United States: Supreme Court Stifles Aereo, But Tries To Keep The Cloud Away

Last Updated: July 7 2014
Article by Craig B. Whitney and Whitney E. McCollum

In a closely watched case, the U.S. Supreme Court ruled today in a 6-3 decision that Aereo's Internet streaming service engages in unauthorized public performances of broadcast television programs in violation of the Copyright Act, reversing the Second Circuit's decision in American Broadcasting Companies, Inc. v. Aereo, Inc. (No. 13-461).

In ruling against Aereo, the Court sought to limit its decision to Aereo's service—which the Court considered to be "equivalent" to that of a traditional cable company—and noted that it was not addressing the legality of cloud storage lockers, remote-storage DVRs and other emerging technologies.  But the Court's interpretation of the public performance right in the context of Aereo's technology will nevertheless influence future decisions on whether the transmission of content using other technology constitutes copyright infringement.

Background

Aereo provides broadcast television streaming and recording services to its subscribers, who can watch selected programing on various Internet-connected devices, including smart televisions, computers, mobile phones and tablets.  Aereo provides its service through individual, "dime-sized" antennas that pick up local television broadcast signals and transmit those signals to an Aereo server where individual copies of programs embedded in such signals are created and saved to the directories of those subscribers who want to view such programs.  A subscriber can then watch the selected program nearly live (subject to a brief time delay from the recording) or later from the recording.  No two users share the same antenna at the same time, nor do any users share access to the same stored copy of a program.

In 2012, various broadcasting companies sued Aereo for copyright infringement in the Southern District of New York, claiming, among other things, that Aereo's transmission of the plaintiffs' copyrighted content to Aereo's subscribers violated the copyright owners' exclusive right to publicly perform those works.  That public performance right, codified in the 1976 Copyright Act, includes (1) any performance at a place open to the public or any gathering with a substantial number of people outside the "normal circle of family and social acquaintances," and (2) the transmission of a performance to the public, whether or not those members of the public receive it in the same location and at the same time.  This latter provision, commonly referred to as the "Transmit Clause," was added to the Copyright Act by Congress in part to overturn earlier Supreme Court decisions that had allowed cable companies to retransmit broadcast television signals without compensating copyright owners.

The district court denied the broadcast companies' preliminary injunction requests, finding that, based on Second Circuit precedent, Aereo's transmissions were unlikely to constitute public performances.  The Second Circuit affirmed the decision, relying on that court's earlier decision in Cartoon Network LP v. CSC Holdings, Inc., 536 F.3d 121 (2d Cir. 2008) ("Cablevision"), which found that a cable company's remote-storage DVR system did not run afoul of the public performance right because each transmission emanated from a unique copy of a program that was sent only to an individual user.  The Second Circuit held that Aereo does not engage in public performances because, as in Cablevision, Aereo's system makes unique copies of every recording, and each transmission of a program to a customer is generated from that customer's unique copy.  

The Supreme Court's Ruling

The Supreme Court addressed two questions regarding the public performance right: (1) Does Aereo "perform" a copyrighted work? (2) Is that performance "public"?  The answer to both questions, according to the Court, is yes.

Performance

The Court held that Aereo's service does "perform" audiovisual works under the Copyright Act's definition of that term, which is to "show [the audiovisual work's] images in any sequence or make the sounds accompanying it audible."  According to the Court, under this definition, "both the broadcaster and the viewer of a television program 'perform.'"  (Op. at 7.)  The Court (contrary to the Second Circuit and the dissent) disagreed with Aereo's argument that it was simply a supplier of equipment that allows users to perform content, and that it did not itself perform such content.  Instead, the Court determined that Aereo was essentially no different in substance than a traditional cable company, to which Congress expressly intended to have the public performance right apply.

The technological difference between Aereo and traditional cable systems at issue when the Transmit Clause was enacted—that the latter systems transmitted content constantly while Aereo's system remains inert until a subscriber indicates that she wants to watch a program—was insignificant to the Court.  "Given Aereo's overwhelming likeness to the cable companies targeted by the 1976 amendments, this sole technological difference between Aereo and traditional cable companies does not make a critical difference here. . . . [T]he many similarities between Aereo and cable companies, considered in light of Congress' basic purposes in amending the Copyright Act, convince us that this difference is not critical here.  We conclude that Aereo is not just an equipment supplier and that Aereo 'perform[s].'"  (Op. at 10.)

Public

The Court also held that Aereo transmits its performance of the copyrighted works to the public.  An entity transmits a performance if it "communicate[s] by any device or process whereby images or sounds are received beyond the place from which they are sent."  (Op. at 11.)  Although initially only an assumed definition for the purposes of evaluating Aereo's argument, the Court appeared to accept the definition that transmitting an audiovisual performance requires communicating "contemporaneously perceptible images and sounds of a work."  Because Aereo's service satisfied this definition, the Court went on to note that the Transmit Clause of the Copyright Act contemplates that an entity can transmit a performance "through one or several transmissions, where the performance is of the same work."  Accordingly, the Court concluded that "when an entity communicates the same contemporaneously perceptible images and sounds to multiple people, it transmits a performance to them regardless of the number of discrete communications it makes."  (Op. at 14.)

That transmission is also public because Aereo communicates "the same contemporaneously perceptible images and sounds to a large number of people who are unrelated and unknown to each other."  (Op. at 14.)  Although not cited in the Court's opinion, a similar circumstance involving transmission of content to people who were "unrelated and unknown to each other" was found to be a public performance in On Command Video Corp. v. Columbia Pictures Industries, 777 F. Supp. 787 (N.D. Cal. 1991), which established that electronic delivery of a movie video tape signal to a single hotel room, pursuant to a system consisting of a computer program, a sophisticated electronic switch and a bank of video cassette players, was a public performance under the Copyright Act.

The fact that the Aereo service involves individual recordings for each subscriber that plays each recording only to its designated subscriber is, according to the Court, just the "behind-the-scenes way in which Aereo delivers television programming to its viewers' screens" but "do not render Aereo's commercial objectives any different from that of cable companies" or "significantly alter the viewing experience of Aereo's subscribers."  (Op. at 12.)

Again the Court explained that Aereo was conceptually no different than a cable company.  "In terms of the Act's purposes, these differences do not distinguish Aereo's system from cable systems, which do perform 'publicly.'  Viewed in terms of Congress' regulatory objectives, why should any of these technological differences matter?"  (Op. at 12.)

The Court ultimately held that:  "Insofar as there are differences, those differences concern not the nature of the service that Aereo provides so much as the technological manner in which it provides the service.  We conclude that those differences are not adequate to place Aereo's activities outside the scope of the Act."  (Op. at 17.)

Attempts to Avoid the Cloud

The Court expressly dismissed concerns over how its decision will affect other areas of technology, and stated that it did not see this dispute as a cloud or remote storage case, but rather, a cable company "equivalent" situation.  (Op. at 16.)

Indeed, the Court specifically stated that it did not believe its "limited holding" would "discourage" or "control the emergence or use of different kinds of technologies."  The Court even laid out areas that its decision did not reach, including "whether different kinds of providers in different contexts also 'perform'" and "whether the public performance right is infringed when the user of a service pays primarily for something other than the transmission of copyright works, such as the remote storage of content," and encouraged entities concerned about these areas to "seek action from Congress."  (Op. at 16-17.)  Notably, however, the Court did hold that "an entity that transmits a performance to individuals in their capacities as owners or possessors does not perform to 'the public'"—a seeming nod to the validity of cloud locker services (at least where users are storing authorized copies of works in their lockers).  (Op. at 15.)  Moreover, the Court stated that "[a]n entity does not transmit to the public if it does not transmit to a substantial number of people outside of a family and its social circle."  (Op. at 15-16.)

Regardless, any evaluation of whether the transmission of content—whether by new or existing technology—violates the public performance right will have to be viewed under the language of the Aereo decision.  For example, while the Second Circuit's Cablevision decision is not expressly overruled or even examined in the Aereo decision, any future determination as whether remote-storage DVR technology violates the public performance right would likely first be analyzed under Aereo—not Cablevision, at least outside of the Second Circuit.  And, within the Second Circuit, one envisions a lively, ongoing debate as to what extent Cablevision dealt with transmissions to individuals in their capacities as owners or possessors of the products at issue, which, as noted above, the Supreme Court viewed as a situation left unaffected by its Aereo ruling.

Finally, while Aereo's service was likened to a cable system, Aereo—and perhaps other technology comparable to Aereo's—is not a cable system under any other definition, including Section 111 of the Copyright Act governing secondary transmissions of broadcast programming by cable systems.  Therefore, an open issue is what effect the Aereo decision will have on the future of these types of cable-esque services, such as Aereo, assuming they want to continue to operate, and particularly whether they will attempt to license from the copyright owners the content that these services seek to distribute.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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