telecommunications service. While recognizing the authority issue, Chairman Genachowski indicated he has little doubt the FCC possesses the authority required to enact the proposed reporting obligations. In many respects, the proposed new rules raise the same jurisdictional issues as the Commission’s adoption of new Net Neutrality rules, and would be expected to face court challenge, if adopted.

Under the proposed rules, providers of the affected services would face substantial fines for violations, with the FCC proposing a base forfeiture penalty of $40,000 for notification failures. As a result, beyond the jurisdictional questions, affected providers will likely focus their comments on the FCC’s proposed definition of outage reporting, the scope of what information must be reported, and whether the FCC will permit providers to submit outage reports confidentially. The deadline for comments and replies will be set after publication of the NPRM in the Federal Register.

Copyright Bill Targeting Rogue Websites Approved by Senate Judiciary Committee

The Senate Judiciary Committee unanimously voted to approve legislation aimed at shutting down “rogue” websites selling counterfeit goods or offering pirated content. The PROTECT IP Act would authorize the Justice Department to seek court orders prohibiting American Internet service providers from offering access to infringing sites. The Act would further allow content owners to prevent online advertising services and credit card companies from dealing with websites “dedicated to infringing activities.” The new bill represents a less sweeping version of the abandoned Combating Online Infringement and Counterfeits Act (“COICA”) bill, which would have permitted the government to seize domain names involved in copyright infringement.

While some media watchdog groups greeted the proposed reforms with guarded optimism, other organizations expressed lingering concerns over the constitutionality of the Act. Critics note that the definition of a website “dedicated to infringing activities” includes sites which they argue play too small a role in the infringing activity. Reports indicate that the threat of broad enforcement may drive leading Internet search providers like Google to challenge the bill if enacted.

Proponents of the bill, such as Sen. Patrick Leahy (D-VT), contend that the scope of the legislation remains narrow and will only target the “worst-of-the-worst” infringing websites. The proposal enjoys strong support from manufacturer associations and the Chamber of Commerce which blame rogue sites for job losses and recent market declines. The National Association for Broadcasters recently joined the fight in favor of the bill, citing the need to combat widespread piracy of movie and television content. Whether such bipartisan support and industry backing will be enough for the PROTECT IP Act to succeed where its predecessor failed remains to be seen.

Comcast/NBCU Joint Venture Telebriefing (3/29/11)

K&L Gates partner Marty Stern will be moderating a Law Seminars International telebriefing on the Comcast/NBCU joint venture Tuesday, March 29 at 3 p.m. ET.  Further information and registration details for the event are available by clicking here.  Also participating in the telebriefing will be Jordan Goldstein of Comcast Corporation, Parul Desai of the Consumers Union, and Ross Lieberman of the American Cable Association. The panel will cover the implications of the merger, including its likely impacts on industry, the conditions imposed by the Government, competitive concerns raised by the transaction, and the benefits offered by the parties. Click here for our recent blog post discussing our analysis of the FCC order approving the transaction, with conditions.

The Comcast/NBCU Merger Conditions: Hedges Against an Uncertain Future

On January 18, 2011, the Federal Communications Commission granted its approval to the acquisition by Comcast, the nation's largest cable service operator and cable modem Internet access provider, of NBC Universal, Inc. (NBCU), the owner of the broadcast television network, several cable networks, Internet websites, and a leading Hollywood studio. The merger should fundamentally affect the businesses of programming, production and distribution across many platforms, including broadcast television, cable, online, and film. With significant control over both content and its distribution, the Comcast/NBCU merger created a potential incentive for the combined firm to raise prices and limit access to its programming to the disadvantage of its broadcast and online rivals. Working in coordination with the Department of Justice’s Antitrust Division, the FCC imposed a number of “targeted” conditions aimed at ameliorating the merger’s potential harms and quashing impending antitrust suits from states such as California. The Commission highlighted four key conditions to the government’s approval:

      1.     Ensuring Online Competitor Access to Comcast/NBCU Programming

The FCC imposed a number of provisions designed to ensure that bona fide online content distributors have the ability to acquire Comcast/NBCU programming at fair market prices and conditions. These protections extend to “online video distributors” (OVDs) such as Netflix, Hulu, Amazon and iTunes to prevent Comcast/NBCU from refusing to distribute their content to or intentionally impairing Internet access of the OVDs’ websites. The OVD conditions follow the Commission’s earlier order designed to implement firm net neutrality policies for fixed broadband service providers. Comcast/NBCU agreed to abide by the fundamental net neutrality principles even if they are overturned by a federal court. Comcast/NBCU further agreed to relinquish managerial control over Hulu, in which it is a significant investor, and provide standalone broadband Internet access services at “reasonable” prices. These provisions represented a blow to Comcast, which unsuccessfully argued that their company held no incentive to compete against OVDs because they lacked the capacity to deliver programming on a large scale. The Commission disagreed, citing the Department of Justice’s assessment of Comcast internal communications which indicated the company had taken steps to eliminate Internet video service competitors. The FCC marked the nascent OVD’s services for special protection by compelling Comcast/NBCU to share content as soon as an OVD establishes a distribution arrangement with one of Comcast/NBCU’s peers like ABC or CBS. This low threshold for sharing extends a lifeline to OVDs who feared they would be shut out of some of the most popular programming available.

      2.     Preventing Comcast/NBCU from Enacting a Discriminatory Distribution System

Numerous critics of the merger warned that Comcast/NBCU would stifle competition by withholding carriage of outside programming or imposing prohibitive carriage fees. To assuage these concerns, the FCC emphasized three stipulations in the merger approval to foster nondiscrimination in distribution. First, Comcast/NBCU must not discriminate against third-party programming on the basis of its non-affiliation with the merged firm. As a consequence, the cable set top boxes which enable customers to access both cable and online programming must direct incoming data on a neutral basis. Second, if Comcast carries news programming in a “neighborhood” of adjacent channels, it must carry all independent news in that same neighborhood. This provision arose after sustained complaints by networks like Bloomberg which charged Comcast with exiling their station to premium tiers away from other news content. Third, Comcast voluntarily committed to add a minimum of ten new independent channels to its digital lineup over the next eight years. Unlike the conditions involving OVDs, these conditions signified a major victory for the merged firm, as competitors originally asked the FCC to order Comcast/NBCU to divest itself of any NBCU stations in areas where Comcast held substantial market power.

      3.     Safeguarding Public Interest Concerns

The FCC enumerated some conditions and voluntary commitments related to the ethical concerns raised by the large media consolidation. Comcast/NBCU committed to expanding its local-interest, educational, Spanish-language, and children’s programming, although the FCC stopped short of mandating specific percentages for independent and minority-produced programming. The import of these policy commitments varied among the Commissioners. Commissioner Clyburn emphasized Comcast/NBCU’s willingness to enter into voluntary commitments as credible evidence of the merger’s public benefits. In contrast, Commissioners McDowell and Baker criticized the FCC for effectively forcing Comcast/NBCU to adopt costly policy programs which may hamper the merged firm over time.

       4.    Improving Arbitration Process for Licensing Comcast/NBCU Programming

Drawing upon conditions imposed in past large-scale mergers, the FCC announced an improved commercial arbitration process to facilitate disputes involving prices, terms, and conditions for licensing Comcast-NBCU programming. The arbitration procedures will apply to all of Comcast/NBCU’s affiliated programs, including video-on-demand and pay-per-view content, with the arbitrator considering the “last best offers” submitted by both sides before choosing the arrangement which best reflects the fair market value of the programming. Smaller distributors will hold the option to band together, in “baseball-style” arbitration, during their complaints against Comcast/NBCU. However, the Commission emphasized that the level of discovery available in these proceedings will be limited.

While few observers doubt that the Comcast/NBCU merger will significantly alter the media landscape, critical questions remain regarding what further effects the decision will have on content providers and distributors. Within Comcast, the company has already folded some of its flagship channels into their NBC counterparts to reduce redundancy and will reportedly invest heavily in reviving NBC’s primetime lineup. Meanwhile, Comcast/NBCU’s competitors may become more aggressive to avoid losing any additional market share to the new merged firm. In the interim, the unprecedented size of the merger will initially complicate any analysis of its effect on the national market. Even Chairman Genachowski conceded that the alleged benefits of the merger “are inherently difficult to quantify.” As demonstrated by Viacom and AOL Time Warner, vertical mergers can fail to produce their expected benefits, resulting in subsequent break-ups of the merged companies. Prior to the merger’s approval, Comcast submitted a report concluding the merged firm would have no incentive to deny NBCU programming to competitors and would not greatly disrupt the current market. However, one study commissioned by the American Cable Association placed the potential harms of the merger to consumers at $2.4 billion over the next nine years, nearly ten times the size of the expected public benefit of $204 million. Other critics of the merger questioned the efficacy of the imposed conditions, stating the disproportionate market power held by Comcast/NBCU post-merger will make the merged firm nearly uncontrollable. This gap between corporate and public benefit led Commissioner Copps to issue the sole dissent against the merger, finding multiple instances where the new entity will be able to wield unchecked market power post-merger. For example, nothing under the FCC agreement prevents Comcast/NBCU from bundling less popular programming with marquee content into “bloated” packages, potentially driving up prices for consumers. As Comcast faces no significant competition in many operating areas, the bloated packages will remain unconstrained by market forces. The merger threatens to exacerbate this situation by potentially weakening the few remaining Comcast/NBCU competitors in smaller markets.

On the issue of localism and diversity, supporters of independent media criticized the FCC for sustaining the status quo in the industry instead of increasing protections for smaller media providers. These critics cautioned that the merger would put NBC newsrooms under heightened corporate pressure to cut investments in local journalism and place one in every five television viewing hours under the control of a single company. Even if increasing numbers of online-only media sources rise up to take on the bulk of local investigative journalism, they will nevertheless fail to have the dominant market penetration that Comcast/NBCU will wield.

Most troubling for the merger’s critics, many of the commitments taken on by Comcast/NBCU will expire in seven years, potentially allowing the company to renege upon its pledges of content neutrality. Whether those concerns are valid remains to be seen, but what does seem likely is that future media consolidations will need to survive a protracted FCC review. Although lawmakers from both parties expressed their displeasure with the length of the FCC’s consideration of the merger, the number of interested stakeholders in these issues shows no signs of dwindling. However, the exacting investigation process is unlikely to deter other companies from developing their own large-scale merger proposals in order to stay competitive with the new FCC-approved Comcast/NBCU media giant.

CALEA II - Bigger and Badder?

Recent leaks to the New York Times, as reported in September and October, indicate that the Obama administration will next year be pushing for sweeping expansions of the Communications Assistance for Law Enforcement Act (CALEA).  CALEA facilitates government surveillance by, among other things, requiring companies subject to the law both to design their systems so that the government can easily plug in and intercept communications in real-time and to provide assistance to the government in these efforts. 

 

A task force comprised of representatives from DOJ, Commerce, the FBI, and other agencies, are discussing amendments to the law.  These changes would greatly expand the reach of CALEA, would significantly increase the costs of non-compliance for covered companies, and would include other requirements which may fundamentally change business models for companies promising encryption and decentralized communication services.    

 

 

The most groundbreaking revisions under discussion would greatly expand the types of businesses to which CALEA will apply.  Currently, CALEA applies only to “telecommunications carriers,” which the law defines as entities: (1) engaged in the transmission or switching of wire or electronic communications, or (2) providing “commercial mobile service.”  47 U.S.C. § 1001(8).  Under the substantial replacement provision (SRP), the FCC may also designate as telecommunications carriers companies that provide a service that supplants a substantial portion of local telephone exchange service.  Under this SRP authority, the FCC has designated broadband Internet providers and VoIP providers as telecommunications carriers, finding that they supplanted a user’s need for a local telephone exchange service.  See In re CALEA and Broadband Access & Services, 20 F.C.C.R. 14989 (2005); American Council on Educ. v. FCC, 451 F.3d 226 (D.C. Cir. 2006) (upholding FCC’s designation of broadband and VoIP providers).  The New York Times article, apparently relying on a well-placed source, reports that officials seek to expand CALEA coverage to “all services that enable communications.”  This would extend CALEA to cover a broad swathe of nontraditional communications companies, particularly those on the Internet—for example, e-mail and instant messaging providers, social networks, and peer-to-peer communications services like Skype.

 

The revisions would also arm the DOJ and FCC with significantly stronger enforcement powers.  Although a carrier’s failure to comply with CALEA is currently punishable by court and FCC fines, 18 U.S.C. § 2522(c), In re CALEA and Broadband Access & Services, 21 F.C.C.R. 5360, 5390 (2006), the DOJ has traditionally not pressed the issue against carriers with faulty CALEA systems, preferring to preserve a working relationship in order to facilitate future CALEA requests.  However, a New York Times article reports that FBI officials have grown frustrated with CALEA system failures at two major carriers, and that the FBI’s technical assistance budget—spent to help carriers fix bugs in or retrofit their wiretapping systems—is close to $20 million annually.  Two specific proposals are circulating within the task force to address these issues: retroactive fines on carriers, and the ability to impose FBI engineering charges upon the carriers.  These proposals signal that the DOJ will begin shifting to carriers more costs of technical CALEA compliance, which may force carriers to more proactively manage and update their CALEA systems.

 

According to the New York Times articles, other proposals circulating within the task force include:

 

·                    Requiring that communication services offering encryption must be able to decrypt them upon government request.  This would bring US law in line with the UK Regulation of Investigatory Powers Act 2000 (RIPA)’s similar requirement, an issue of considerable controversy across the pond.

 

·                    Requiring that peer-to-peer communication services design a way to accommodate government wiretap requests.  This proposal could undermine the very nature of peer-to-peer communications, as it would require re-centralization of such communications.

 

·                    Requiring foreign providers that offer services in the US to make their systems available for government wiretaps.

 

The proposals are in very early stages, and it is certainly quite early to be reading the tea leaves.  As leaked, though, the proposals would represent a sea change in government surveillance law, imposing significant compliance costs on both traditional (think local exchange carriers) and nontraditional (think Facebook) communications companies.  The fairly specific leaks to Charlie Savage at the New York Times, including the leak that the bill will be introduced next year, are suggestive of trial balloons, so we should start to see some action soon.  Grab some popcorn and/or call your lobbyist.