Brand X Loses Out in Court To Federal Brand of Uniformity
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

The Supreme Court ended its term yesterday with decisions that reinforce the trend of uniform, Washington based interpretations of federal law over state and local interpretations.
In NCTA v. Brand X, the Supreme Court sided with the National Cable Telecommunications Association, upholding FCC regulations on high-speed cable Internet services that exempt cable companies from the requirement that phone companies are under to give competitors access to their networks. It’s a major legal victory for the cable industry and enhances the dominance of federal over state and local regulation.
Brand X is a small California-based Internet service provider that wanted to offer high-speed services over a broadband network owned by a local cable company. Thus began a game of semantics. Under federal law, if cable broadband was a “telecommunications service,” the cable company would have to provide some accommodation to Brand X. The FCC said that cable-modem broadband service is not a telecom service but an ill-defined “information service.” The 9th Circuit Court of Appeals in California disagreed, finding that cable modem service was at least partly a telecom service. Many municipalities around the country took a similar position. Yesterday, the Supreme Court sided with the FCC.
Even if it had won the case, the benefits to Brand X would be delayed and difficult to predict. It would merely have gained the right to negotiate reasonable terms for access with thousands of cable franchises nationally. Negotiations could have taken months in each instance, and the terms and conditions might not have been attractive to Brand X or other ISPs.
On the other hand, for the cable industry, a loss in the Brand X case would have been immediate and substantial. The cable industry’s high-speed modem services would have been subject to two federal taxes that apply to telecom services: a federal excise tax of 3% and a federal Universal Service Fund fee in excess of 10%. In the nearly $10 billion cable-modem industry, these taxes would amount to more than $1 billion annually.
Perhaps of even greater comfort to the cable industry, the Supreme Court held that the FCC is the primary arbiter of federal communications law. If the court had instead held as enforceable the interpretations of federal communications law by municipalities, there could be tens of thousands of such interpretations.
In MGM Studios v. Grokster, the Supreme Court held that Grokster and its file-sharing Web site could be sued for infringement of federal copyright law. Even though Grokster itself is not making illegal copies of protected works, the justices reasoned that a lower court could still reasonably find that Grokster had not taken adequate precautions to protect against the illegal copying of works at its Web site.
Grokster and two lower courts had relied on a 1980s Supreme Court decision involving Sony and videocassette recorders, in which the court held that manufacturers of products with some legitimate uses could not be held liable for copyright infringements using the same device. The new Grokster decision exposes a broader class of businesses – not just individuals committing the unlawful copying – to liability under federal copyright law for merely inducing infringement. Federal copyright law is consequently a much more powerful instrument than it was just a few days ago.
The Supreme Court has strengthened federal laws this term while weakening state and local interpretations of them. The one exception appears to be the Supreme Court’s decision on eminent domain. Federal law protects communications and intellectual property, but not real estate.
The recurring theme in recent Supreme Court decisions is that the judiciary has a responsibility to ensure that federal law is applied in a consistent manner across states, localities, and even technologies. Federal law on cable modem service cannot have one meaning in one municipality and a different one elsewhere. Federal law cannot protect copyrighted works from inducements to infringe everywhere except on the Internet. Explicitly or not, the Supreme Court has repeatedly applied the interstate commerce clause of the Constitution to strengthen the uniform interpretation of federal law.
A former FCC commissioner,Mr. Furchtgott-Roth is president of Furchtgott-Roth Economic Enterprises. He can be reached at hfr@furchtgott-roth.com.