VerStandig lawsuit tossed on technicalities.

Will geofencing really provide webcasting broadcasters a shield that they can deploy against royalty claims? While that question was raised in a lawsuit last spring, it won’t be getting answered soon: the case has been dismissed … for the time being, at least. Thanks to considerations that many may view as “technicalities”, U.S. District Judge Michael F. Urbanski tossed the suit filed last April by Verstandig Broadcasting. But he did so “without prejudice”, meaning that the core question remains unanswered and may still be raised, and resolved, in a later suit.

As we have previously reported, “geofencing” is a technology that, in theory, permits a webcaster to limit access to its programming based on the physical location of the computers receiving the webcast. It works by checking the “receiving computer’s IP address, WiFi and GSM access point, GPS coordinates, or some combination against a real world map of those virtual addresses”.

Why would that give a webcasting broadcaster a way around webcaster royalties?

Because of Section 114 of the Copyright Act. That section provides a limited exemption from performance royalties arising from the digital transmission of sound recordings. While broadcasters are exempt from performance royalties for their broadcast programming, they’re still on the hook for royalties for recorded performances that they retransmit on the Internet, i.e., digitally. But thanks to Section 114(d)(1)(B)(i), broadcasters are exempt from performance royalties for digital retransmissions of their broadcast signals as long as those retransmissions don’t go “more than a radius of 150 miles from the site of the radio broadcast transmitter”.

Historically, many – probably most – folks figured that that 150-mile exemption applied only to what we may think of as conventional “retransmission” mechanisms: retransmission of broadcast signals by a cable system or an over-the-air translator or booster. But, VerStandig reasoned, if a radio station’s webcast signal can be prevented from reaching listeners beyond 150 miles of the station’s transmitter, why shouldn’t the royalty exemption apply there as well? Not necessarily a bad argument.

But, as it turned out, VerStandig aimed its lawsuit at the wrong target and pulled the trigger a bit too soon.

In asking for a court order confirming its reading of Section 114, VerStandig named SoundExchange as the sole defendant. It presumably reasoned that SoundExchange, which serves as the collection agent for webcasting copyright royalties, would be an appropriate target. It reasoned wrong, at least as far as Judge Urbanski was concerned.

In Urbanski’s view, VerStandig was looking for a ruling protecting it from claims of copyright infringement. Such claims may be brought only by copyright holders, not by SoundExchange, which is merely the copyright holders’ agent for collection purposes. So VerStandig should (in the Judge’s view) have sued not SoundExchange, but one or more copyright holders in a position to sue VerStandig for infringement. Since SoundExchange was the only named defendant, Urbanski concluded that he could not in any event provide the relief sought by VerStandig.

Moreover, VerStandig hadn’t even deployed geofencing technology, so it couldn’t demonstrate that that technology would in fact prevent its digital stream from being received beyond the 150-mile perimeter. VerStandig did have a bunch of experts who claimed that it would work but, in the Judge’s view, VerStandig had “done little or nothing to demonstrate that geofencing is anything more than a pipe dream.”

Constitutionally, federal courts have the authority to decide matters only when there is some actual “case or controversy”. That normally requires that there be some concrete, definite, immediate dispute between the parties before the court. Here, Judge Urbanski concluded that there was no real dispute between VerStandig and SoundExchange. And he further concluded that the basis for VerStandig’s claim – i.e., that geofencing would keep the digital signal within 150 miles of the transmitter – was far from established. In other words, as presented by VerStandig, this lawsuit did not pose a “case or controversy”, and it had to be dismissed.

Fans of geofencing shouldn’t view this as a final defeat by any means. Urbanski’s decision clearly leaves the door wide open for another case – maybe even filed by VerStandig – directed against a proper defendant and supported by a more persuasive showing relative to the effectiveness of geofencing. Will some broadcaster take this up (possibly with the assistance of geofencing suppliers, who might consider providing their gear at a deep discount to a broadcaster willing to fight the fight)? And if some such lawsuit gets filed and the concept of a geofencing-base exemption gets traction, will Congress be inclined to step in to eliminate that notion? We’ll keep an eye on things. Check back here for updates.