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.

FTC Chairman and Experts to Examine Mobile and Online Privacy in Upcoming Webcast

A live webcast program entitled Privacy Untangled, featuring Federal Trade Commission Chairman Jon Leibowitz and an expert panel will be carried on Broadband US TV on Friday, October 26, 2012, from 1:00-2:30 p.m. ET.

Balancing privacy with commercial interests has become increasingly complex and contentious, as businesses and government organizations rely on the collection, storage, and sharing of online and mobile consumer data. Recent regulatory initiatives, including the White House’s proposed Consumer Privacy Bill of Rights and related workshops, and the privacy enforcement actions and best practices reports of the FTC have placed evolving privacy practices in the spotlight. In addition, privacy watchdog groups continue to criticize the government’s privacy initiatives as insufficient, while service providers complain of the government over-reaching in its regulatory approach towards industry privacy practices.

An in-depth examination of these issues will be provided in a live webcast with co-hosts Marty Stern of K&L Gates and Jim Baller of the Baller Herbst Law Group. In addition to special guest FTC Chairman Jon Leibowitz, the program will feature an expert panel with Sue Kelley, American Public Power Association General Counsel; Deborah J. Matties, Attorney Advisor to FTC Chairman Leibowitz; Emily Mossberg, Principal at Deloitte & Touche LLP; Ross Shulman, Public Policy and Regulatory Counsel at the Computer and Communications Industry Association; Bernin Szoka, President at TechFreedom, and Peter Swire, former Chief Counsel for Privacy under President Clinton and current professor at the Ohio State University.

The panel will engage in a lively discussion regarding privacy issues and the government’s recent initiatives to adjust privacy regulations for an evolving online and mobile marketplace.

You can register for the webcast here (free registration required).

Online Video Captioning Rules Published in Federal Register

By Marty Stern and J. Bradford Currier

The FCC’s new closed captioning rules for previously televised online video were published in the Federal Register on March 30, 2011, with an effective date of April 30 and triggering additional deadlines for various IP video captioning requirements. The new rules implement IP closed captioning obligations required by the Twenty-First Century Video Communications and Accessibility Act of 2010 and initially proposed by the FCC in September 2011. Reports indicate that affected companies may launch legal and administrative challenges to the new rules now that they have been published.

The Report and Order adopting the rules consists of four key sections:

First, for owners, providers, and distributors of video programming, the new rules establish a regimented system for displaying closed captioning in both new and archived video content. The Report and Order defines video programming owners (“VPOs”) as “any person or entity that either (i) licenses the video programming to a video programming distributor or provider that makes the video programming available directly to the end user through a distribution method that uses Internet protocol; or (ii) acts as the video programming distributor or provider, and also possesses the right to license the video programming to a video programming distributor or provider that makes the video programming available directly to the end user through a distribution method that uses Internet protocol.” Meanwhile, the Report and Order defines video programming distributors (“VPDs”) and video programming providers (“VPPs”) identically as “any person or entity that makes video programming available directly to the end user through a distribution method that uses IP.”

Under the new regulations, VPOs will be required to include closed captioned files along with any video programming made available to VPDs and VPPs. The rules mandate that the quality of the required captioning be of “at least the same quality” as the captioning of the same programming when shown on television. Once they receive the required files, VPDs and VPPs must ensure the rendering or “pass through” of all required closed captioning content to end users, including through any equipment provided by the VPDs and VPPs such as television set-top boxes. The FCC obligated VPOs to establish a “mechanism” to make information available to VPDs and VPPs regarding whether certain video programming is subject to the closed captioning requirements on an ongoing basis. VPDs and VPPs which rely on the established mechanism in “good faith” will not be held responsible for determining whether captions are required for the programming files they receive. VPOs and VPDs may petition the FCC for case-by-case exemptions from the closed captioning requirements based on economic burden. The FCC declined to establish any categorical exemptions to the closed captioning requirements, but did indicate that de minimis failures to meet the new rules would not result in an actionable violation and regulated entities could achieve compliance through FCC-approved alternative means.

Second, the Report and Order established a deadline schedule for the captioning of new and archival video content. Prerecorded programming that is unedited for Internet distribution must meet the captioning requirement within 6 months of the March 30 publication date (September 30, 2012). Meanwhile, all live or near-live programming must be compliant within 12 months from publication (March 30, 2013), and prerecorded programming edited for Internet distribution must be adequately captioned within 18 months (September 30, 2013). For archival video programming content already available online without captions but which re-airs on television with captions, the FCC created an increasingly strict compliance schedule. In two years (March 30, 2014), such archival programming must be captioned within 45 days after it is re-aired. In three years (March 30, 2015), such programming must be captioned within 30 days after it is shown on television, with the timeline compressed to 15 days in four years (March 30, 2016). 

Third, the new rules broadly defined the types of “apparatus” that will be subject to the closed captioning obligations. The regulations cover not only physical devices such as television set-top boxes, personal computers, smartphones, tablets, DVD and Blu-ray players, but also all “integrated software” that is installed in a covered device by the manufacturer before sale or that the manufacturer requires the consumer to install after sale. By contrast, third-party video players independently installed by the consumer, but not required by the manufacturer to enable video playback, will not fall under the scope of the new rules. The new rules will also not extend to commercial equipment such as movie theater projectors or display-only monitors lacking playback capability. Critically, the FCC’s closed captioning requirements will no longer be limited to devices with screens larger than 13 inches, an exception originally established in the Television Decoder Circuitry Act of 1990

Manufacturers of covered devices will be able to petition the FCC for case-by-case waivers of the new rules due to “lack of achievability.” Whether compliance is achievable for a particular device will depend upon: (1) the costs of manufacturing a compliant device or software; (2) the technical and economic impact of compliance on the manufacturer and innovation; (3) the size and nature of the manufacturer’s operations; and (4) the extent to which the manufacturer offers other devices or software with accessibility features at differing price points.  As an alternative, manufacturers may also petition the FCC for a waiver by arguing that the device or software is “primarily designed” for activities other than receiving or playing back video programming. Beyond these exceptions, the FCC refused to create any categorical exemption to the closed captioning requirements for any specific device or software. All covered devices and software must achieve compliance with the closed captioning rules by January 1, 2014, although the FCC expects device manufacturers to take accessibility into consideration as early as possible during the design process for new and existing equipment.”

Fourth, the FCC adopted certain technical standards governing the color, size, font, opacity, and other aspects of the captioning text recommended by the Video Programming Accessibility Advisory Committee in July 2011. Additionally, although the FCC declined to adopt a mandatory format for the interchange or delivery of closed captioning content, the new rules established the Society of Motion Picture and Television Engineers Timed Text format (“SMPTE-TT”) as a “safe harbor” format. The FCC stated that the SMPTE-TT format met all of the technical aspects of the new rules and was already being used to reformat television content for Internet use. The FCC will continue to review industry practices for new safe harbor format options.

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.