New York Law Journal "A Closer Look at 'Aereo': The Court's Technology Perspective" by Stephen M. Kr

Last month, the U.S. Supreme Court decided American Broadcasting Cos. v. Aereo, which held that the technology company Aereo infringes copyright holders’ exclusive right to public performance under the Copyright Act. The decision relies on a broad interpretation of the act and an interpretive philosophy that may present practical challenges to technology lawyers and their clients. Understanding those challenges requires taking a close look at the opinion, its context and its history.

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TV Transmission: A (Short) History

Once upon a time, before cable, everybody got their television signal—for free—over the air. The broadcast networks transmitted a signal via radio waves and people had antennas on their TVs or their roofs that routed these signals to their TVs. Broadcasters were paid by advertisers, and creators of the television programs were paid by broadcasters (sometimes networks produced their own programs), and everything worked out nicely without costing the viewers anything beyond the price of the TV equipment.

But some people couldn’t watch broadcast television because they couldn’t get a good signal. Rural viewers were too far from transmitters; urban viewers had signals blocked by buildings or other obstructions; even the weather could play havoc with broadcast TV. Technology eventually provided a solution to these problems, and Community Antenna Television (CATV) systems were created.

CATV providers situated large antennas in locations that received strong broadcast signals and delivered those signals to subscribers over wires, not the air. Households that previously couldn’t receive quality broadcasts over the air could now pay to watch television via CATV. In the 1960s and 70s, the Supreme Court heard challenges from broadcasters who claimed CATV providers were engaging in copyright infringement by retransmitting their signal without paying,1 but the court disagreed: Under the law as it then existed, CATV systems did not have to pay to retransmit broadcast signals.

Congress did not agree with the court, however, and in sweeping 1976 amendments to the Copyright Act it added language that clarified that the act was intended to cover certain kinds of retransmission. One addition was the “Transmit Clause,” which redefined what it meant to “publicly” “perform” a copyrighted work.2 After the amendment, cable companies had to pay for the right to retransmit broadcast signals to avoid infringement.

Cable companies (and vicariously their subscribers) now pay license fees, and pay TV is dominant in the United States. Over 90 percent of households paid to watch TV in 2011 according to Nielsen.3 But one group of viewers (sometimes called “cord-cutters”) have chosen to opt out of cable, forgoing their subscriptions in favor of antennas for network television and Internet services or websites for what was once premium or cable-only content. Antenna and transmission technologies have improved to serve this market, but the old challenges remain: Some cord-cutters simply cannot get a good signal. Enter Aereo.

Aereo is a company that provides broadcast television to subscribers over the Internet. Its core technical innovation is a giant array of dime-sized antennas. Rather than using one large antenna and piping the entire feed to its subscribers like the old CATV systems, Aereo situates thousands of tiny antennas in a location that gets a strong signal and “rents” them—one antenna at a time—to viewers on monthly basis. The subscriber receives the signal from his or her personal antenna over the Internet. Since each individual antenna is used and controlled by just one viewer at any given time, Aereo argues that it is exactly the same as a pair of “rabbit ears” connected to a TV, only in its case the connecting wire is the Internet. It therefore does not pay licensing fees for public performance under the Copyright Act, allowing it to offer its service to cord-cutters at an extremely low price.

Unsurprisingly, several broadcast networks and other rights holders have sued Aereo, arguing that it is essentially a cable company exploiting a loophole in the Copyright Act, and that its conduct should be covered by the Transmit Clause. After a series of conflicting lower court decisions, the Supreme Court took up the issue in American Broadcasting Cos. v. Aereo.4 While this is the most important recent opinion to consider the copyright protection of video transmission, its outcome ensures that it will not be the last.

‘Aereo’

Aereo provides a number of services, but the Supreme Court only considered one: Aereo’s Internet transmission of live broadcast material to its subscribers.5 As explained by the court, this process involves four steps: First, a subscriber navigates to Aereo’s website and selects a show being broadcast. Second, Aereo assigns an antenna for that subscriber’s sole use for the duration of the show. The antenna receives the show, and the server digitally encodes it. Third, the encoded data is copied to a subscriber-specific folder on Aereo’s servers. Fourth, once a few seconds of the broadcast have been “buffered,” Aereo begins streaming the show to the subscriber’s preferred device over the Internet.6

Copyright holders sued for infringement and sought a preliminary injunction in the Southern District of New York (having experienced varying degrees of success in other jurisdictions). The injunction was denied;7 that denial was affirmed by the Second Circuit;8 and the Supreme Court granted certiorari.

After extensive briefing and oral argument, the Supreme Court reversed and remanded the case. The court, in a 6-to-3 ruling, found that Aereo committed direct infringement under the Copyright Act.9 The majority perceived a clear Congressional intent in the 1976 amendment, which it relied on to interpret the Copyright Act and find that Aereo was committing infringement. The dissent, however, argued that the majority may have rewritten the Copyright Act in an overzealous effort to enact Congress’ intent.

Search for Congressional Intent

Aereo turns on §106(4) of the Copyright Act, part of which grants owners of copyrighted audiovisual works “the exclusive rights … to perform the copyrighted work publicly.”10 The majority thus analyses two questions: (i) whether Aereo “performed,” and if so, (ii) whether it performed “publicly.”11 In doing so, the majority focuses on the Transmit Clause—language added to the Copyright Act in the 1976 at least partly in response to the court’s CATV decisions. Under the Transmit Clause, to perform or display a work “publicly” means (1) to perform or display it in a public place; or (2) “to transmit … a performance or display of the work to … the public, 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.”12 Aereo argued that it was not actively “transmitting” anything—it only supplied the equipment that customers used to receive signals. The court disagreed.

Interpreting the Transmit Clause is hardly intuitive, and the majority focuses only briefly on its language, noting that “[c]onsidered alone, the language of the Act does not clearly indicate when an entity ‘perform[s]‘ (or ‘transmit[s]‘) and when it merely supplies equipment that allows others to do so.”13 Looking beyond the language of the act, however, the court finds Aereo’s activities to be “substantially similar to those of the CATV companies that Congress amended the Act to reach.”14 The court finds that Congress responded to its early CATV decisions by amending the act to make it clear that “an entity that acts like a CATV system itself performs, even if when doing so, it simply enhances viewers’ ability to receive broadcast television signals.”15 The court therefore holds that, because Aereo’s actions are “substantially similar to those of the CATV companies,” Aereo “performs” within the meaning of the act.16

On the second question of whether Aereo’s performance is “public” under the Transmit Clause, the majority again looks to Congressional intent and finds against Aereo. In light of Congress’ intent, the court holds that a “public” performance can include “multiple, discrete transmissions” to different individuals. It finds that Aereo’s transmissions “to a large number of people who are unrelated and unknown to each other,” though consisting of multiple different streams, are “public” under the act.17

This is a somewhat unusual reading of the word “public,” and the majority knows it. It notes: “[A]n Aereo subscriber receives broadcast television signals with an antenna dedicated to him alone. Aereo’s system makes from those signals a personal copy of the selected program. It streams the content of the copy to the same subscriber and to no one else. One and only one subscriber has the ability to see and hear each Aereo transmission. The fact that each transmission is to only one subscriber, in Aereo’s view, means that it does not transmit a performance ‘to the public.’”18 But the court finds the distinctions between Aereo and cable TV irrelevant, not to the language of the statute, but to its purposes.

Thus, the court writes:

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? … They do not render Aereo’s commercial objective any different from that of cable companies. … And why, if Aereo is right, could not modern CATV systems simply continue the same commercial and consumer-oriented activities, free of copyright restrictions, provided they substitute such new technologies for old?19

This is the crux of the majority’s opinion—not that Aereo necessarily fits comfortably within the language of the act, but that any other interpretation would do violence to the act’s purposes. Aereo, like many disruptive technologies, takes advantage of the lag between innovation and legislation, and the court decided to close that gap through a somewhat aggressive statutory interpretation.

In Dissent: A Different Approach

In dissent, Justice Antonin Scalia roundly rejects the court’s approach and identifies issues that may prove challenging for practitioners. First, the dissent brings to the fore the traditional distinction in copyright between direct and secondary liability. In Aereo, the only question before the court was whether Aereo directly infringed on the copyright holders’ rights. Surveying both the language of the act and precedent, the dissent notes that direct infringement—actual performance—typically requires a “volitional act” of some kind “directed to the plaintiff’s copyrighted material,” in cases where a defendant merely “operate[s] an automated, user-controlled system.”20

Under this standard, the dissent says Aereo has not “performed” at all, because any “performance” of copyrighted material is entirely directed by users: “The key point is that subscribers call all the shots.”21 In the dissent’s view, Aereo maintains an automated system that responds to subscribers’ choices—it permits but does not engage in unlawful performance.22 This is more typically a basis for a claim of contributory infringement, which was not before the court. The dissent asserts that such a claim might be a better way to regulate Aereo’s conduct.

Second, the dissent criticizes the majority’s methodology. The dissent takes issue with the idea that the 1976 amendments were necessarily intended to overrule the court’s CATV decisions. But more importantly it attacks the analysis that flows from that assumption. Even if Congress did intend to bring cable systems within the ambit of the Copyright Act, the dissent finds Aereo distinct from those systems in statutorily significant ways. For example, the dissent notes that Aereo does not in any way select or arrange the programs it transmits—users do that. CATV providers, on the other hand, functioned as broadcasters “by deliberately selecting and importing distant signals, originating programs [and] selling commercials.”23 The dissent considers these distinctions critical under the “volition” test, erased by the majority in its effort to regulate anything that “looks like” a cable system.

Third, and most fundamentally, the dissent argues that, even if Congress would “intend” Aereo to be covered by the Copyright Act because it “looks like” a cable system, the act’s text is the law, and the text alone does not prohibit Aereo’s conduct. “It is not the role of this Court to identify and plug loopholes,” writes Scalia. “It is the role of good lawyers to identify and exploit them, and the role of Congress to eliminate them if it wishes.”24 What is worse, the dissent asserts, the majority has left the lower courts without guidance for applying its ruling—leaving “no criteria for determining when its cable-TV-lookalike rule applies.” After posing a series of hypothetical criteria, the dissent concludes that the majority has adopted a “totality-of-the-circumstances test” (“ad hoc, case-by-case evaluation”).25The dissent notes that, under this test, it is not obvious that other systems that transmit copyrighted content at a user’s direction (such as remote DVRs or cloud storage systems like Google Drive and Dropbox) are not also directly infringing. The majority urges that its “limited” opinion should not “discourage or … control the emergence or use of different kinds of technologies,”26 but it provides no guidance as to why that should be the case.

The Road Ahead

The practical question after Aereo is raised by the dissent: Who’s next? How will this decision affect related technologies and businesses?

One concern is that the court’s broad reading of the performance right is dangerous to innovation—that, notwithstanding the majority’s protestations to the contrary, Aereo could apply to any technology delivering content over the Internet. But there is a more optimistic reading. Aereo exemplifies an interpretive philosophy concerned with substance over form. The court rejects the various features that distinguish Aereo from cable systems because it finds that those features exist solely to situate Aereo in a legal loophole. Technologies such as cloud storage may not face that hurdle—they provide benefits independent of the legal regime. If the opinion is read narrowly, as the majority directs, Aereo‘s only effect will be to close a loophole that probably should not have been there in the first place.

The challenge is that the opinion leaves the lower courts with no bright-line rule. The ramifications of Aereo will emerge on a case-by-case basis, and (absent action from Congress) there is likely to be a spike in litigation over what constitutes a service that “looks like” a cable system. If the lower courts adhere to the philosophy underlying the majority opinion, rather than just its broad outcome, most of those suits will fail, but such litigation will likely present an additional cost to innovation for years to come.

Stephen M. Kramarsky, a member of Dewey Pegno & Kramarsky, focuses on complex commercial and intellectual property litigation. Joseph P. Mueller, an associate at the firm, assisted in the preparation of this article.

Endnotes:

1. See Fortnightly v. United Artists Television, 392 U.S. 390 (1968); Teleprompter v. Columbia Broadcasting System, 415 U.S. 394 (1974).

2. See 17 U.S.C. §101 (“To perform or display a work ‘publicly’ means . …”).

3. Cross Platform Report Q3 2011, available at http://www.nielsen.com/us/en/insights/reports/2012/cross-platform-report-q3-2011.html.

4. 134 S. Ct. 2498, 573 U.S. _ (2014).

5. American Broadcasting Cos. v. Aereo, 573 U.S. _, slip op. at 2 (2014)

6. Id.

7. American Broadcasting Cos. v. Aereo, 874 F. Supp. 2d 373 (S.D.N.Y. July 11, 2012).

8. WNET, Thirteen v. Aereo, 712 F.3d 676 (2d Cir. 2013).

9. Justice Stephen Breyer authored the majority opinion in which Chief Justice John Roberts and Justices Anthony Kennedy, Ruth Bader Ginsburg, Sonia Sotomayor, and Elena Kagan joined. Justice Antonin Scalia authored a dissent in which Justices Clarence Thomas and Samuel Alito joined.

10. 17 U.S.C. §106(4) (emphasis added).

11. Aereo, 573 U.S._, slip op. at 4.

12. 17 U.S.C. §101.

13. Aereo, 573 U.S. _, slip op. at 4.

14. Id. at 8.

15. Id. at 8; see also id. at 7 (“Cable system activities, like those of the CATV systems in Fortnightly andTeleprompter, lie at the heart of the activities that Congress intended this language to cover.”).

16. Id. at 8.

17. Id. at 13-4 (“The Transmit Clause must permit this interpretation, for it provides that one may transmit a performance to the public ‘whether the members of the public capable of receiving the performance … receive it … at the same time or at different times.’” (quoting 17 U.S.C. §101)).

18. Id. at 12.

19. Id. (emphasis supplied).

20. Id. at 3-4 (Scalia, J. dissenting).

21. Id. at 6 (Scalia, J. dissenting).

22. Id. at 6 (Scalia, J. dissenting) (quoting MGM Studios v. Grokster, 545 U.S. 915, 960 (Breyer, J., concurring) (“[T]he producer of a technology which permits unlawful copying does not himself engage in unlawful copying.”)).

23. Id. at 8 (Scalia, J. dissenting) (quoting Columbia Broadcasting System v. Teleprompter, O.T. 1973, No. 72-1633, p. 22).

24. Id. at 12 (Scalia, J. dissenting).

25. Id. at 10-11 (Scalia, J. dissenting).

26. Id. at 16.