Before the

Federal Communications Commission

Washington, D.C. 20554

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| In the Matter of:                | * | > CS Docket No. 97-80        |
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FURTHER NOTICE OF PROPOSED RULE MAKING

AND DECLARATORY RULING

**Adopted: September 14, 2000 Released: September 18, 2000**

**Comment Date: November 15, 2000**

**Reply Comment Date: December 18, 2000**

By the Commission: Commissioner Tristani issuing a statement.

# introduction

1.  This Further Notice of Proposed Rulemaking ("*Notice*") and
    Declaratory Ruling ("*Order*") addresses two separate, but related,
    matters regarding the Commission's navigation devices rules.[^1] The
    navigation devices rules were adopted to implement Section 629 of
    the Communications Act. They are designed to assure the commercial
    availability from retail outlets of equipment used to access service
    from multichannel video programming systems. In adopting these
    rules, the Commission indicated that it would monitor the
    development of the commercial availability of navigation devices and
    on reconsideration stated that it would commence a proceeding in the
    year 2000 to review the effectiveness of the rules and consider any
    necessary changes. In this proceeding, we undertake that review. In
    addition, questions have been raised as to whether certain of the
    mechanisms being developed by the cable television industry relating
    to the copying of digital video programming comply with the existing
    rules. We address those issues in the form of a declaratory ruling
    in this proceeding.

# Further NOTICE OF PROPOSED RULEMAKING

2.  Section 629 of the Communications Act requires that the Commission
    adopt regulations to assure the commercial availability of
    navigation devices.[^2] The purpose of Section 629 and the rules
    adopted thereunder is to assure consumers the opportunity to
    purchase navigation devices from sources other than their MVPD
    service provider. Section 629 of the Communications Act instructs
    the Commission to:

adopt regulations to assure the commercial availability, to consumers .
. .of . . . equipment used . . . to access, multichannel video
programming and other services offered over multichannel video
programming systems, from manufacturers, retailers, and other vendors
not affiliated with any multichannel video programming distributor.[^3]

In addition, Section 629 provides that the Commission \"shall not
prescribe regulations . . . which would jeopardize security of . . .
services offered over multichannel video programming systems, or impede
the legal rights of a provider of such services to prevent theft of
service.\"[^4]

3.  In *Implementation of Section 304 of the Telecommunications Act of
    1996: Commercial Availability of Navigation Devices*, Report and
    Order (\"*Navigation Devices Order*\"),[^5] the Commission adopted
    rules to implement Section 629. In the *Navigation Devices Order*
    and the *Reconsideration Order*, the Commission expressed its
    intention to monitor developments to evaluate whether progress was
    being made toward the goals of Section 629, and, if necessary, to
    take further action to ensure a competitive marketplace and consumer
    choice in navigation devices.[^6] The Commission expressed its
    intention to undertake a review of the navigation devices rules in
    the year 2000. In this *Notice*, we seek comment regarding market
    developments to determine if the objectives of Section 629 are being
    fulfilled or whether further Commission action is warranted.

4.  The decisions made and rules adopted in the *Navigation Devices
    Order* include the following:

\(1\) Section 629 covers not just equipment used to receive video
programming, but also equipment used to access other services offered
over multichannel video programming systems. Such equipment includes
televisions, VCRs, cable set-top boxes, personal computers, program
guide equipment, and cable modems;

\(2\) Subscribers have the right to attach any compatible navigation
device to a multichannel video programming system;

\(3\) Service providers are prohibited from taking actions which would
prevent navigation devices that do not perform conditional access
functions from being made available by retailers, manufacturers, or
other unaffiliated vendors;

\(4\) MVPDs must separate out conditional access or security functions
from other functions by July 1, 2000 and make available modular security
components, also called PODs;

\(5\) After January 1, 2005, MVPDs shall not provide new navigation
devices that have security and non-security functions combined;

\(6\) MVPDs must provide information sufficient to permit the
manufacture, retail sale, and operation of devices for their systems;
and

\(7\) MVPDs can take the actions necessary to protect their operations
from technical harm and theft of service.[^7]

Subsequently, on reconsideration, the Commission determined that
deferring application of the separate security requirement for equipment
employing only an analog security mechanism would more expeditiously
achieve the goals of Section 629.[^8] In the *Reconsideration Order*,
the Commission indicated that it would assess the state of the market in
the year 2000 once separate security modules were available. The
Commission's navigation devices rules were recently upheld by the United
States Court of Appeals for the District of Columbia Circuit.[^9]

5.  Section 76.1204 required MVPDs to make available by July 1, 2000
    conditional access or security devices separated out from other
    functions of the navigation devices used with their distribution
    systems. These modular security components, also called point of
    deployment modules ("PODs"), permit MVPDs to retain conditional
    access functions under their own control while permitting other
    functions to be incorporated into devices available for retail
    purchase.[^10]

6.  The separation of security functions from the other functions
    required the development of an interface specification between host
    devices and PODs. The cable industry, through CableLabs, made a
    commitment to undertake this development through the OpenCable
    project. The intention was that the results of OpenCable should lead
    to standardization, design, and production of PODs and permit the
    design, production, and distribution of the associated host devices
    for retail sale.[^11] The eight cable operators involved in the
    CableLabs project were required to submit semiannual progress
    reports to the Commission detailing their efforts and the efforts of
    CableLabs to assure the commercial availability, to consumers of
    equipment used to access MVPD programming and other services offered
    by such systems.

7.  Reports were submitted on July 7, 1999, January 7, 2000 and July
    7, 2000. The July 2000 Report stated that cable operators met the
    July 1, 2000 deadline to have digital separate security modules
    available for customers, and also made available "build-to"
    specifications that would allow manufacturers of retailer-supplied
    boxes to manufacture and market host devices.[^12] The Status Report
    also noted that no retailer has placed an order for digital set-top
    boxes that will accommodate the digital modules.[^13] In response,
    the Consumer Electronics Retailers Coalition ("CERC") states that by
    focusing only on its obligation to produce PODs, the cable industry
    failed to provide technical specifications for interactive and
    non-interactive OpenCable host devices in time to support
    competitive entry by July 1, 2000.[^14]

8.  In response, NCTA states that it has published technical
    specifications for interactive and non-interactive host
    devices.[^15] NCTA contends that, for reasons unrelated to technical
    specifications, retailers have refused to place orders for
    navigation devices compatible with digital PODs.[^16] NCTA asserts
    that retailers are attempting to extract a portion of cable
    operators' revenues from subscribers' use of retailer-supplied
    navigation devices to access cable operators' services.[^17]

9.  *Development of OpenCable Specifications.* The Commission observed
    that the rules implemented to achieve the goals of Section 629 were
    "premised on the assumption that commercial interests, fueled by
    consumer demand, will agree on specifications for digital navigation
    devices to be submitted to standard-setting organizations, or that
    common interfaces will emerge that become widely accepted."[^18] The
    Commission expressed concern that a voluntary standards development
    encompassing the goals of Section 629, such as OpenCable, must
    provide an opportunity for a range of interests to participate.[^19]
    We seek comment on whether the efforts of CableLabs to develop an
    interface standard have achieved the desired result, and whether
    entities outside of the membership of CableLabs have been able to
    effectively participate in the process. We seek comment on whether
    the specifications provided by CableLabs allow consumer electronics
    manufacturers to build a navigation device that provides consumers a
    viable alternative to the equipment provided by their service
    provider. In addition, we also seek comment on whether there are
    further steps the Commission should undertake to ensure compliance
    with Section 629 and achieve the statutory objective of commercial
    availability of navigation devices.

10. *Integrated Boxes.* In the *Navigation Devices Order*, the
    Commission concluded that MVPDs' continued ability to provide
    integrated equipment combining both security and non-security
    functions would likely interfere with the statutory mandate of
    commercial availability.[^20] Accordingly, the Commission adopted
    Section 76.1204(a)(1), which prohibits MVPDs from selling or leasing
    new integrated equipment after January 1, 2005.[^21] That date was
    chosen to minimize the economic impact of the prohibition on
    manufacturers and MVPDs by allowing them sufficient time to respond
    to equipment modifications and a changed market.[^22]

11. On reconsideration, in response to requests that an earlier date be
    established, the Commission declined to change the 2005 date,
    stating however that it would review the mechanics of the phase-out
    of integrated boxes as part of its review of the state of the
    consumer retail market to be undertaken in the year 2000.[^23] In
    particular, the Commission stated it would consider whether
    acceleration of the phase-out date is appropriate.[^24] One option
    that the Commission specifically mentioned was moving the date from
    the year 2005 to 2003.[^25] Accordingly, we seek comment on the
    extent of the effect operator provision of integrated equipment has
    had on achieving a competitive market for commercially available
    navigation devices. We seek comment on whether the 2005 date for the
    phase-out of integrated boxes remains appropriate. Alternatively, we
    seek comment on whether it would it be satisfactory to permit MVPD
    or retail distribution of integrated boxes after January 1, 2005 if
    integrated boxes are also commercially available or for other
    reasons necessary to further the objectives of Section 629. In
    addition, we seek comment on the considerations that factor into a
    decision regarding the date of the phase-out of integrated boxes.
    For example, would an earlier or later date create incentives for
    the development of a commercial market for navigation devices? We
    also seek comment on the economic impact an earlier or later date
    would have on manufacturers and on MVPDs. In this regard, we believe
    the following information would be beneficial to the Commission's
    analysis: (1) the number of integrated boxes that MVPDs have
    deployed to customers to date; (2) the number of integrated boxes
    MVPDs expect to be deployed in 2003; (3) the number of orders MVPDs
    and retailers have made for non-integrated equipment; and (4) the
    number of orders for integrated boxes MVPDs have placed since the
    release of the *Reconsideration Order* and (5) the total cost
    differential (including manufacturing, marketing, research and
    development, and distribution costs), if any, between an integrated
    box and a host/POD combination.

12. *Obstacles to Commercial Availability.* CERC asserts that there are
    currently no host devices available at retail.[^26] In contrast, we
    note that a retail market for cable modems is developing in certain
    regions of the country.[^27] We seek comment on this apparent
    disparity. Circuit City also contends that, without significant
    changes, incentives for development of a retail market do not exist.
    We seek comment on any obstacles or barriers preventing or deterring
    the development of a retail market for navigation devices. We note
    that cable systems are in development that utilize technology
    outside that of traditional cable architecture. We seek comment on
    the impact of such systems on the commercial availability of
    navigation devices.

13. *Other Factors*. In addition to the specific requests for comments
    set forth above, we also request comments regarding other factors
    that commenters believe may be impeding or affecting achievement of
    the goals of Section 629. For example, recent articles indicate that
    retail availability of equipment has been slowed by market
    participants' failure to achieve mutually beneficial business
    arrangements.[^28] We seek comment as to what additional actions, if
    any, the Commission should initiate to achieve the statutory
    objective of competition in the navigation devices market.

# Declaratory Ruling

## BACKGROUND

14. In various proceedings before the Commission parties have raised
    concerns regarding alleged violations by cable operators of the
    existing navigation devices rules. The claimed violation, most
    fundamentally, is that whereas the rules require a separation of
    conditional access or security functions from other functions
    performed by navigation devices, cable operators are insisting on
    inclusion of copy protection encryption and decryption in both
    separated security modules and in the associated host devices that
    perform the other navigation functions. These concerns have been
    raised in response to our *Compatibility Between Cable Systems and
    Consumer Electronics Equipment,* Notice of Proposed
    Rulemaking*,*[^29] in response to the cable industry\'s status
    reports in this Docket,[^30] and in response to a number of
    navigation devices waiver requests filed by cable operators.[^31]
    Because it is important that the uncertainty regarding this issue be
    resolved so that progress in the development of a retail market for
    navigation devices continue, we address these questions, on our own
    motion, in the form of a declaratory ruling.[^32]

15. As the transition from analog-based technology to digital-based
    technology continues, equipment manufactures and retailers,
    programming creators and distributors, and consumers will benefit
    from the myriad advantages offered by digital content. Arriving in
    tandem with these digital advantages, however, are significant
    questions related to access to, and appropriate use of, digital
    content. The Commission, pursuant to Section 629, has addressed a
    number of the questions associated with access to digital content in
    the *Navigation Devices Order* and the rules implemented thereunder.
    Another issue, adequate protection against unauthorized use of
    digital content, gives rise to this declaratory ruling. Unlike the
    analog context, digital technology affords users the ability to make
    an unlimited number of virtually perfect copies of digital content.
    Also unlike the analog context, copyright holders of digital content
    possess the ability to prevent misuse of copy protected material
    through methods not previously available. Through the use of
    contractual licensing requiring consumer electronics manufacturers
    to install certain copy protection technology in their equipment in
    exchange for access to desirable digital content, copyright holders
    will be able to control, through the insertion of coded instructions
    in the digital stream, whether such equipment will allow consumers
    to make one copy, unlimited copies, or prohibit copying altogether
    of digital content received from an MVPD. It is the first generation
    of this licensing and technology and its relation to the
    Commission's navigation devices rules that we address here.

16. In enacting the Digital Millennium Copyright Act,[^33] Congress
    prohibited the act of circumventing a technological protection
    measure put in place by a copyright holder to control access to a
    copyrighted work.[^34] It is through the "Dynamic Feedback
    Arrangement Scrambling Technique" ("DFAST") license and other copy
    protection licensing efforts that content providers are attempting
    to incorporate such technological protection measures in consumer
    electronic equipment, such as commercially available navigation
    devices. To date, various industry segments have been unable to
    reach resolution on key issues. Without resolution of these issues,
    manufacturers cannot produce digital consumer electronic equipment
    such as digital cable-ready television sets, VCRs, and commercially
    available cable set-top boxes that will access high quality digital
    content. It is important that these issues be resolved in a timely
    manner or the transition to digital-based technology could be
    delayed.

17. The issue arises here because of the intellectual property rights
    that the developer of a \"host device\" (*e.g*., a consumer
    television receiver or set-top box) must acquire before proceeding
    to manufacture and sell these devices. The concerns raised focus on
    the DFAST license[^35] pursuant to which equipment manufacturers
    acquire rights from Cable Television Laboratories, Inc.
    ("CableLabs").[^36] We note that DFAST is by no means the only copy
    protection technology that has been developed or is in development.
    For example, Sony, Matsushita, Intel, Toshiba and Hitachi developed
    the Digital Transmission Content Protection Specification (the "5C
    technology") which affords a high degree of protection for
    copyrighted commercial entertainment content transmitted over
    high-speed bi-directional digital interfaces.[^37] Although it is
    possible to obtain a 5C license and various entities have done so,
    there are issues associated with 5C that remain unresolved. Without
    a 5C license, high quality digital content cannot exit a digital
    component, such as a cable set-top box for transmission to a digital
    television receiver or digital VCR. Of relevance to this proceeding
    is the fact that the draft DFAST license mandates, in addition to
    the DFAST technology, the use of the 5C technology.

**B. POSITIONS OF THE PARTIES**

18. Circuit City and other commenters assert that the draft DFAST
    license, in purporting to impose copy protection constraints on
    consumer electronics ("CE") and information technology ("IT") host
    devices directly violates Sections 76.1204(c) and 76.1202 of the
    Commission's navigation devices rules.[^38] Circuit City argues that
    if the DFAST copy protection functions performed by OpenCable host
    devices are determined to serve "conditional access" or "security"
    functions, the OpenCable specification would clearly violate the
    Commission's navigation devices rules.[^39] Circuit City contends
    that the purpose of the Commission's regulations was to allow POD
    modules to provide authorization for, and enable receipt of service,
    while prohibiting host devices from doing so.

19. Commenters taking a contrary view urge the Commission to take no
    action that would preclude the use of digital POD modules and host
    devices to facilitate the implementation of copyright protection
    technologies.[^40] NCTA asserts that DFAST technology will serve a
    copy protection and control function and is not subject to the
    "separation" requirements of the Commission's navigation device
    rules.[^41] Commenters note that the copy protection and security
    provisions at issue are critical to ensuring that content providers
    will supply high quality programming necessary to further the
    digital transition.[^42] Commenters assert that it is essential that
    copy protection technology be required in both the digital POD and
    the digital POD module interface in host devices.[^43]

20. Time Warner states that the Commission's authority to permit copy
    protection is consistent with Section 76.1204(c) of the Commission's
    rules, which does not prohibit the use of contracts, agreements,
    patent rights, or intellectual property rights to prevent the retail
    availability of navigation devices that would override copy
    protection instructions.[^44] Time Warner also argues that the
    language of Section 629(b) of the Communications Act expressly
    allows DFAST licenses to be located in host devices.[^45] Time
    Warner asserts that if the Commission were to restrict any
    requirement that host devices manufactured to work with digital PODS
    must comply with copy protection protocols, the Commission would be
    impeding the rights of MVPDs to prevent theft of service.[^46] It
    maintains that Section 76.1209 of the Commission's rules provides
    additional support for content providers seeking protection against
    unauthorized copying.[^47]

21. Circuit City further asserts that the right to make such devices
    available includes the right of consumers to attach and use them on
    the network, except, according to Section 76.1201, ". . . where
    electronic or physical harm would be caused by the attachment or
    operation of such devices or such devices may be used to assist or
    are intended or designed to assist in the unauthorized reception of
    service."[^48] In addition, Circuit City argues that Section 76.1203
    spells out the limits on contractual constraints, even when they
    involve instances of harm to the network or security.[^49] Circuit
    City cites language in the *Navigation Devices Order* that states
    that "\[t\]hese standards shall . . . not \[be used\] as a means to
    unreasonably restrict the use of navigation devices obtained from a
    source other than the MVPD."[^50]

22. Commenters note that the law has recognized that copy protection
    should not prevent consumers from making fair use of certain content
    through limited copying, or viewing such content as it is
    delivered.[^51] They note that copy protection, which allows a fair
    use exception, is distinct from conditional access, which does
    not.[^52] Conversely, other commenters contend that the *Betamax*
    decision concerned only certain limited-purpose, private home
    recordings of free, unencrypted, over-the-air broadcast television
    programs in an analog environment.[^53] They argue that the facts of
    the *Betamax* decision bear no resemblance to today's marketplace or
    to the damage of unconstrained digital copying.[^54] Time Warner
    notes that copy protection is not synonymous with an outright ban on
    copying, but rather merely allows the content provider to limit
    authorized copying in the digital context.[^55]

23. As support for the position that the DFAST license does not violate
    the navigation devices rules, commenters cite language from the
    *Navigation Devices Order* which states that "copy protection
    systems and devices that impose a limited measure of data encryption
    control over the types of devices that may record (or receive) video
    content would not be subject to the \[security\] separation
    requirement."[^56] NCTA contends that if there were no copy control
    requirements placed on the host, once the signal is descrambled in
    the POD, it would be available for unauthorized copying or
    retransmission to unauthorized viewers.[^57] Commenters note that
    the Commission acknowledged as much in its *Navigation Devices
    Order*, where it stated, "\[I\]f digital content passes across an
    interface---whether between a television receiver and a set top box,
    a POD security module and a host device (*e.g.,* a set top box or a
    television receiver), or some other interface---that content is
    susceptible to copying if the interface is unprotected."[^58]

24. Circuit City asserts that NCTA misconstrues the copy protection
    language from the *Navigation Devices Order* by not reading it in
    its entirety.[^59] Circuit City maintains that the entire discussion
    draws a delineation between the types of conditional access that are
    reserved to the POD device, and may be protected through
    restrictions on the host, and the forms of copy protection, which
    rely on milder encryption and authentication techniques, which do
    not implicate system security and may thus be incorporated into the
    host.[^60] The Commission, Circuit City argues, has given approval
    only to imposition of contractual limitations necessary to protect
    system security and subscriber authentication, and not to other
    measures.

**C. DISCUSSION**

25. We address the narrow question of whether the inclusion of some
    measure of copy protection within a host device violates the
    separation requirement of the Commission's navigation devices rules.
    As discussed below, we find that it does not. Circuit City contends
    that the navigation devices rules preclude any copy protection
    encryption system located within a host device. Further, Circuit
    City argues that to the extent some copy protection might be
    permitted, that the DFAST license terms were adopted without
    appropriate input from equipment manufacturers and retailers and, as
    imposed, exceed whatever restrictions on fair use copying that might
    reasonably be permitted.

26. Section 76.1201 of the Commission's rules creates a right to connect
    navigation devices to multichannel video programming distribution
    systems.[^61] This right, however, does not include the right to
    attach devices that would cause electronic or physical harm or where
    \"such devices may be used to assist or are intended or designed to
    assist in the unauthorized receipt of service.\"[^62] Operating in
    parallel with this provision, Section 76.1203 indicates that a
    service provider may restrict the attachment or use of navigation
    devices intended to assist in the unauthorized receipt of service.
    MVPDs utilizing devices to perform conditional access functions are
    required to make available equipment \"that incorporates only the
    conditional access functions of such devices.\"[^63] Conditional
    access devices made available pursuant to this section shall
    incorporate a commonly used interface within the industry or an
    interface that conforms to appropriate technical standards
    promulgated by a national standards organization.[^64] Further, no
    MVPD shall \"by contract, agreement, patent, intellectual property
    right or otherwise preclude the addition of features or functions to
    the equipment made available pursuant to this section that are not
    designed, intended or function to defeat the conditional access
    controls of such devices or to provide unauthorized access to
    service.\"[^65]

27. Copy protection for digital video content in its current
    formulations and in a very broad sense, involves techniques of
    encoding content as it crosses interfaces and of establishing
    two-way communications paths and protocols across these interfaces
    so that video content is only released after the receiving device is
    queried by the sending device and confirms that it is an eligible
    content recipient. Navigation devices can be manufactured, sold, and
    connected to MVPDs that do not support copy-protected product.
    However, a host device, not part of the copyright protection system,
    could not \"navigate\" through the full complement of cable content
    to the extent digital cable content is itself subject to copy
    protection requirements as a consequence of a contractual
    relationship between cable operators and suppliers of cable video
    content. If these devices are intended for reception of this type of
    product, the manufacturer must adhere to the copy protection
    protocols which involve in part obtaining access to certain
    intellectual property rights which are needed to make the copy
    protection system function and to which are appended certain
    contractual requirements. Most fundamentally the host device
    manufacturer must agree not to defeat or assist others in defeating
    the copyright protection systems. The contractual provisions are
    intended to ensure that the reception device in question does not
    defeat the copy protection system and is manufactured in a
    sufficiently robust fashion so that others cannot easily defeat the
    system. In the cable television context, these rights are available
    from CableLabs. The CableLabs designed interface includes an
    encryption and copy protection control system on the output side of
    the interface, which makes use of the DFAST scrambling technology.
    It is the restrictions attached to a preliminary version of the
    DFAST license agreement about which Circuit City has raised
    concerns.

28. Section 629 of the Communications Act requires that the Commission's
    navigation devices rules accomplish two goals: (1) to assure the
    commercial availability of navigation devices; and (2) to adequately
    safeguard the cable operators' signal security. Our decision today
    is consistent with both of these goals. In the *Navigation Devices
    Order*, the Commission noted that a number of different types of
    security, access control, or data encryption systems were involved
    and specifically stated that \"\[c\]opy protection systems and
    devices that impose a limited measure of data encryption control
    over the types of devices that may record (or receive) video content
    would not be subject to the separation requirement.\"[^66] As the
    *Navigation Devices Order* specifically states, including some copy
    protection technology in both the POD module and host device to
    bridge a gap where digital data would otherwise be available \"in
    the clear\" and accessible for digital copying would not necessarily
    violate the rules. Some measure of anti-copying encryption is, we
    believe, consistent with the intent of the rules, notwithstanding
    that the rules would otherwise require that all conditional access
    controls take place in the security control module. In this regard,
    the record indicates that content providers are seeking copy
    protection licensing terms that limit consumers to making a single
    copy of some high quality digital content, that is not otherwise
    subject to additional restrictions (such as is the case with
    pay-per-view or video-on-demand programming).[^67] We note that
    commenters assert that consumers have certain settled expectations
    regarding home copying of both broadcast and cable programming that
    would be undercut by these licenses.[^68] Based on the record in
    this proceeding, no evidence has been presented that the evolving
    copy protection licenses and technology discussed herein would
    preclude reasonable home recording of such content.[^69] It should
    be noted, however, that our ruling is not based on this aspect of
    the record; we cite such evidence simply to rebut the notion that
    our ruling will lead to inevitable restrictions on consumers\'
    ability to copy digital material.

29. We decline to resolve the question of the nature and scope of any
    copy protection systems or rights. Circuit City and others have
    raised the concern that the draft agreement, governing the DFAST
    Specification, at least in its preliminary form, exceeds the
    allowable limits. For example, it is suggested that the host device
    manufacturer could be precluded from facilitating even that degree
    of copying that comes within copyright law \"fair use\" copying
    allowances.[^70] Other examples of suggested overreaching include a
    provision in the license that \"The Licensed Product \[host device\]
    not output POD-CP Data, or pass POD-CP Data to any output, in High
    Definition Analog Form unless the output shall be constrained to no
    more than 600 lines of vertical resolution.\" At this time, we take
    no position on the specific terms contained in the draft DFAST
    license. While our ruling herein clarifies that the inclusion of
    some amount of copy protection within a host device does not
    automatically violate the separation requirement of the navigation
    devices rules, we do not intend this declaratory ruling to signal
    that any terms or technology associated with such licenses and
    designated as necessary for copy protection purposes are consistent
    with our rules. We believe, however, that such issues are best
    resolved if specific concerns involving finalized licenses that
    implicate our navigation devices rules are presented to the
    Commission.[^71]

30. Circuit City also expresses concern that the DFAST license and
    technology does not impact MSO devices, which are permitted to
    integrate security within the host device until 2005.[^72] As such,
    Circuit City maintains that use of the DFAST license to impose copy
    protection constraints would apply to CE and IT, but not MSO
    devices. Circuit City submits that any action taken by the
    Commission regarding copy protection should apply to all navigation
    devices. In the alternative, Circuit City argues that, if the
    Commission decides to allow the DFAST license, it should delay the
    effectiveness of such license until January 1, 2002 and accelerate
    the date on which MSOs are prohibited from deploying integrated
    navigation devices to January 1, 2002.[^73]

31. The record in this proceeding is insufficient to enable us to make
    any conclusions regarding Circuit City's assertions. Anecdotal
    evidence supplied to the Commission suggests that at least some
    content providers require the same level of copy protection, or will
    require the same level of copy protection upon the termination of
    existing licenses, with regard to MSO-provided devices as they do
    commercially available devices.[^74] Should additional evidence
    indicate that content providers are requiring disparate measures of
    copy protection from different industry segments, the Commission
    will take appropriate action. We, therefore, decline Circuit City's
    request to defer the effectiveness of the DFAST licenses. We seek
    comment on the advisability of accelerating the 2005 integrated
    equipment deadline in the Further Notice of Proposed Rulemaking set
    forth above.

32. While our decision today will not resolve all of the copy protection
    issues that will arise in the transition to digital-based
    technology, we intend the guidance imparted herein to resolve the
    basic controversy regarding the permissibility, under our navigation
    devices rules, of the incorporation of copy protection measures into
    commercially available navigation devices. With this controversy
    resolved, we expect industry participants to promptly finalize
    negotiations in order to bring to fruition the goals established by
    Congress in Section 629. Accordingly, we request the eight multiple
    system operators that are involved in CableLabs, or CableLabs on
    their behalf, to submit within 30 days of release of this *Order* a
    report on the status of the DFAST license, including a final version
    of a completed DFAST license agreement.

## Procedural Matters

33. *Ex Parte Status of Proceeding.* Subject to the provisions of 47
    C.F.R. § 1.1203 concerning "Sunshine Period" prohibitions, this
    proceeding is exempt from *ex parte* restraints and disclosure
    requirements, pursuant to 47 C.F.R. § 1.1204(b)(1).

34. *Regulatory Flexibility Analysis.* As required by the Regulatory
    Flexibility Act (RFA),[^75] the Commission has prepared an Initial
    Regulatory Flexibility Analysis (IRFA), contained in Appendix A, of
    the possible significant economic impact on small entities by the
    policies and rules proposed in this *Further Notice of Proposed
    Rulemaking*. Written public comments are requested on this IRFA.
    Comments must be identified as responses to the IRFA and must be
    filed in accordance with the same filing deadlines as comments on
    the rest of the *Notice.*

35. *Initial Paperwork Reduction Act Analysis.* This *Notice* contains
    either a proposed or modified information collection. As part of its
    continuing effort to reduce paperwork burdens, we invite the general
    public and the Office of Management and Budget (OMB) to take this
    opportunity to comment on the information collections contained in
    this *Notice*, as required by the Paperwork Reduction Act of 1995,
    Public Law 104-13. Public and agency comments are due at the same
    time as other comments on this *Notice*; OMB comments are due 60
    days from date of publication of this *Notice* in the Federal
    Register. Comments should address: (a) whether the proposed
    collection of information is necessary for the proper performance of
    the functions of the Commission, including whether the information
    shall have practical utility; (b) the accuracy of the Commission\'s
    burden estimates; (c) ways to enhance the quality, utility, and
    clarity of the information collected; and (d) ways to minimize the
    burden of the collection of information on the respondents,
    including the use of automated collection techniques or other forms
    of information technology.

36. *Filing of Comments and Reply Comments.* Pursuant to Sections 1.415,
    1.419, and 1.430 of the Commission's rules, 47 C.F.R. §§ 1.415,
    1.419, 1.430, interested parties may file comments on or before
    November 15, 2000, and reply comments on or before December
    18, 2000. Comments may be filed using the Commission's Electronic
    Comment Filing System (ECFS) or by filing paper copies*. See
    Electronic Filing of Documents in Rulemaking Proceedings,* 63 Fed.
    Reg. 24,121 (1998).

37. Comments filed through the ECFS can be sent as an electronic file
    via the Internet to http://www.fcc.gov/e-file/ecfs.html. Generally,
    only one copy of an electronic submission must be filed. In
    completing the transmittal screen, commenters should include their
    full name, Postal Service mailing address, and the applicable docket
    number. Parties may also submit an electronic comment by Internet
    e-mail. To get filing instructions for e-mail comments, commenters
    should send an e-mail to ecfs@fcc.gov, and should include the
    following words in the body of the message, "get form \<your e-mail
    address\>." A sample form and directions will be sent in reply.

38. Parties who choose to file by paper must file an original and four
    copies of each filing. All filings must be sent to the Commission's
    Secretary, Magalie Roman Salas, Office of the Secretary, Federal
    Communications Commission, 445 12^th^ Street, S.W., Room TW-A325,
    Washington, D.C. 20554.

39. Parties who choose to file by paper should also submit their
    comments on diskette. These diskettes should be submitted to: Thomas
    Horan, Cable Services Bureau, Federal Communications Commission, The
    Portals, 445 Twelfth Street, S.W., Room 4-A817, Washington,
    D.C. 20554. Such a submission should be on a 3.5-inch diskette
    formatted in an IBM-compatible format using Word for Windows or
    compatible software. The diskette should be accompanied by a cover
    letter and should be submitted in "read only" mode. The diskette
    should be clearly labeled with the commenter's name, proceeding
    (including the docket number, in this case **CS Docket No. 97-80**,
    type of pleading (comment or reply comment), date of submission, and
    the name of the electronic file on the diskette. The label should
    also include the following phrase, "Disk Copy -- Not an Original."
    Each diskette should contain only one party's pleadings, preferably
    in a single electronic file. In addition, commenters must send
    diskette copies to the Commission's copy contractor, International
    Transcription Service, Inc., 1231 20^th^ street, N.W., Washington,
    D.C. 20036.

40. Comments and reply comments will be available for public inspection
    during regular business hours in the Reference Information Center
    (Room CY-A257) of the Federal Communications Commission, The
    Portals, 445 Twelfth Street, S.W., Washington, D.C. 20554. Copies of
    comments and reply comments will also be available through the
    Commission's duplicating contractor, International Transcription
    Service, Inc. (ITS, Inc.), 1231 20^th^ Street, N.W., Washington,
    D.C. 20036, (202) 857-3800, TTY (202) 293-8810.

41. Alternative formats (computer diskette, large print, audiocassette
    and Braille) are available to persons with disabilities by
    contacting the Consumer Information Bureau, Consumer Education
    Office, at (202) 418-2514, TTY (202) 418-2555, or at
    fccinfo@fcc.gov. The *Notice* can also be downloaded at
    www.fcc.gov/dtf/.

# IV. ORDERING CLAUSEs {#iv.-ordering-clauses .unnumbered}

42. **IT IS HEREBY ORDERED** that pursuant to Sections 4(i) and 4(j) of
    the Communications Act of 1934, as amended, 47 C.F.R. §§ 154(i) and
    154(j), Section 5(d) of the Administrative Procedure Act, 5 U.S.C. §
    554(e), and Section 1.2 of the Commission's Rules, 47 C.F.R. § 1.2,
    this declaratory ruling of the Commission's navigation devices rules
    **IS ADOPTED** and the Commission's navigation devices rules **ARE
    CLARIFIED** to the extent set forth herein.

43. **IT IS FURTHER ORDERED** that, pursuant to Sections 4(i), 303(r),
    and 629 of the Communications Act of 1934, as amended, 47 U.S.C. §§
    154(i), 303(r), and 549, **NOTICE IS HEREBY GIVEN** of the proposals
    described in this Notice of Proposed Rulemaking.

44. **IT IS FURTHER ORDERED** that the Commission's Consumer Information
    Bureau, Reference Information Center, **SHALL SEND** a copy of this
    Further Notice of Proposed Rulemaking, including the Initial
    Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy
    of the Small Business Administration.

FEDERAL COMMUNICATIONS COMMISSION

Magalie Roman Salas Secretary

> **APPENDIX A**

**INITIAL REGULATORY FLEXIBILITY ANALYSIS**

1.  As required by the Regulatory Flexibility Act (RFA),[^76] the
    Commission has prepared this present Initial Regulatory Flexibility
    Analysis (IRFA) of the possible significant economic impact on small
    entities by the policies and rules proposed in this *Further Notice
    of Proposed Rulemaking (*"*Notice*"). Written public comments are
    requested on this IRFA. Comments must be identified as responses to
    the IRFA and must be filed in accordance with the same filing
    deadlines as comments on the rest of the *Notice.* The Commission
    will send a copy of the *Notice*, including this IRFA, to the Chief
    Counsel for Advocacy of the Small Business Administration. *See* 5
    U.S.C. § 603(a). In addition, the *Notice* and IRFA (or summaries
    thereof) will be published in the Federal Register. *See id*.

2.  *Need for, and Objectives of, the Proposed Rules:* The navigation
    devices rules were adopted to implement Section 629 of the
    Communications Act. They are designed to assure the commercial
    availability from retail outlets of equipment used to access service
    from multichannel video programming systems. In adopting these
    rules, the Commission indicated that it would monitor the
    development of the commercial availability of navigation devices and
    on reconsideration stated that it would commence a proceeding in the
    year 2000 to review the effectiveness of the rules and consider any
    necessary changes. In this proceeding, we undertake that review.
    This *Notice* is designed to seek comment on the Commission's
    navigation devices rules and to elicit comment on whether any
    changes to the current rules are necessary in order to promote
    commercial availability.

3.  *Legal Basis:* Authority for this proposed rulemaking is contained
    in Sections 4(i), 303(r), and 629 of the Communications Act of 1934,
    as amended, 47 U.S.C. §§ 154(i), 303(r), and 549.

4.  *Description and Estimate of Small Entities to Which the Proposed
    Rules Will Apply:* The RFA directs agencies to provide a description
    of, and, where feasible, an estimate of the number of small entities
    that may be affected by the proposed rules, if adopted.[^77] The RFA
    generally defines the term "small entity" as having the same meaning
    as the terms "small business," "small organization," and "small
    governmental jurisdiction."[^78] In addition, the term "small
    business" has the same meaning as the term "small business concern"
    under the Small Business Act.[^79] A small business concern is one
    which: (1) is independently owned and operated; (2) is not dominant
    in its field of operation; and (3) satisfies any additional criteria
    established by the Small Business Administration (SBA).[^80] A small
    business concern is one which: (1) is independently owned and
    operated; (2) is not dominant in its field of operation; and (3)
    satisfies any additional criteria established by the SBA.[^81]
    Nationwide, as of 1992, there were approximately 275,801 small
    organizations.[^82]

5.  Rules adopted in this proceeding could apply to manufacturers of DTV
    equipment, including television receivers, set-top boxes and "point
    of deployment" modules. Distributors of this equipment, including
    retailers of consumer electronics equipment and, in the case of
    "point of deployment" modules, cable operators, would also be
    affected.

6.  *Cable Systems:* The SBA has developed a definition of small entity
    for cable and other pay television services, which includes all such
    companies generating \$11 million or less in revenue annually.[^83]
    This definition includes cable systems operators, closed circuit
    television services, direct broadcast satellite services, multipoint
    distribution systems, satellite master antenna systems and
    subscription television services. According to the Census Bureau,
    there were 1,323 such cable and other pay television services
    generating less than \$11 million in revenue that were in operation
    for at least one year at the end of 1992.[^84]

7.  The Commission has developed its own definition of a small cable
    system operator for the purposes of rate regulation. Under the
    Commission\'s rules, a \"small cable company,\" is one serving fewer
    than 400,000 subscribers nationwide*.*[^85] Based on our most recent
    information, we estimate that there were 1,439 cable operators that
    qualified as small cable system operators at the end of 1995.[^86]
    Since then, some of those companies may have grown to serve over
    400,000 subscribers, and others may have been involved in
    transactions that caused them to be combined with other cable
    operators. Consequently, we estimate that there are fewer than 1,439
    small entity cable system operators that may be affected by the
    decisions and rules proposed in this *Notice*.

8.  The Communications Act also contains a definition of a small cable
    system operator, which is \"a cable operator that, directly or
    through an affiliate, serves in the aggregate fewer than 1% of all
    subscribers in the United States and is not affiliated with any
    entity or entities whose gross annual revenues in the aggregate
    exceed \$250,000,000.\"[^87] The Commission has determined that
    there are 66,690,000 subscribers in the United States. Therefore, we
    found that an operator serving fewer than 666,900 subscribers shall
    be deemed a small operator, if its annual revenues, when combined
    with the total annual revenues of all of its affiliates, do not
    exceed \$250 million in the aggregate.[^88] Based on available data,
    we find that the number of cable operators serving 666,900
    subscribers or less totals 1,450.[^89] Although it seems certain
    that some of these cable system operators are affiliated with
    entities whose gross annual revenues exceed \$250,000,000, we are
    unable at this time to estimate with greater precision the number of
    cable system operators that would qualify as small cable operators
    under the definition in the Communications Act.

9.  *Small Manufacturers*: The SBA has developed definitions of small
    entity for manufacturers of household audio and video equipment
    (SIC 3651) and for radio and television broadcasting and
    communications equipment (SIC 3663). In each case, the definition
    includes all such companies employing 750 or fewer employees.

10. *Electronic Equipment Manufacturers*: The Commission has not
    developed a definition of small entities applicable to manufacturers
    of electronic equipment. Therefore, we will utilize the SBA
    definition of manufacturers of Radio and Television Broadcasting and
    Communications Equipment.[^90] According to the SBA\'s regulations,
    a TV equipment manufacturer must have 750 or fewer employees in
    order to qualify as a small business concern.[^91] Census Bureau
    data indicates that there are 858 U.S. firms that manufacture radio
    and television broadcasting and communications equipment, and that
    778 of these firms have fewer than 750 employees and would be
    classified as small entities.[^92] The Census Bureau category is
    very broad, and specific figures are not available as to how many of
    these firms are exclusive manufacturers of television equipment or
    how many are independently owned and operated. We conclude that
    there are approximately 778 small manufacturers of radio and
    television equipment.

11. *Electronic Household/Consumer Equipment*: The Commission has not
    developed a definition of small entities applicable to manufacturers
    of electronic equipment used by consumers, as compared to industrial
    use by television licensees and related businesses. Therefore, we
    will utilize the SBA definition applicable to manufacturers of
    Household Audio and Visual Equipment. According to the SBA\'s
    regulations, a household audio and visual equipment manufacturer
    must have 750 or fewer employees in order to qualify as a small
    business concern.[^93] Census Bureau data indicates that there are
    410 U.S. firms that manufacture radio and television broadcasting
    and communications equipment, and that 386 of these firms have fewer
    than 500 employees and would be classified as small entities.[^94]
    The remaining 24 firms have 500 or more employees; however, we are
    unable to determine how many of those have fewer than 750 employees
    and therefore, also qualify as small entities under the SBA
    definition. Furthermore, the Census Bureau category is very broad,
    and specific figures are not available as to how many of these firms
    are exclusive manufacturers of television equipment for consumers or
    how many are independently owned and operated. We conclude that
    there are approximately 386 small manufacturers of television
    equipment for consumer/household use, but in any event, no more than
    410 are small entities.

12. *Computer Manufacturers*: The Commission has not developed a
    definition of small entities applicable to computer manufacturers.
    Therefore, we will utilize the SBA definition of Electronic
    Computers. According to SBA regulations, a computer manufacturer
    must have 1,000 or fewer employees in order to qualify as a small
    entity.[^95] Census Bureau data indicates that there are 716 firms
    that manufacture electronic computers and of those, 659 have fewer
    than 500 employees and qualify as small entities.[^96] The remaining
    57 firms have 500 or more employees; however, we are unable to
    determine how many of those have fewer than 1,000 employees and
    therefore also qualify as small entities under the SBA definition.
    We conclude that there are approximately 659 small computer
    manufacturers.

13. *Small Retailers*: The Commission has not developed a definition of
    small entities applicable to retail sellers of navigation devices.
    Therefore, we will utilize the SBA definition. The 1992 Bureau of
    the Census data indicate: there were 9,663 U.S. firms classified as
    Radio, Television, and Consumer Electronic Stores (SIC 5731), and
    that 9,385 of these firms had \$4.999 million or less in annual
    receipts and 9,473 of these firms had \$7.499 million or less in
    annual receipts.[^97] Consequently, we tentatively conclude that
    there are approximately 9,663 such small retailers that may be
    affected by the decisions and rules proposed in this *Notice*.

14. *Reporting, Recordkeeping, and Other Compliance Requirements:* At
    this time, it is not expected that the proposed actions will require
    any additional recordkeeping or compliance requirements. We seek
    comment on whether others perceive a need for extensive
    recordkeeping.

15. *Steps Taken to Minimize Significant Economic Impact on Small
    Entities, and Significant Alternatives Considered:* The RFA,[^98]
    requires an agency to describe any significant alternatives that it
    has considered in reaching its proposed approach, which may include
    the following four alternatives, among others: (1) the establishment
    of differing compliance or reporting requirements or timetables that
    take into account the resources available to small entities; (2) the
    clarification, consolidation, or simplification of compliance or
    reporting requirements under the rule for small entities; (3) the
    use of performance, rather than design, standards; and (4) an
    exemption from coverage of the rule, or any part thereof, for small
    entities.

16. Parties have requested that we consider accelerating the date on
    which the prohibition of integrated devices goes into effect. We
    have sought comment on this issue and will examine the effect on
    businesses and small entities that such a change would entail. We
    have also sought comment on other suggestions that would facilitate
    the development of a commercial marketplace for navigation devices.
    We will consider and examine the effect of those suggestions on
    businesses and small entities as well. Should commenters disagree
    with any of our conclusions, we welcome comments suggesting ways in
    which any perceived burden upon small entities could be mitigated.

17. *Federal Rules that May Duplicate, Overlap, or Conflict With the
    Proposed Rules*: None.

    **SEPARATE STATEMENT OF COMMISSIONER GLORIA TRISTANI**

[In the Matter of The Commercial Availability of Navigation
Devices---Implementation of Section 304 of the Telecommunications Act of
1996]{.smallcaps}*: Further Notice of Proposed Rulemaking and
Declaratory Ruling*

I support today's declaratory ruling clarifying the application of our
navigational devices rule[^99] to the question of devices that rely on
technology licenses that include or require copy protection for content
delivered over cable systems. I write separately to emphasize the
narrowness of our holding.

Specifically, our ruling in no way authorizes any attempt by providers
of services to utilize this ruling to combine technology with copy
protection in a manner that interferes with, or unreasonably restricts,
a consumer's fair use of copy-protected material.[^100] "From the
infancy of copyright protection, some opportunity for fair use of
copyrighted materials has been thought necessary to fulfill copyright\'s
very purpose..." , *Campbell v. Acuff-Rose Music*, Inc. 510 U.S. 569,
575 (1994). Congress reaffirmed its support for this principle by
enacting the Digital Millennium Copyright Act in 1998.[^101] Today's
declaration ensures the financial rewards of copy protection to content
owners while protecting citizens from the dispossession of their right
to fair use. Based on the record before us and controlling Supreme Court
precedent, I believe we have struck the appropriate balance.

[^1]: Section 76.1201(c) defines navigation devices as "converter boxes,
    interactive equipment, and other equipment used by consumers within
    their premises to receive multichannel video programming and other
    services offered over multichannel video programming systems." 47
    C.F.R. § 76.1201(c).

[^2]: 47 U.S.C. § 549.

[^3]: 47 U.S.C. § 549(a).

[^4]: 47 U.S.C. § 549(b).

[^5]: 13 FCC Rcd 14775 (1998).

[^6]: *Id.* at 14782.

[^7]: *Navigation Devices Order*, 13 FCC Rcd at 14778-79.

[^8]: *Implementation of Section 304 of the Telecommunications Act of
    1996, Commercial Availability of Navigation Devices*, Order on
    Reconsideration, 14 FCC Rcd 7596 (1999) ("*Reconsideration Order*").

[^9]: *See General Instrument Corporation v. FCC*, 213 F.3d 724 (D.C.
    Cir. 2000).

[^10]: 47 C.F.R. § 76.1204.

[^11]: *Navigation Devices Order*, 13 FCC Rcd at 14806.

[^12]: July 7, 2000 Status Report at 7.

[^13]: *Id.*

[^14]: CERC Response to Status Report at 2. CERC states that as of
    August 2, 2000 there is still no interactive specification
    available. *Id.* at 5.

[^15]: Letter dated August 15, 2000 from Robert Sachs to the Hon.
    William J. Tauzin at 1.

[^16]: *Id.* at 2.

[^17]: *Id.*; *see* Paul Davidson, *Bickering Delays Retail Debut of
    Set-Top Cable Boxes*, [USA Today]{.smallcaps}, July 25, 2000, at B1.

[^18]: *Navigation Devices Order*, 13 FCC Rcd at 14781.

[^19]: *Id*. at 14823.

[^20]: *Id*. at 14799.

[^21]: 47 C.F.R. §76.1204(a)(1) provides, \"Commencing on January 1,
    2005, no multichannel video programming distributor. . . shall place
    into service new navigation devices for sale, lease, or use that
    perform both conditional access and other functions in a single
    integrated device.\"

[^22]: *Navigation Devices Order*, 13 FCC Rcd at 14803.

[^23]: *Reconsideration Order,* 14 FCC Rcd at 7612.

[^24]: *Id*.

[^25]: *Id*.

[^26]: Response of the Consumer Electronic Retailers Coalition to the
    July 7, 2000 Cable Industry Status Report at 1-2.

[^27]: *See Bringing Broadband to Retail*, Cable Modem Information
    Network (December 1999)
    (www.cable-modem.net/features/dec99/story1.html).

[^28]: *See* *supra* n. 17 and accompanying text (discussing delay in
    retail market of host devices).

[^29]: 15 FCC Rcd 8776, 8784 (2000)("*Compatibility NPRM*"). In the
    *Compatibility NPRM*, the Commission sought comment on whether there
    were any unresolved POD technology licensing issues related to copy
    protection. The *Compatibility NPRM* noted concerns raised by
    Circuit City that the draft CableLabs license for utilization of
    DFAST scrambling technology in POD modules imposes certain
    obligations on the competitive host device that, according to
    Circuit City, should be imposed only on the POD module itself.
    *Compatibility NPRM,* 15 FCC Rcd at 8754. We sought comment on
    whether the terms of the draft license are consistent with our rules
    and on appropriate regulatory action, if any, with respect to copy
    protection technology licensing. *Id.* at 8787-85. We incorporate
    into the record in this proceeding the comments and reply comments
    submitted in the *Compatibility NPRM* proceeding.

[^30]: Response of Consumer Electronics Retailers Coalition to the July
    7, 2000 Cable Industry Status Report in CS Docket 97-80, August 2,
    2000; Circuit City *ex parte* filings of July 30, 1999 and February
    2, 2000 in CS Docket 97-80.

[^31]: *See e.g.,* Opposition of Circuit City Stores, Inc. in CSR 5558-Z
    (Application of Insight Communications Requesting Relief from 47
    C.F.R. §76.1204(a)(1)).

[^32]: *See* 47 C.F.R. § 1.2.

[^33]: The World Intellectual Property Treaty ("WIPO Treaty") provides
    that contracting states "shall provide adequate legal protection and
    effective legal remedies against the circumvention of effective
    technological measures that are used by authors in connection with
    the exercise of their rights under this Treaty. . . ." *Universal
    City Studios, Inc. v, Reimerdes*, 2000 WL 1160678 (S.D.N.Y. 2000).
    Adoption of the WIPO Treaty necessitated that Congress adapt the law
    of copyright to the digital age. *Id.* The Digital Millennium
    Copyright Act ("DMCA") was the culmination of this effort.

[^34]: *See* DMCA, 17 U.S.C. § 1201(a)(1).

[^35]: DFAST technology is used in conjunction with the POD and host
    device to provide security and to facilitate copy protection of high
    quality content. An encrypted digital signal is transmitted through
    a cable system to the host device using propriety conditional access
    techniques. NCTA Comments at 17. The signal goes from the host to
    the POD across the interface in encrypted form. The POD will decrypt
    the signal using its proprietary conditional access technique and
    send the signal back across the interface to the host. To ensure
    that the decrypted signal cannot be intercepted as it crosses the
    interface between the POD and the host, the signal is reencrypted in
    the POD before being sent back to the host. Part of this
    reencryption process involves use of DFAST technology. Once in the
    host, the signal is decrypted. The decryption process also involves
    DFAST technology. As a result, DFAST technology resides in both the
    POD and host device. *Id.*

[^36]: We note that, while it primarily focuses on issues raised with
    respect to the DFAST license, our analysis is applicable to other
    forms of copy protection licensing and technology.

[^37]: 5C License Administrator Comments at 2.

[^38]: Circuit City Comments at 16; Phillips Comments at 8; Thomson
    Comments at 7-8 CEA Comments at 16; 5C Digital Transmission License
    Administrator Comments ("5C") at 9 ("tends to agree" with Circuit
    City); Home Recording Rights Coalition ("HRCC") Comments at 17.
    Section 76.1204(c) of the Commission's rules provides that:

    No multichannel video programming distributor shall by contract,
    agreement, patent, intellectual property right or otherwise preclude
    the addition of features or functions to the equipment made
    available pursuant to this section that are not designed, intended
    or function to defeat the conditional access controls of such
    devices or to provide unauthorized access to service.

    47 C.F.R. § 76.1204(c). Section 76.1202 provides:

    > No multichannel video programming distributor shall by contract,
    > agreement, patent right, intellectual property right or otherwise
    > prevent navigation devices that do not perform conditional access
    > or security functions from being made available to subscribers
    > from retailers, manufacturers, or other vendors that are
    > unaffiliated with such owner or operator, subject to Section
    > 76.1209 \[theft of service\].

    47 C.F.R. § 76.1202.

[^39]: Circuit City Comments at 18.

[^40]: Fox Comments at 5; MPAA Comments at 4.

[^41]: NCTA Comments at 5; MPAA Comments at 7.

[^42]: NCTA Comments at 14; Time Warner Comments at 10; Viacom Comments
    at 2; ABC, Inc., CBS, Broadcasting, Inc., News Corporation, and
    National Broadcasting Company, Inc. ("Networks") Comments at 1; MPAA
    Comments at 3; Metro-Goldwyn Mayer Studios Inc. Comments at 1.

[^43]: NCTA Comments at 16-17; MPAA Comments at 6.

[^44]: Time Warner Comments at 12.

[^45]: Time Warner Comments at 10. Section 629(b) states:

    > The Commission shall not prescribe regulations under subsection
    > (a) which would jeopardize security of multichannel video
    > programming and other services offered over multichannel video
    > programming systems, or *impede the legal rights of a provider of
    > such services to prevent theft of services*.

    47 U.S.C. § 549 (emphasis Time Warner).

[^46]: Time Warner Comments at 10.

[^47]: *Id.* Section 76.1209 states that no provision of the rules shall
    be construed "to authorize or justify any use, manufacture or
    importation of equipment that would violate ... any ... provision of
    law intended to preclude the unauthorized reception of multichannel
    video programming service." 47 C.F.R. § 1209.

[^48]: Circuit City Comments at 17, citing 47 C.F.R. § 76.1201.

[^49]: Section 76. 1203 provides that:

    A multichannel video programming distributor may restrict the
    attachment or use of navigation devices with its system in those
    circumstances where electronic or physical harm would be caused by
    the attachment or operation of such devices or such devices that
    assist or are intended or designed to assist in the unauthorized
    receipt of service. Such restrictions may be accomplished by
    publishing and providing to subscribers standards and descriptions
    of devices that may not be used with or attached to its system. Such
    standards shall foreclose the attachment or use only of such devices
    as raise reasonable and legitimate concerns of electronic or
    physical harm or theft of service..."

    47 C.F.R. § 76.1203.

[^50]: Circuit City Comments at 17, citing *Navigation Devices Order*,
    13 FCC Rcd at 14789.

[^51]: HRCC Reply Comments, citing *Sony Corp. of America v. Universal
    City Studios, Inc.*, 464 U.S. 417 (1984)("*Betamax*")(Recording
    programs for later viewing in the privacy of the user's home is a
    noncommercial use permitted under the fair use doctrine).

[^52]: HRCC Reply Comments at 5.

[^53]: Motion Picture Association of America, Inc. Reply Comments
    ("MPAA") at 10.

[^54]: MPAA Reply Comments at 10.

[^55]: Time Warner Reply Comments at 11.

[^56]: NCTA Comments at 21, citing *Navigation Devices Order*, 13 FCC
    Rcd. at 14800. *See also* Time Warner Comments at 14; Viacom
    Comments at 5-6; MPAA Comments at 7.

[^57]: NCTA Comments at 21-22.

[^58]: Viacom Comments at 6, Networks Comments at 2, NCTA Reply Comments
    at 17, citing *Navigation Devices Order*, 13 FCC Rcd at 14800. NCTA
    submits that even if the DFAST license terms were inconsistent with
    the Commission's navigation device rules, the Commission should
    waive any navigation device rule inconsistent with the DFAST
    license. NCTA Comments at 23.

[^59]: Circuit City Reply Comments at 8. In its entirety, the paragraph
    at issue provides:

    > As discussed above, many types of navigation devices are now
    > being, or will in the future be, attached to multichannel video
    > programming distribution systems. A number of different entities
    > in the communications stream and a number of types of security,
    > access control, or data encryption systems are involved. The
    > security separation required by the rules adopted herein is
    > applicable to access controls directly applied by the MVPD to
    > authenticate subscribers' identification. It would not, for
    > example, be applicable to encrypted telephone or internet data
    > used to protect the privacy of the communications or to digital
    > authentication of financial transactions regardless of the use of
    > such devices with multichannel video programming distribution
    > systems. Access controls included in hardware for the purpose of
    > allowing subscribers to exclude communications would not be
    > included even though they perform a type of conditional access
    > function. "Copy protection" systems and devices that impose a
    > limited measure of data encryption control over the types of
    > devices that may record (or receive) video content would not be
    > subject to the separation requirement. "Software" based encryption
    > should generally be separable from the hardware that runs it and
    > thus would not have to be changed based on the rules adopted.
    > Equipment needed for specifically addressed communication, such as
    > for example modems for the receipt of "internet protocol"
    > telephony could retain integrated in the hardware sufficient
    > address information to permit them to function.

    *Navigation Devices Order*, 13 FCC Rcd at 14800.

[^60]: Circuit City Reply Comments at 8; HRCC Reply Comments at 3-4.

[^61]: 47 C.F.R. § 76.1201.

[^62]: 47 C.F.R. § 76.1203.

[^63]: 47 C.F.R. § 76.1204(a)(1).

[^64]: 47 C.F.R. § 76.1204(b).

[^65]: 47 C.F.R. § 76.1204(c).

[^66]: 13 FCC Rcd at 14800 (internal quotation marks omitted). This
    language derives from Section 76.1209 which provides that no
    provision of the rules shall be construed "to authorize or justify
    any use, manufacture or importation of equipment that would violate
    . . . any . . . provision of law intended to preclude the
    unauthorized reception of multichannel video programming service."
    47 C.F.R. § 76.1209.

[^67]: In this regard, we note that MPAA has stated that the 5C
    technology will not be used to prohibit most home recording.

    > Home recording of retransmitted broadcast programs and single
    > copies of basic and extended basic programs and pay television
    > will not be inhibited by \[5C\]. Home recording of pay-per-view
    > and video-on-demand will be subject to the copyright owner's
    > permission.

    MPAA Reply at 8.

[^68]: HRRC Comments at 5-6.

[^69]: MPAA states that there is no evidence \"that content owners will
    restrict the copying of all content delivered through DFAST licensed
    devices and there are strong business and marketplace reasons\" for
    not doing so. MPAA *ex parte* presentation 2 (Aug. 25, 2000).

[^70]: *Betamax*, 464 U.S. 417 (1984); *but see Universal City Studios,
    Inc. v. Reimerdes*, 2000 WL 1160678 (S.D.N.Y. 2000) (finding that
    *Betamax* decision involved a construction of the Copyright Act that
    was overruled by the later enactment of the Digital Millennium
    Copyright Act ("DMCA") to the extent of any inconsistency between
    the *Betamax* decision and the DMCA). In this regard, HRRC states
    that "It is not unlawful and certainly not criminal for a consumer
    to make a copy of a copyrighted work in the privacy of his or her
    home. Fair use exists to address only unauthorized recordings.
    Unlike the entertainment industry, the law recognizes this
    distinction. The Commission should not criminalize such conduct."
    HRRC Reply at 5(footnote omitted). We note that nothing in our
    decision today is intended to alter "fair use" under copyright law.

[^71]: Parties may present such concerns pursuant to Section 76.7 of the
    Commission's rules, 47 C.F.R. § 76.7. The Commission will review
    only those terms of DFAST licenses that a complainant alleges
    violate a specific navigation devices rule.

[^72]: Circuit City Comments at 19; HRCC Comments at 13.

[^73]: Circuit City Comments at 20; CERC Reply Comments at 10.

[^74]: *See, e.g.,* Sony Pictures Entertainment August 21, 2000 *ex
    parte* presentation at 1-2; Time Warner Inc. August 22, 2000 *ex
    parte* presentation at 1-2.

[^75]: *See* 5 U.S.C. § 603. The RFA, *see* 5 U.S.C. § 601 *et. seq.*,
    has been amended by the Contract With America Advancement Act of
    1996, Pub. L. No. 104-121, 110 Stat. 847 (1996) (CWAAA). Title II of
    the CWAAA is the Small Business Regulatory Enforcement Fairness Act
    of 1996 (SBREFA).

[^76]: *See* 5 U.S.C. § 603. The RFA, *see* 5 U.S.C. § 601 *et. seq.*,
    has been amended by the Contract With America Advancement Act of
    1996, Pub. L. No. 104-121, 110 Stat. 847 (1996) (CWAAA). Title II of
    the CWAAA is the Small Business Regulatory Enforcement Fairness Act
    of 1996 (SBREFA).

[^77]: 5 U.S.C. § 603(b)(3).

[^78]: *Id.* § 601(6).

[^79]: 5 U.S.C. § 601(3) (incorporating by reference the definition of
    "small business concern" in 15 U.S.C. § 632). Pursuant to the FRA,
    the statutory definition of a small business applies "unless an
    agency, after consultation with the Office of Advocacy of the Small
    Business Administration and after opportunity for public comment,
    establishes one or more definitions of such term which are
    appropriate to the activities of the agency and publishes such
    definition(s) in the Federal Register." 5 U.S.C. § 601(3).

[^80]: 15 U.S.C. § 632.

[^81]: *Id*. § 632.

[^82]: U.S. BUREAU OF THE CENSUS, U.S. DEPT. OF COMMERCE, 1992 ECONOMIC
    CENSUS, Table 6 (special tabulation of data under contract to Office
    of Advocacy of the U.S. Small Business Administration).

[^83]: 13 C.F.R. 121.201, SIC Code 4841.

[^84]: U.S. Census Bureau, 1992 Economic Census, 1992 Census of
    Transportation, Communications and Utilities at Firm Size 1‑123.

[^85]: 47 C.F.R. §76.901(e). The Commission developed this definition
    based on its determinations that a small cable system operator is
    one with annual revenues of \$100 million or less. *Implementation
    of Sections of the 1992 Cable Act: Rate Regulation*, Sixth Report
    and Order and Eleventh Order on Reconsideration, 10 FCC Rcd 7393
    (1995), 60 FR 10534.

[^86]: Paul Kagan Associates, Inc., *Cable TV Investor*, Feb. 29, 1996
    (based on figures for Dec. 30, 1995).

[^87]: 47 U.S.C. §543(m)(2).

[^88]: 47 C.F.R. §76.1403(b).

[^89]: Paul Kagan Associates, Inc., *Cable TV Investor*, Feb. 29, 1996
    (based on figures for Dec. 30, 1995).

[^90]: This category excludes establishments primarily engaged in the
    manufacturing of household audio and visual equipment, which is
    categorized, as SIC 3651. *See infra* for SIC 3651 data.

[^91]: 13 C.F.R. §121.201, (SIC) Code 3663.

[^92]: U.S. Dept. of Commerce, 1992 Census of Transportation,
    Communications and Utilities, Table 1D, (issued May 1995), SIC
    category 3663.

[^93]: 13 C.F.R. §121.201, (SIC) Code 3651.

[^94]: U.S. Small Business Administration 1995 Economic Census Industry
    and Enterprise Report, Table 3, SIC Code 3651, (Bureau of the Census
    data adapted by the Office of Advocacy of the U.S. Small Business
    Administration).

[^95]: 13 C.F.R. §121.201, (SIC) Code 3571.

[^96]: U.S. Small Business Administration 1995 Economic Census Industry
    and Enterprise Report, Table 3, SIC Code 3571, (Bureau of the Census
    data adapted by the Office of Advocacy of the U.S. Small Business
    Administration).

[^97]: U.S. Small Business Administration 1992 Economic Census Industry
    and Enterprise Report, Table 2D, SIC 7812, (Bureau of the Census
    data adapted by the Office of Advocacy of the U.S. Small Business
    Administration)(SBA 1992 Census Report). The Census data does not
    include a category for \$6.5 million therefore, we have reported the
    closest increment below and above the \$6.5 million threshold. There
    is a difference of 88 firms between the \$4.999 and \$7.499 million
    annual receipt categories. It is possible that these 88 firms could
    have annual receipts of \$6.5 million or less and therefore, would
    be classified as small businesses.

[^98]: *See* 5 U.S.C. § 603.

[^99]: See Navigation Devices Order, 13 FCC Rcd 14775 (1998).

[^100]: *See e.g.* U.S.Const., Art. I, § 8, cl. 8 "(To promote the
    Progress of Science and useful Arts, by securing for limited Times
    to Authors and Inventors the exclusive Right to their respective
    Writings and Discoveries"); 17 U.S.C. § 107 (1988 ed. and Supp.
    IV)(fair use); *Sony Corp. of America v. Universal City Studios,
    Inc*., 464 U.S. 417 (1984)(recognizing fair use in video recording
    context); *see generally* Register of Copyrights, Copyright Law
    Revision, 87th Cong., 1st Sess., 6 (Comm.Print 1961) (noting some
    limitations and conditions on copyright are essential in the public
    interest).

[^101]: Digital Millennium Copyright Act, Pub. L. No. 105-304, 112 Stat.
    2860 (1998) (codified as amended in scattered sections of 17
    U.S.C.).