The entertainment industry, in cooperation with the nation’s largest Internet Service Providers, joined forces to open a new copyright enforcement center that critics charge sidesteps judicial process, leaving consumers forced to prove they are innocent after they’ve been accused of being guilty.

On Monday, the Center for Copyright Infringement named its executive director and board, and intends to gradually begin serving as a clearinghouse for copyright infringement complaints brought by the nation’s music and movie companies.

CCI has representatives from the Motion Picture Association of America (MPAA), the Recording Industry Association of America (RIAA), AT&T, Cablevision, Comcast, Time Warner Cable, and Verizon Communications collectively working to streamline enforcement of copyright law and control Internet piracy.

Often known as the “Six Strikes Plan,” CCI participants will coordinate piracy notification warnings for suspected illicit downloads of copyrighted content from peer-to-peer file sharing networks.  Hollywood studios and recording labels will identify those they suspect are involved in illegal file swapping and participating ISPs will notify customers tied to the infringing IP addresses up to six times before reducing a customer’s Internet speed, temporarily disabling the account, or terminating service.

The CCI hopes to bypass the court system and adopt a self-regulation, “in-house” approach to Internet piracy.  Some courts have proven increasingly-reluctant to hand over identifying information to copyright holders based on the sometimes-flimsy evidence of illegal downloading included in supporting affidavits.  Judges in some courts have also become leery of a cottage industry of “settlement specialists” that threaten expensive litigation for alleged copyright infringement that can be resolved with a quick cash settlement.

Judge James F. Holderman of the Northern District of Illinois ruled against one litigant who demanded ISPs divulge the identities of every participant exchanging bits and pieces of a copyrighted work in a so-called “BitTorrent swarm,” because they were involved in a conspiracy.  Holderman dismissed that argument.

Such tactics have allowed some settlement specialists to demand settlement payments from a larger group, substantially boosting revenue at little cost to them.

CCI’s executive director Jill Lesser says laws no longer favor copyright holders.

“While laws that protect intellectual property remain strong and enforcement efforts continue, technology has tipped the balance away from the interests of most creators and artists,” Lesser said. “The ease of distribution of copyrighted content has helped create a generation of people who believe that all content should be free.”

CCI’s so-called “Copyright Control System” will bypass the courts entirely, as entertainment companies coordinate directly with major ISPs agreeing to enforce copyright compliance.

Lesser says consumers will still have a fair process to challenge notices of alleged infringement.  But it will cost at least $35 for consumers to argue their case.  Additionally, as a self-regulated, industry-controlled body, consumers’ rights of appeal are undetermined.  The arbitration process will be administered through the American Arbitration Association.

Why would ISPs want to become involved in a copyright control regime?  To reduce their own expenses and legal risks.  Copyright holders and their agents have peppered service providers with compliance and identification demands for years, creating full time positions processing the paperwork.  By adopting a clearinghouse and developing a streamlined process to handle complaints, service providers can cut costs and avoid possible litigation against themselves.

Still, both the entertainment industry and ISPs seem to be open to listening to consumer advocates.  Lesser was formerly involved with People for the American Way, a group sensitive to privacy rights.  Serving on the advisory board are Gigi Sohn from Public Knowledge and Jerry Berman, founder of the Center for Democracy and Technology.  Neither have direct authority over the group’s enforcement efforts, but Sohn told Ars Technica she hoped her involvement would give a voice to consumer interests and maintain transparency in the enforcement process.

Static isn't just for the UHF dial, it's for powerhouse lobbying groups, too.

While surface reporting on “white space” broadband and “super Wi-Fi” seem to suggest the United States is on the cusp of opening up much of the UHF television dial to wireless broadband, behind the scenes broadband advocates are fretting about being outmaneuvered by the powerful broadcast lobby.  The theory behind “white space” broadband seems simple enough.  Anyone who has flipped channels up and down the UHF dial sees a lot of unused real estate.  While most cities receive 5-10 UHF TV channels, there are dozens of apparently empty channels filled with what seems to be nothing at all. Can’t we make more efficient use of the UHF dial and open the excess to other uses?

The FCC has been studying just that, with the proposition that broadcasters could be relocated closer together or agree to sell their broadcast license and sign off the air for good.  Theoretically, the UHF dial would be reduced to channels 14-30.  Stations on channels 31-51 would have to relocate down the dial to make way for broadband.

That was the plan anyway

Naturally, the National Association of Broadcasters (NAB), the broadcast industry lobbying group, was not happy to learn of this plan, which is still heavily promoted by wireless telecommunications companies.  They quickly argued there were not enough UHF channels left to accommodate every TV station on the air today, and some cities bordering Canada faced losing major stations if the plan was adopted.

In the clash of the lobbying titans, it appears broadcasters have at least temporarily won the upper hand.  Legislation authored by the powerful House Communications Subcommittee Chairman Greg Walden (R-Ore.), would grant the FCC authority to conduct spectrum horse-trading and auctions, but only if the sales take “all reasonable efforts to preserve” the coverage area of impacted broadcast stations.

In the minds of several wireless broadband advocates, “reasonable efforts” kills it. That key passage is open to wide interpretation, which in Beltway language means a full employment program for Washington law firms who will end up letting a judge decide what “reasonable” really means.

Blair Levin

Blair Levin, an attorney who served as chief of staff to FCC Chairman Reed Hundt from 1993 to 1997, where he oversaw the implementation of the disastrous 1996 Telecom Act, is all sour grapes about the latest developments in Congress.  That is to be expected — he was once considered the Obama Administration’s chief “broadband czar.”

“The legislation ties the FCC’s hands in a variety of ways,” Levin tells TVNewsCheck. “It opens it up to litigation risk, which then, in conjunction with the other handcuffs, makes it difficult to pull off a successful auction. The nature of the bill dramatically increases the probability that there will be less spectrum recovered and less money for the [U.S.] Treasury.”

Broadcasters have been legitimately worried about where they might fit within the new, slimmed-down UHF dial.  The more broadcasters packed closer together, the greater the chance of interference and reduced signal coverage for those who happen to live between two cities sharing the same channel number.  The NAB has consistently opposed forcing station-owners’ hands and wants stations compensated for their costs and inconvenience.

Before the first “white space” broadband signal takes to the airwaves, the government will have to set aside at least $3 billion to defray expenses incurred by television stations moving down the dial.  With language that guarantees broadcasters won’t have to suffer from an interference nightmare, FCC engineers will have a much harder time finding enough channels for the number of stations that need to move.  That could mean fewer channel positions up for auction.

Blair believes stations can extract even more by playing the litigation threat card.

“Nobody wants to go to an auction when there is the threat of a judge anywhere having the ability of holding it up,” Blair said. “I believe a good lawyer could find a way to get the question of  whether the FCC took all reasonable efforts in front of a judge. If you are designing the auction and a big law firm shows up and says, ‘If you don’t take care of my single broadcaster, we are going to find a way to get to court.’ That’s a real threat.’’

The Lady Gaga problem

Lady Gaga's wireless microphone malfunction.

Assuming Washington can fling enough cash to soothe the nerves of worried broadcasters, impediments to white space broadband don’t stop with the local Fox station.  The next complication is the wireless microphone issue.  When you see Lady Gaga in her latest outrageous outfit, you probably are not noticing her wireless microphone.  Performers of all kinds use these low power devices that often work over unused UHF spectrum.  Only it may not be unused for long.

Spectrum Bridge, a “white space” database administrator charged with coordinating who is using what frequency for what purpose, understands the challenges of trying to keep track of TV reporters, bands on tour, and other wireless microphone users, who all expect an interference-free experience.  Electric companies and municipalities also plan to utilize white space spectrum to manage smart city and smart grid communications.  A year later, Super Wi-Fi applications that deliver longer distance Wi-Fi service are expected to arrive.

It’s becoming a crowded neighborhood.

Congress’ NAB-friendly, Republican-sponsored bill may be modified substantially in a Democratic-controlled Senate, and there is still plenty of time for lobbyists to work their magic.  But it’s safe to say that those who have waited at least seven years for white space broadband to become a reality will have to wait a little longer.

Federal Communications Commission chairman Julius Genachowski personally called AT&T CEO Randall Stephenson a few days before Thanksgiving giving him advance notice he was moving to oppose AT&T’s merger with Deutsche Telekom’s T-Mobile USA.

Genachowski told Stephenson he was handing AT&T’s merger application over to an administrative judge — extremely bad news for the merger’s prospects.  The personal phone call was revealed Friday by AT&T, which disclosed it in an ex-parte communication filed with the FCC.

“During the call, Chairman (Julius) Genachowski indicated that he would be circulating to his fellow Commissioners a draft order approving the Qualcomm transaction and a draft order designating the T-Mobile transaction for an administrative hearing,” according to the filing. “Chairman Genachowski indicated that the draft designation order would likely be voted in the next several days or weeks but the administrative hearing would be deferred until after resolution of the pending litigation with the Department of Justice.”

It was the second piece of bad news received by AT&T last week, the first being notification the Justice Department had suddenly canceled a meeting it had planned to hold with AT&T about the merger and its antitrust implications.

Earlier today, Bloomberg News reported the FCC wasn’t so sure it would allow AT&T to refile its withdrawn merger application, which immediately brought new threats of legal action by the telecommunication company.

Now AT&T is considering a new strategy to save a merger given a 10 percent chance of succeeding, according to some analysts.  It will likely hold a fire sale of T-Mobile’s assets — up to 40 percent of them to be more exact, in order to satisfy regulators concerned about the merger’s anti-competitive implications.

The prospects make Wall Street bankers salivate with dreams of steep fees earned from structuring and marketing the equivalent of a corporate estate sale.

Among potential buyers might be regional players Leap Wireless, which owns Cricket, and MetroPCS.  The New York Times reports Mexico’s multi-billionaire Carlos Slim Helú, who owns Mexico’s América Móvil, might be interested in buying T-Mobile assets himself to boost the company’s American unit, better known as TracFone.

Sanford Bernstein’s Craig Moffett suggests it would be a mistake to ignore America’s largest cable operators, which own spectrum themselves and could integrate T-Mobile into a new mobile operator owned, controlled, and branded under the names of their respective cable owners.

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/Bloomberg Davis Says ATT Asset Sale May Be Tricky 11-28-11.flv[/flv]

Michael Nelson, analyst at Mizuho Securities USA Inc., and Jeffrey Davis, chief investment officer at Lee Munder Capital Group, discuss AT&T Inc.’s proposed purchase of T-Mobile USA Inc. AT&T, with its T-Mobile USA takeover facing regulatory opposition, is preparing the biggest remedy proposal yet to the Justice Department to salvage the $39 billion deal, according to a person familiar with the plan: an asset fire sale. From Bloomberg News.  (4 minutes)

A class action lawsuit accusing AT&T of methodically over-measuring wireless customers’ usage and subjecting them to overlimit fees has been re-assigned to arbitration because AT&T wrote terms into contracts denying customers the right to pursue grievances any other way.

Plaintiff Patrick Hendricks claimed AT&T was systematically overstating customer usage by 7-14 percent with a rigged usage meter.  Hendricks claims some customers were overbilled by as much as 300 percent for phantom data usage that he claims never took place.  The measuring errors found in a two-month study cited by Hendricks were in AT&T’s favor, potentially exposing customers to surprise overlimit fees or, more recently, speed throttles.

But U.S. District Judge Charles Breyer shut down the court case, heard in a San Francisco federal courtroom.  Breyer ruled that since AT&T’s contracts bar lawsuits by customers, Hendricks must pursue his case in the venue required by AT&T — arbitration.

“[AT&T’s contract] requires the use of arbitration on an individual basis to resolve disputes, rather than jury trials or class actions, and also limits the remedies available … in the event of a suit,” Breyer ruled.

Ironically, Breyer is the same judge that dissented from an earlier case — AT&T v. Concepcion, that ultimately set the stage allowing AT&T to force consumers to pursue arbitration and practically speaking, remove their right to pursue class action relief.

“What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim?,” Breyer wrote. “The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30’.”

Brandi M. Bennett, a California attorney who specializes in intellectual property law, considers arbitration clauses to be a major threat to class action cases:

“Class actions make it possible to find recourse for individuals with damages that make traditional litigation impractical. AT&T Mobility v. Concepcion appears to leave the average consumer at risk of being defrauded by corporations for $10, $20, $50 without any practical remedy. If one million customers are damaged for $20 each, a corporation can improperly realize a $20 million gain. Class actions serve to prevent that.”

Arbitration can offer a poor substitute, because most arbitration firms are beholden to their corporate clients for repeat business.  An arbitrator perceived to be exceptionally pro-consumer stands little chance of being retained when corporate defendants pay the arbitration firm for its services.  Some arbitration policies require consumers and the company to split the costs of arbitration, but those costs often easily exceed the value of the original claim, discouraging customers from pursuing a refund settlement.

Companies understand that reality, which is why clauses requiring arbitration to settle disputes are increasingly common in service contracts.

Hendricks’ original suit sought restitution for the entire class of consumers and damages for breach of contract, unjust enrichment, unfair and fraudulent business practices, unfair competition, and violations of the federal Communications Act.  Most arbitration clauses require consumers to file individual complaints, which few may ultimately do considering arbitration proceedings may occur in another city and often requires the complainant to appear in person to provide testimony.

Why would a Delaware company holding several dozen patents — several formerly owned and controlled by a semiconductor manufacturer — suddenly decide to sue businesses that offer their customers access to Wi-Fi?  Because that is where the money is.

Innovatio IP Ventures, LLC is a patent holding company — one that today holds 31 patents, acquired mostly from Broadcom, that generally deal with “wireless local area network” technology most consumers know better as Wi-Fi.  In reality, Innovatio doesn’t really innovate much of anything in the technology department.  It has no products or services for sale.  But it has managed to innovate what critics are calling a “major shakedown” with the help of its law firm to collect royalty payments from companies large and small who find it easier to settle the lawsuits than hire attorneys to defend them.

That may be precisely the business model companies like Innovatio have in mind.

The company is suing coffee shops, grocery stores, restaurant chains, and even individual hotels and motels where Wi-Fi is provided as a customer convenience.  Among the defendants: Hyatt Corporation, Marriott Hotels, Wyndham Hotels and Resorts, Ramada Inn, Best Western, Days Inn, Super 8 Hotels, Travelodge, Caribou Coffee, Cosí and Panera Bread Co., and Meijer, Inc.  Within those lawsuits, hundreds of individual business locations are accused of violating Innovatio’s Wi-Fi patent rights.

But there is a way to make Innovatio, and their attorneys, go away.  Agree to a quick, “one-time settlement” in the form of a “licensing payment” between $2,300 and $5,000 per infringing location.

That’s cheaper than putting an attorney on a retainer and spending several hours contemplating a defense strategy, a fact of life many businesses can’t afford to ignore.

Critics of these patent-holding companies call them “patent trolls” that exist solely to rake in settlement payments on broadly-written patents.  Innovatio’s own lawsuits describe anyone who uses Wi-Fi as a potential violator.  It’s a new tactic for patent attorneys who more commonly chase equipment manufacturers and vendors, not the end users of the technology.  Innovatio has set its sights on smaller companies offering Wi-Fi services, perhaps because some of America’s largest equipment manufacturers, Cisco and Motorola, have deep enough pockets to fight back in court.

Who has even fewer resources to defend themselves against a patent infringement lawsuit mill?  Individual consumers, who technically are also violating Innovatio’s patents just by running a wireless network inside their home.  Innovatio defines that as patent infringement themselves, but benevolently suggests it will not sue ordinary consumers “at this stage” of Innovatio’s “systematic campaign,” reports The Patent Examiner:

“Innovatio has made a strategic and business judgment at this stage that it doesn’t intend to pursue [lawsuits on the basis of] residential use of WiFi,” said Matthew McAndrews, the lawyer representing Innovatio in the case. (The law firm’s offices in downtown Chicago are located about five blocks away from Innovatio’s office. The U.S. Patent and Trademark Office shows another address for Innovatio, in a house at the end of a cul-de-sac in Ladera Ranch, Calif.)

As if to assure anyone who owns a laptop, smartphone or tablet that they’re not in danger of finding themselves in the company’s cross hairs, McAndrews added that he doesn’t “perceive” Innovatio’s litigation strategy changing. McAndrews did not respond to queries about who is behind Innovatio.

But that may not last forever:

McAndrews acknowledged the ubiquity of wireless Internet – likening it to a fundamental utility like gas or electricity – but offered a different perspective on the terms of its use. Ultimately, he said, Innovatio’s “plan is to license this portfolio to the fullest extent possible. That would include anyone who’s wireless networking.”