The $175,000 Question: When Is A Computer Circuit Card Not A Computer Circuit Card?

Posted on April 16, 2009 by Peter Tannenwald

Answer: When the FCC says it’s a TV.

The FCC has hit up a manufacturer of personal computer TV tuner cards for a $175,000 forfeiture. Why? Because the manufacturer marketed cards that have only analog and not digital tuning capability.  The Notice of Apparent Liability was issued by the full Commission, as opposed to, say, the Enforcement Bureau – a clear sign that the full FCC is still in full-tilt enforcement mode with respect to the marketing of non-compliant TV receivers. (It has been in that mode for at least a couple of years, as we have previously reported here and here, for example.)

Of course, all new TV sets must have both analog and digital tuners.  That requirement, first imposed in 2002, was phased in based on screen size. Since March 1, 2007, all TV receivers imported into or shipped or marketed within the U.S. must include DTV capability.  The rule also applies to all kinds of receiving equipment, including VCRs (who remembers VCRs?) and other devices that lack their own screen and have to plugged into the back of a TV set or other display device.

The PC card manufacturer ran through a whole host of reasonable arguments for why a computer card should not be deemed subject to the rule. It argued that consumers should have a choice of what they want to buy; and in any case, a PC card is just a computer peripheral, not a TV, and is different from a VCR in that the output can’t be plugged into the back of a TV set.  No way, the FCC said.  TV is going digital, and we are not going to tolerate anything, with or without a screen, that is used to receive and display over-the-air TV signals unless it can work with digital signals.

But even the Commission, hard-nosed though it may be, had to acknowledge that, as violations go, selling cheap PC tuner cards with no screen attached is “not as egregious” as selling, like, real TVs (“television receivers with an associated viewing screen”). So rather than lower the maximum boom ($97,500 per violation) onto the manufacturer, the Commission figured it would cushion the blow by charging a mere $25,000 per violation. But what might initially have looked like a mild spanking got ugly when the Commission decided that a separate “violation” occurred with each model marketed. Since the manufacturer had sold seven different PC card models, the bottomline line turned into a considerably heftier $175,000 – not exactly pocket change.

It took me only about five minutes on the Web today to find some analog-only PC cards still for sale.  At least one catalog displayed the consumer alert that was used before digital tuners were universally required, but that alert no longer protects the vendor.  I wonder if the FCC is also browsing the Web.

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CUT FATT Patent Spat: The Plot Thickens

Posted on March 17, 2009 by Steve Lovelady

You may remember our post from last month about the CUT FATT petition. CUT FATT is a “coalition” asking the FCC to adopt rules limiting the royalties which patent holders can charge DTV set manufacturers. We had a good chuckle about the oddness of the CUT FATT acronym (full name: Coalition United to Terminate Financial Abuses of the Television Transition) and the coalition’s somewhat limited membership (since only two companies, VIZIO and Westinghouse Digital Electronics, were identified as members). 

The initial petition appeared to be the kind of altruistic project that a “public interest” law school class, or maybe an Eagle Scout, might undertake: an effort to Do Good for Everybody Because, Gosh Darn It, It’s The Right Thing To Do.

It turns out that there was considerably more here than first met the eye. In the tradition of the late Paul Harvey, here is the rest of the story.

The CUT FATT petition asked the FCC to adopt new rules imposing restrictions on the ability of patent holders to license their patents. The FCC should step in, it said, because the FCC adopted standards for digital TV that rely on patented technology. CUT FATT plaintively worried that, in the U.S., entities holding DTV-related patents “operate freely in a ‘lawless Wild West’ without supervision or accountability”. It offered considerable information about how such matters are dealt with elsewhere in the world and urged the FCC to step in and impose rules to prevent abuse.

But in its 34 pages of text and attachments and what-not, the CUT FATT petition somehow failed to mention that its member, VIZIO, is and has for some time been involved in a knock-down-drag-out donnybrook before the International Trade Commission (ITC) concerning DTV patents. And just last November – less than two months before the CUT FATT petition was filed – VIZIO had lost an important ruling before an ITC administrative law judge. And CUT FATT’s proposed rules would, if adopted, give VIZIO a useful means of countering that decision.

Who knew?

It’s tempting to conclude that VIZIO, dumped on the canvas by the ITC decision, figured that it might benefit by opening a second front at another federal agency like, maybe, the FCC. But since the FCC would probably not be happy about being called upon to second-guess a sister agency in an on-going slugfest between two contentious parties, a less direct (and less apparently adversarial) approach would seem in order.  Let's think . . . hmmmm . . . Hey,how about this: let’s form a coalition with a cute name and file a petition for rule making! 

Since the petition was filed in January, when the DTV transition was still scheduled to occur in February, VIZIO (or CUT FATT) may have hoped that the FCC’s DTV mania would cause the Commission to consider and resolve the petition tout de suite.  If that was, in fact, VIZIO’s strategy (and we certainly can’t say for sure that it was), it didn’t work:  the FCC was apparently unwilling to move the CUT FATT petition to the front of the line for super-expeditious treatment. That left VIZIO subject to the ITC ruling, which could result in the exclusion of VIZIO DTV sets from the U.S. market in a matter of months.

After the CUT FATT petition had sat around for almost two months with no FCC action, VIZIO apparently determined that a more direct approach would be appropriate. It filed a request for temporary relief, asking the FCC to require the patent holder, Funai Electric Company, Ltd., to license its patent “on reasonable terms” pending action on the CUT FATT petition.

And with that, the bar-room brawl previously contained within the walls of the ITC spilled over into the FCC.

Not surprisingly, Funai responded to VIZIO’s temporary relief request by urging that that request and the CUT FATT petition be consolidated and considered together. (Side note: consolidation would virtually guarantee that this proceeding would be going nowhere fast, but that’s not an argument that Funai advanced openly.)  Also not surprisingly, VIZIO opposed that suggestion, claiming that it needs prompt FCC action in light of an impending decision in the matter at the ITC. Funai responded, and there the matter now sits – already an impressive stack of several hundred pages and likely to grow.

High stakes litigation can resemble three-dimensional chess when parties try to wage their battles simultaneously in multiple fora. Often, though, those fora don’t like being put in the position of gumming up each other’s works. Generally, the FCC’s policy is not to let itself become embroiled in disputes (e.g., civil lawsuits and the like) which are not clearly within its area of primary expertise and authority. 

Patent licensing is one of those areas that fall outside of the Commission’s usual comfort zone. So while there were no rules prohibiting VIZIO (and its alter ego, CUT FATT) from trying to lure the FCC into the VIZIO-Funai melee, it seems to us unlikely that the FCC will be easily suckered into the fray.
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CUT FATT Patent Spat

Posted on February 27, 2009 by Mitchell Lazarus

Coalition (of two) urges FCC to oversee patent licenses as well as broadcast licenses

Now and then we get an item down here in the CommLawBlog bunker that leaves us scratching our heads.

This week’s baffler is a Petition for Rulemaking from an entity calling itself the “Coalition United to Terminate Financial Abuses of the Television Transition LLC,” or CUT FATT. As far as we can tell from its own description of itself, the membership consists of a grand total of two manufacturers of TV sets. (Any fewer, of course, and it loses its “Coalition” status.) 

CUT FATT states as follows:

  • The technical standards for digital TV sets, adopted by the FCC back in 1996, include elements that were (and still are) protected by patent.
  • The owners of those patents are overcharging set manufacturers, by $20-30 per set, for the licenses the manufacturers need to make the sets.
  • The DTV transition leaves consumers no choice but to buy the sets and pay the inflated prices.
  • The FCC should adopt a rule that limits patent royalties and imposes high fines on patent-holders that charge more.

The first question that comes to mind – okay, the second question, after “Who comes up with these acronyms?” – is whether the FCC can do what CUT FATT asks. The FCC does not usually regulate patent licenses. Why does CUT FATT think the FCC can do it now?

In the proceeding that adopted the DTV standard, the FCC acknowledged that some components were under patent, and expressed its confidence that those would be licensed on reasonable and nondiscriminatory terms. It added: “[I]f a future problem is brought to our attention, we will consider it and take appropriate action.” QED! says CUT FATT. The FCC has jurisdiction!

Or maybe not. The FCC’s comment was arguably not part of its ruling at all, but rather just obiter dictum, Latin for “idle musings that have no legal effect.” And even if the FCC meant to commit itself, it cannot create its own jurisdiction. Only Congress can do that. But nowhere does any statute grant the FCC authority over patent royalties. To be sure, there is a provision allowing the FCC to do anything “as may be necessary in the execution of its functions,” but the courts insist that this language does not let the FCC grant itself new powers. Besides, if the problem is as urgent and important as CUT FATT says, why are they coming forward only now, when the DTV transition is just about over?

CUT FATT may in fact have a good case. Next time we upgrade all the 72-inch high-def plasmas down here in the bunker, we’ll be happy to pay $20-30 less. But in calling on the FCC, CUT FATT may have knocked at the wrong door.

Still and all, the FCC (for whatever reason) has invited comments on the CUT FATT petition. If you want to chip in your two cents’ worth (bearing in mind, of course, that you could end up $20-30 on the plus side if things work out), you can file comments by April 27, and reply comments by May 27.
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