Time Warner Presses Case In VBI Fight

WASHINGTON — After waiting more that a year for federal regulators to act, Gemstar-TV Guide International Inc. last week abruptly withdrew its complaint against Time Warner Cable over the stripping of Gemstar's electronic program guide data from off-air television signals.

Not so fast, said the MSO. Perhaps sensing a clear victory, Time Warner told the Federal Communications Commission that Gemstar was not entitled to terminate the case on its own and breezily waste the agency's resources with a decision apparently just a few days away.

"Gemstar's assertion that the FCC lacks discretion to immediately rule on this matter is misplaced," Time Warner said April 12 in a five-page filing.

A Gemstar source disputed Time Warner's argument. The company had the right to withdraw the complaint and expects the FCC to honor the request, the source said.

"The FCC rules enable a party to withdraw as a matter of right," a Gemstar source said. "Time Warner obviously doesn't understand the rule."

In its reaction to that position, Time Warner took note of a recent Gemstar stance. The IPG provider recently told the FCC that the fact that no cable operator — including Time Warner — was currently blocking the EPG signal was irrelevant to the underlying legal issues in the complaint.

Time Warner went on to cite a Jan. 4 letter in which Gemstar said the FCC "must deal with the issues Gemstar has raised" in the complaint, adding that Time Warner had promised only a "temporary cease fire" when it stopped the blocking the EPG signal.

In a goodwill gesture last June, Time Warner promised to desist from blocking the EPG while Gemstar's complaint was pending with the FCC and while Gemstar refrained from frustrating or delaying FCC review of Time Warner's counterclaims.

According to FCC sources, the agency had planned to vote on the Gemstar complaint at its April 19 meeting, but the meeting agenda released April 12 did not include that item.

Although FCC officials said it was unlikely Gemstar would prevail, a Gemstar source said the company was more concerned that no action would be taken because the four-member agency was evidently split over the dispute, by a 2-2 margin.

Some observers believe Gemstar pulled back because it was close to a carriage deal with Time Warner for its TV Guide Interactive program guide.

"We continue to have good faith negotiations and both sides express a desire to reach a mutually agreeable deal," Gemstar co-president Peter Boylan said in an electronic-mail message last week.

Time Warner Cable spokesman Mike Luftman declined to comment on the deal speculation, which was fueled by recent Gemstar deals with the other three top MSOs: AT&T Broadband, Comcast Corp. and Charter Communications Inc.

National Cable Television Association president Robert Sachs applauded Gemstar's decision to withdraw the complaint, adding that content providers seeking cable carriage must bargain for it like nearly everyone else.

"Under must-carry rules, cable operators are required to carry only program-related information specifically linked to the video content of an individual broadcaster's signal," Sachs said. "Cable operators are not required to subsidize the launch of new businesses by broadcasters nor third-party vendors."

Gemstar's dispute with Time Warner (the No. 2 domestic MSO, with 12.5 million subscribers) erupted last March — just two months after America Online Inc. announced its merger with Time Warner Inc.

At the time, Gemstar called Time Warner's actions "deliberate and malicious." Gemstar's supporters at the FCC included the Consumer Electronics Association and the Association for Maximum Service Television.

The Walt Disney Co. used Time Warner's feud with Gemstar to warn regulators about the dangers inherent in the AOL-Time Warner merger. Disney backed Gemstar's cause last May, after Time Warner dropped Disney's ABC owned-and-operated affiliates for 40 hours in 3.5 million cable homes. (Last month, Time Warner agreed to pay the government $72,000 for dropping those stations in a sweeps period, a violation of FCC rules.)

Gemstar alleged that Time Warner had stripped its EPG from the vertical blanking interval embedded in broadcast signals in nine systems in eight states. Gemstar said the FCC must-carry rules barred the MSO from doing so.

Time Warner countered that it had the right to block the EPG because VBI content must be related to the programming on the channel on which it was carried.

An EPG that provided advertising, promotional announcements and program updates about every channel on the system did not meet the definition of program-related, Time Warner argued.

Pasadena, Calif.-based Gemstar controls about 90 patents for interactive television and licenses its intellectual property to various vendors.

In July, Gemstar merged with TV Guide Inc. in a $14.8 billion deal that left News Corp. and Liberty Media Group with 45 percent of the new company.

Gemstar has moved aggressively in court to protect its patents. Last fall, Motorola Inc. paid $200 million to settle with Gemstar, which has similar patent suits pending against Scientific-Atlanta Inc. (a major Time Warner set-top vendor with its own EPG), Pioneer New Media Technologies, TiVo Inc. and EchoStar Communications Corp.

In February, Gemstar filed a complaint at the International Trade Commission here seeking to block the importation of set-tops with EPGs that allegedly infringe on its patents. Gemstar is seeking to block U.S. set-tops imported by S-A, Pioneer, EchoStar and SCI Systems Inc.

Although Gemstar isn't presently seeking resolution on whether cable operators may block EPGs, it may have received a strong clue as to the FCC's direction in January. That was when the agency released its digital-TV carriage rules, which were more than two years in the making.

In those rules, the FCC addressed whether EPGs contained in digital-TV signals were also entitled to mandatory cable carriage.

"We find that program-guide data that are not specifically linked to the video content of the digital signals being shown cannot be considered program related, and therefore, are not subject to a carriage requirement," the FCC said.