Update on American Broadcasting Companies, Inc. v. Aereo, Inc.

On October 15, 2014, Aereo, appeared at a hearing before the U.S. District Court in New York to defend itself against a preliminary injunction filed by broadcasters seeking the court’s order to stop Aereo from streaming and publicly performing any copyrighted content over the internet. The hearing follows Aereo’s loss before the Supreme Court in June.

On June 25, 2014, the US Supreme Court ruled against Aereo in a high profile dispute. In its 6-3 decision, the Court held that Aereo violated the Transmit Clause defined in the Copyright Act, 17 U.S.C. §10. The Court found that Aereo publicly performed copyrighted works of the petitioners (ie. Disney, CBS, NBC, Fox) by enabling subscribers to watch TV programs over the Internet in exchange for a fee. In the holding, the complexity of the technology used by Aereo while transmitting TV programs over Internet was underlined.

Aereo has warehouses where thousands of mini-antennas, roughly the size of a dime, and other equipment are housed. When subscribers login to Aereo’s application, they select the TV channel they want to watch from the catalog. If the program is currently airing, a subscriber can either watch live or record the program for later. If the subscriber chooses to watch the program live, Aereo’s servers in the warehouse assigns one of those tiny antennas to the subscriber and tunes in the antenna to the selected TV channel. Aereo’s servers then transcodes the over the air TV signal to digital data and saves it in a user specific folder for a couple of seconds before transmitting the program over the Internet. Then, Aereo facilitates the digital delivery of the signals to the subscribers Over-the-Top (OTT) so that subscribers can watch live TV programs. If the subscriber clicks on the “record” after the program starts, Aereo retains a unique copy of the program in its storage servers so that the subscriber can watch programming whenever they choose.

The crucial detail here is that the antenna only serves a single subscriber at any given time and the folder that is used to store the digital data is not shared among users. It is like having your rabbit ear antenna behind your TV on the roof of Aereo’s warehouse or moving your local DVR box to the cloud. The broadcast signals owned by the petitioners are transmitted free of charge to any viewer with a TV and antenna. Unlike Aereo cable companies, like Comcast and Time Warner, pay license fees for over the air signals to retransmit broadcasts. Aereo’s technology and business model allowed Aereo to keep costs very low in comparison to cable companies. Consequently, Aereo charged subscribers considerably less than cable companies for their service.

Background of the Case

On April 1st 2013, U.S. Court of Appeals for the Second Circuit issued its decision in favor of Aereo stating that Aereo did not infringe the exclusive rights of the content owners enshrined in the Copyright Act. According to the court, the transmissions explained above did not constitute public performance. In its decision, the Second Circuit followed the precedent set in Cablevision where the court held that Cablevision’s transmission of DVR-recorded programs were not public performances as they were one-to-one transmissions of a specific program signal.

In the Aereo case, the Second Circuit compared Aereo’s service to a viewer’s ability to record a program for later viewing using a digital video recorder (DVR). While analyzing the elements of public performance right, the Court stated that Aereo’s performance is private not public as it assigns each subscriber an individual tiny antenna at the time the TV program is streamed or recorded and all subscribers performed Aereo’s service themselves and individually. Hence, the Second Circuit concluded that Aereo did not perform the copyrighted TV programs publicly under Cablevision because it transmitted unique copies of those programs that were created at the subscribers’ requests and transmitted at the same time the programs were airing on television.

After the defeat American Broadcasters Inc. (“ABC”) filed petition for a writ of certiorari which was later granted by the US Supreme Court. During oral arguments in April, 2014, Aereo’s complex technological basis for its system design was frequently questioned. Indeed Justice Ginsburg’s question to Aereo’s counsel was whether they came up with this idea of using thousands of mini antennas to avoid any obligation under the Copyright Act. Also, during the oral arguments, Justice Breyer stated that it seemed like Aereo was trying to escape constraints that everyone else was complying with. The Court was trying to distinguish a disruptive technological innovation and a legal invention to circumvent the Copyright regime. 

Supreme Court Decision

Copyright Act §106 grants copyright holders five exclusive rights: reproduction, adaptation, public distribution, public performance, and public display. Anyone who infringes any of these exclusive rights is liable under the Copyright Act. In the current case, the exclusive right the Supreme Court analyzes is the public performance right. In deciding whether Aereo infringed the exclusive right to publicly perform the petitioners’ copyrighted content, the Court addressed the following questions: i) Did Aereo “perform” the copyrighted work? and ii) Did Aereo perform the petitioners’ copyrighted works “publicly”?

In order to decide on these questions, first, the Court addressed the legislative history of the statute. The 1960’s and 70’s witnessed a massive growth in cable television systems that raised several concerns about the impact of the content providers’ right of public performance. In response to two Supreme Court decisions, Fortnightly and Teleprompter, Congress amended the Copyright Act to include the CATV (community antenna television) providers’ transmission of TV programs to viewers in the framework of public performance right. The Transmit Clause that was enacted in 1976 “makes clear that an entity acts like a CATV system itself performs, even when it simply enhances viewers’ ability to receive broadcast television signals”. Also, it is clear in the legislative history that unless the performance is to the public, there is no actionable infringement.

According to Article 106(4) of the Copyright Act of 1976, the copyright owner has the “exclusive right” to “perform the copyrighted work publicly.” The Act’s Transmit Clause defines that exclusive right as including the right to “transmit or otherwise communicate a performance . . . of the [copyrighted] work . . . to the public, by means of any device or process, whether the members of the public capable of receiving the performance . . . receive it in the same place or in separate places and at the same time or at different times.” 17 U. S. C. §101

Answering the first question, the Court held that Aereo “performed” petitioners’ works publicly within the meaning of the Transmit Clause defined above. The Court did not agree with Aereo’s assertions that it was merely an equipment provider whose subscribers were no different than people who record over the air TV programs using their own antennae and a DVR. The Court found the argument unpersuasive that it is the subscriber who clicks watch or record. Aereo only provides the equipment for this service. According to the opinion, it is clear in the Transmit Clause that whoever acts as the CATV system performs the programs, even if the system only enables the subscribers to receive television signals. Hence, operating substantially similar to cable companies, Aereo performs the copyrighted TV programs without complying with the obligations of such companies including the payment of compulsory fees.

In addressing the second question of whether Aereo performed the copyrighted works “publicly,” the Court held that even if Aereo transmitted from user specific copies, using individually assigned antennas making each transmission available only to one subscriber, these technological tricks do not distinguish Aereo’s system from cable systems. Accordingly, “the subscribers to whom Aereo transmits the TV programs constitute “the public” under the Copyright Act because Aereo communicates the same contemporaneously perceptible images and sounds to a large number of people who are unrelated and unknown to each other and who are not possessors or legal owners of the underlying work.” Thus, Aereo transmitted the copyrighted works of the petitioners to the public.

Concerns About Negative Effects of the Decision on New Cloud Technologies

“Communicating content from one physical place to another is “at the heart of Internet-based technologies”. The Internet consists of computers which “transmit or otherwise communicate” information or in some cases a copyrighted work to a private person or to the public which may sometimes result in infringing an exclusive right of a copyright holder. As it is stated above, private performances do not constitute a violation whereas a public performance might. Drawing the line between what is private and what is public is not always easy. Cloud computing which enables consumers to store content on cloud and then transmit it back depend on the understanding that such transmissions are not regarded as public performances pursuant to the Copyright Act. Hence, interpreting the public performance right very broadly might endanger such services which has become a huge sector worth billions of dollars.

Furthermore, some high tech companies such as Amazon and Dropbox have launched cloud-based storage for consumers’ personal use. Even if the Aereo decision assumes that what cloud services offer is playing back copies that consumers already legally acquired, it could be cumbersome for such companies to determine what is legal or what is not legal. The oral arguments showed that the Court was worried about the possible negative effects of the decision on new cloud technologies. In addition, public interest groups, including Center for Democracy and Technology, submitted briefs expressing such concerns and urging the Court not to interpret the Transmit Clause in a manner that would undermine cloud computing and chill the innovation in networked technologies.

Answering those concerns, the majority decision stated that “questions involving cloud computing, [remote storage] DVRs, and other novel issues not before the Court, as to which ‘Congress has not plainly marked [the] course,’ should await a case in which they are squarely presented.” Hence, instead of drawing conclusions that would affect cloud services, the Court sidestepped the issue. In a dissenting opinion written, Justice Scalia said that the Court cannot promise that its ruling will not affect cloud-storage providers and cable-television systems given the imprecision of its result-driven rule.

Another concern is regarding the public’s interest in accessing cheap online TV services. As the Court held, Aereo shall be treated as a cable company and therefore comply with the responsibilities of a cable company, including paying license fees to content owners. That means Aereo will not be able to offer such services to consumers for considerably lower fees. According to the Federal Communications Commission, Aereo’s service price is less than half the $20.55 average price for a basic pay-TV service and almost one eighth of the $61.63 price for the most popular package. This result might hinder the competition in the industry and delay the decrease in prices.

What is Next for Aereo

After the Court found that Aereo’s service was “highly similar” to that of a cable system, Aereo has been seeking ways to stay in business in compliance with the Court’s decision. First, Aereo asserted in New York District Court that the company is clearly entitled to a compulsory license, which is available to cable companies to carry over-the-air broadcasts under § 111 of the Copyright Act. In the meanwhile Aereo requested the Copyright Office to grant a §111 compulsory license; however it was rejected as the Copyright Office reaffirmed its previous view that Internet retransmissions fall outside of § 111.

On October 15, 2014, the District Court held a hearing and Aereo’s counsel presented various arguments on how Aereo could stay in business by paying license fees as a cable operator. Even if the Supreme Court ruled with a focus on only “contemporaneous” viewing and the decision did not reach Aereo’s DVR-like features, the court signaled that it would interpret the decision as if all of Aereo’s system was illegal.

An ex-parte notice disclosing Aereo’s negotiations with FCC has been uploaded on Aereo’s website. Aereo demands the regulators to define it as a Multichannel Video Programming Distributor (MVPD) whose facilities deliver linear channels of video programming such as local, over-the-air broadcast programming. Only time will tell whether Aereo’s efforts to follow the Supreme Court’s decision will be awarded by the District Court and FCC.