Legalmatter

By: Brian J. Meli

Not since Sony v. Universal City Studios has a copyright case captured the attention of the broadcast and entertainment industries, or the imagination of the public at large, quite like American Broadcasting Cos., Inc. v. Aereo. In case you missed last year’s lower court skirmishes in this fast-moving dispute, or the serious economic incentives driving them, you can find a summary of the lead up here.

If you’d rather skip to the end, read on.

Aereo is a New York-based, venture capital backed technology startup providing access to over-the-air broadcast television via the cloud. It was founded on the premise that consumers should have the right to access publicly available television programming via the Internet, and save and record that programming for later viewing without the need for a pricey cable or satellite subscription.

Aereo was sued in federal court by the television networks ABC, CBS, et al., on the theory that doing so infringed, among other things, their exclusive public performance right in their copyrighted works under Section 106 of the Copyright Act. However Aereo’s technology was specifically engineered to avoid (the networks would say circumvent) the public performance right issue. By building in a small signal delay, and sending the network broadcasts to individual viewers in response to each customer’s unique request and via their own personal miniature antenna located at the company’s hub, Aereo argued that there was no public performance. Rather, they maintained, they were merely providing subscribers with the equipment necessary for them to reproduce the broadcasts on a one-to-one basis, entirely consistent with the secondary liability fair-use principles of time-shifting established by Sony thirty years ago.  

Going in, this was being billed as a winner-take-all case with dire consequences for the losing party and its constituents. Aereo supporters claimed that a finding against the tech company would serve as the death knell for new media innovations, cloud computing, and free and open access to online content; pointing to the technological leaps that have been made possible by the Court’s liberal construction of fair-use in Sony as proof of that.

The networks and their supporters claimed that if Aereo’s technical workaround was declared legal, others would flock to its model, rendering powerless the established intellectual property protections which safeguard the creative content fueling our service-based economy. In essence, the consequences of the Court validating Aereo’s “unique copy to each user” distribution model would be tantamount to it accepting Grokster’s peer-to-peer file-sharing model, which it declared illegal in 2005 in a decision that many credit with saving the music industry. If Aereo prevailed it would also force the networks to make good on their threat to pull their broadcasts from the public airwaves and go to a cable-only subscription model.

So which side’s parade of policy miserables is destined for reality? Well, while both sides may have slightly overstated the gravity of their situation, what is safe to say now—twenty-four hours into this post ABC v. Aereo world—is that content is still king, and content providers are still holding the keys to the kingdom.

Because the Court sided with the networks on the decisive issue—that Aereo was in fact “publicly performing” the network’s copyrighted work under the Copyright’s Transmit Clause—to describe this as anything but a decisive victory for the networks would be disingenuous. After all, Aereo’s current service has now officially been declared illegal. But today’s 6-3 decision doesn’t necessarily put the company out of business, let alone render the Internet unto utter desolation. All it does, really, is require Aereo to do what every other retransmitter of broadcast signals has been doing all along: get a copyright license.

The reason Aereo lost this case was that they couldn’t overcome the retransmission hurdle with a Court that broadly interpreted the scope of Section 101 of the Copyright Act a.k.a. the Transmit Clause. Specifically, the Court read the definition of transmit, which is “to communicate … by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times” as too damning for Aereo’s argument to prevail. Relying on that language the majority agreed with the networks that Aereo’s service retransmits their works to the public, publicly performing it no differently than a cable company does, despite, as the Court put it, Aereo’s “behind-the-scenes technological differences.” It’s unique technology notwithstanding, the Court could simply find no practical distinction between what Aereo does and what the cable systems it competes with do, using what amounted to a pure policy argument to question why, if Aereo’s transmission was not a public performance, the cable providers couldn’t also avoid copyright restrictions by simply “substituting new technology for old.”

Aereo’s main argument, that it’s subscribers and not the company itself were initiating individual performances, and it could therefore not be held directly liable for the acts of its subscribers, failed to sway the majority, who found the requisite volition on the company’s part to be present. Guilty of direct infringement therefore, the Sony fair use principles were unavailable to Aereo. While the start-up tried unsuccessfully to refocus the argument on reproduction rather than public performance—a line of reasoning that would make this an issue of secondary liability and bring it closer in line with the friendlier fair-use territory of Sony—they were unsuccessful because the threshold question in this case was the public performance one, and it was an initial hurdle they could not overcome.

The Court did however, in closing, give a nod to those who feared their decision might somehow slam the breaks on cloud computing and DVR services in general. The Court did its best to underscore its belief that such concerns were unfounded, noting that its decision in this case was limited to the specific technology before it, and not a general ban on remote storage technologies. Directly referencing Sony, it also suggested that if such technologies were not impersonating cable companies by directly transmitting broadcasts of copyrighted works, and had significant non-infringing uses, which clearly the vast majority of them do, they had nothing to fear from this decision. In other words, the fair use defense for secondary liability established by Sony is alive and well.

How and when that defense will be available after today’s ruling is somewhat unclear however, since as the dissent astutely points out, the line between direct and indirect infringement has now become blurred.

Statutory construction and legal nuances aside, at the end of the day, while Aereo may have been the flashy new headline-grabbing technology of 2013, this was the same old clash of private rights versus public innovation; of establishment versus upstart. While the actors may have been different, the plot was the same. A new and better technology threatens an entrenched and extremely profitable business model. From James Watt and Joseph Glidden to Thomas Edison and Henry Ford, it’s a new spin on an old story, and one that will be told long after cloud computing is an obsolete footnote of history. There’s really only two ways this story ends. Either the new model supplants the old, as it did in the case of Sony. Or the innovation goes too far too fast, and order wins out over progress, as it did with Grokster.

While in the end Aereo was more like Grokster than Sony, with the establishment preserving its way of life; the upstart did receive some serious consideration this time around. It made several thought-provoking, if not compelling arguments, including whether because its transmissions were not continuous, but rather inert until acted upon by a subscriber, if in fact the subscriber was conducting the performance and not the equipment provider. While that argument was unpersuasive to the majority, it seems it was ultimately defeated by the 94th Congress (who wrote the Transmit Clause into the Copyright Act of 1976) as much as by this Supreme Court.

Not to be lost in this decision though is the fact that while Aereo’s service may be shut down in its current form, its underlying technology no doubt still has value. Even if the company can’t successfully reconstitute itself as a distributor of legal, licensed content, its patented technology likely has value to companies who can deploy it legally. The cable companies come immediately to mind. They might see value in this new streamlined distribution model and scoop up the technology for themselves. They would still pay the license fees they are paying now of course, but would be able to offer their customers a better experience than their current coaxial offerings can provide. Or maybe the networks themselves (perish the thought) might make a run at acquiring it. Yes, the same networks who fought tooth and nail to get the Aereo antennas shut off may now see value in operating a variation of those antennas themselves. This may have been Aereo’s option of last resort all along, and why those venture capitalists were so eager to back the company despite its tenuous legal position. After all, shortly after the technology was perfected its CEO, Chet Kanojia, actually shopped it to the networks. The response he got then was the lawsuit that just ended today. He may get a different response next time.

So for now Interent innovation and cloud computing appear safe and sound. And network TV stays the way it’s always been; whether it’s coming into our home through a coaxial cable, an orbtitting sattelite, or a wi-fi enabled Internet device. That will change eventually once a new technology arrives to take it somewhere else. And when it does, the era of television as we know it will be over. But that’s exactly what happened in 1984, and we made it through just fine. To find out where we go next, stay tuned.

The content of this blog is intended for informational purposes only. The information provided in this blog is not intended to and does not constitute legal advice, and your use of this blog does not create an attorney-client relationship between you and The Law Firm of Brian J. Meli. Under the rules of certain jurisdictions, the material included in this blog may constitute attorney advertising. Prior results do not guarantee a similar outcome. Every case is different and the results obtained in your case may be different.