United States: Quasi-Broadcasting And Copyright – End Of An Aereo?

Last Updated: July 15 2014
Article by Laura Phillips and Anthony D. Glosson

In a highly anticipated decision, the Supreme Court on June 25, 2014, issued an opinion that ruled that web-based TV streaming service Aereo violated copyright law by providing a service substantially similar to cable television without clearing copyrights to transmit the streamed program content. Aereo enabled its subscription viewers to watch or record over-the-air TV programming by renting antennas and digital storage spaces. Subscribers used online controls to operate their designated antenna within Aereo's facilities. The content they selected was transcoded to a digital signal and sent to their own dedicated space on Aereo's hard drives. From there, subscribers could stream the programming live or save it permanently onto Aereo's servers. Subscribers could access their live or recorded content from anywhere in the world via the Internet.

Aereo maintained that its television streaming service resembled other services that courts have determined to be non-infringing, and thus legal in a line of cases beginning with Sony Corp. of America v. Universal City Studios (Betamax). In that case, the Supreme Court reasoned that Sony had a right to sell Betamax video tape recorders because they had substantial non-infringing uses, including "time-shifting," or recording programming for one's personal viewing at a later time.

Similarly, in Cartoon Network v. CSC Holdings (Cablevision), the Second Circuit ruled that Cablevision's remote storage DVR systems were legal. The systems enabled consumers to record television shows to Cablevision's servers for their personal viewing at a later time. The court reasoned that "volitional conduct is an important element of direct liability." Cablevision, 536 F.3d 121, 131 (2d. Cir. 2008). It concluded that "by selling access to a system that automatically produces copies on command Cablevision more closely resembles a store proprietor who charges customers to use a photocopier on his premises, and it seems incorrect to say, without more, that such a proprietor "makes" any copies when his machines are actually operated by his customers." Cablevision, 536 F.3d at 132. Accordingly, the court held that Cablevision was not liable for infringing copies that the DVR system recorded on its servers.

Aereo apparently designed its technology in a manner aimed at avoiding volitional conduct. Specifically, Aereo allotted storage space to each subscriber on which to record whatever content they wanted. Moreover, Aereo allowed consumers to choose the channel to which they would tune their antenna, leaving consumers with the ability to record either copyrighted or uncopyrighted content. Aereo did little more than provide the equipment and underlying functionality to make each individual selection possible.

Aereo touted that its business model distinguished it from cable and satellite operators, who actively decide which programming will appear on their systems. Cable and satellite operators, as a result of their deliberate content selection, must compensate broadcasters for the right to carry their programming—and that compensation accounts for a substantial portion of broadcasting revenue. If cable and satellite operators switched to Aereo-like technology and stopped paying retransmission fees, broadcasters would lose a crucial income stream.

Broadcasters from around the country sued Aereo to stop its practices. The Second Circuit ruled in Aereo's favor, concluding that its services were legal because Aereo had not engaged in volitional conduct that infringed copyrights. Conversely, in a separate suit, the Tenth Circuit sided with the broadcasters by denying Aereo's request for a temporary stay of a lower court's order requiring it to shut down operations. The Tenth Circuit concluded that Aereo was not entitled to a temporary stay because it had not shown that it was likely to persuade the Supreme Court to rule in its favor.

The Supreme Court, on June 25, reversed the Second Circuit's decision, finding that Aereo's services infringed broadcasters' copyrights. The Court's analysis focused on interpreting the scope of a copyright owner's exclusive right under the Copyright Act "to perform the copyrighted work publicly." 17 U. S. C. §106(4). Justice Stephen Breyer, writing for the majority, conceptualized the issue in Aereo as a set of two questions: first, does Aereo "perform" the copyrighted works that its users stream via its service; and second, is the performance "public" within the meaning of the Act. Justice Breyer answered both of these questions in the affirmative.

First, the Court determined that Aereo "performed" the copyrighted works because the service Aereo offered was similar to the services that Congress sought to regulate with the Copyright Act of 1976. Specifically, the majority noted that Congress passed the Act in part to reverse two Supreme Court decisions, Teleprompter Corp. v. Columbia Broadcasting System, Inc., 415 U. S. 394 (1974), and Fortnightly Corp. v. United Artists Television, Inc., 392 U. S. 390 (1968). The Court in those cases held that cable providers did not violate copyright law by selecting and transmitting a variety of broadcasters' signals simultaneously to customers, who could then choose which signal entering their cable box they would like their TV to display. In Aereo, the Court acknowledged the technological differences between Aereo's user-directed tuning and storage technology on the one hand, and cable or satellite operator-curated systems on the other, but largely dismissed that distinction as irrelevant. Because Aereo served virtually the same function for consumers as cable does, the majority deemed Aereo's degree of control over the recording process to be of little importance.

Second, the Court determined that Aereo's performance of the work was a public one because, although viewers of the same work deriving from different source copies normally cannot be aggregated to constitute the "public," the distinction in this case was inconsequential. The Court stated that Aereo could have devised a more technologically efficient system in which all viewers watched copies deriving from the same antenna, but it did not do that solely because of the copyright implications. Because the technical difference is imperceptible and irrelevant to both viewers and broadcasters, the Court reasoned, it does not bear on the copyright liability determination. Consequently, the Court concluded that the fact that Aereo's service permitted access to copies of the same work for many unrelated individuals sufficed to demonstrate that Aereo performed the copyrighted works in public.

The majority emphasized the limited nature of the Court's ruling, likely in attempt to allay concerns that a ruling against Aereo would destabilize the cloud computing and video streaming developments that Cablevision had fostered by reducing service providers' apparent risk of liability for the content their consumers upload.

According to the majority, the same analysis may not apply to other technologies outside of the broadcast retransmission context. Because Congress had enacted the 1976 Copyright Act specifically to bring broadcast retransmission technology into the Act's purview, the Court concluded that broadcast retransmission technology occupied a special place in copyright law that justified applying a different standard than might otherwise inhere in cases implicating other consumer-operated forms of cloud technology. Although not binding on future decisions, the Court attempted to distinguish the cloud storage at issue in Cablevision from Aereo's model, stating that "[q]uestions involving cloud computing, [remote storage] DVRs, and other novel issues not before the Court . . . should await a case in which they are squarely presented." Slip op. at 17, (quoting Brief for United States as Amicus Curiae 34) (both alterations in original).

Justice Antonin Scalia wrote the dissent, and was joined by Justices Samuel Alito and Clarence Thomas. The dissent contended that the majority's approach introduced a "cable-lookalike" exception to the Cablevision and Betamax principle that merely providing equipment capable of infringing copyrights does not usually constitute infringement. Drawing from the Second Circuit's opinion in Cablevision, the dissent compared Aereo's service to that of a photocopy shop, arguing that neither service provider should be liable solely because its customers sometimes use its facilities to infringe copyrights. According to copyright professors Peter Menell and David Nimmer, however, that analogy "rings hollow, especially in view of Congress's clear intention to channel retransmission services into the detailed statutory regime."

The decision largely embodies the result that the U.S. Justice Department had urged the Court to reach: a narrow decision favoring the broadcasters, but without broader implications in the technology space. The Brief for United States as Amicus Curia had argued that Aereo was "blatantly violating" copyright law, but emphasized that its conclusion "should not call into question the legitimacy of businesses that use the Internet to provide new ways for consumers to store, hear, and view their own lawfully acquired copies of copyrighted works."

For broadcasters and other copyright holders, the ruling represents a significant victory in ensuring that technological advancement does not undermine robust copyright protections. For service providers, the Court left many questions open regarding the applicability of its analysis to technologies outside the broadcast retransmission context.

The ruling may even have implications for the ongoing IP transition proceedings at the FCC, as beneficiaries of interconnection obligations seek to ensure that those obligations remain in place following the IP transition. It has not taken commentators long to suggest the Supreme Court's congressional intent-based reasoning in Aereo may counsel a similarly technology-neutral application of interconnection obligations throughout the IP transition.

For its part, Aereo temporarily shut down its operations within days of the Supreme Court's ruling. How widespread the market impact will be beyond Aereo and whether investors will become more hesitant to back start-ups providing services that resemble a cable model is unsettled, unless those firms build copyright clearance into their business models. It is plain, however, that the opinion represents an important landmark in copyright law illustrating, as Professors Menell and Nimmer suggest, that "[t]he Copyright Act of 1976 is indeed creaky."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Laura Phillips
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