Aereo Gets Its Day In Court

Today the Supreme Court heard arguments in the American Broadcasting Companies v. Aereo case. This case pits traditional broadcasters and media conglomerates against the next generation of tech upstarts, and has huge implications for the future of ‘cloud services’.

A Brief Overview and History

Aereo was first launched in New York City in February of 2012 as a service to allow people to watch broadcast television on their home computers or mobile devices. The service is made up of thousands of tiny TV antenas which capture the free over the air TV signals of local broadcasters (ABC, NBC, PBS etc). These TV signals are then digitized by Aereo and transmitted over the internet to the customer. Since 2012 Aereo has expanded to nearly a dozen metropolitan areas and has faced litigations in several circuit courts with varying outcomes.

Legal Issues

The legal issues surrounding this case has to do with copyright, specifically copyright owner’s right to public performance. For example, while an individual is allowed to watch DVD on their TV at home, they are not permitted to screen that same DVD in a large theater (without the copyright owner’s permission). However, the distinction between a non-infringing private performance, and an illegal public performance becomes more complicated in other cases. Two lower court cases Columbia Pictures Industries v. Redd Horne (aka the Maxwell Video case) and On Command Video v. Columbia Pictures were decided in favor of the copyright holder when, in the former case, the defendant rented out videos to  be viewed in small individual screening rooms in the back of his rental store, and in the later case rented out videos to be viewed in the rooms of his hotel. In both cases the copyrighted material (movies) were only being viewed by one or two people at a time but were still found to be infringing public performances. Antenna in the Cloud

However, the major precedent on which the Aereo case hinges is the landmark 2008 2nd Circuit Court case Cartoon Network v. CSC Holdings (aka The Cablevision Case). The Cablevision case dealt with an early remote DVR service where cable customers could record their favorite shows not to their cable box at home, but to Cablevision’s servers, from which a customer could later stream their reordered shows. Cablevision, like Aereo, was sued by plaintiffs claiming that these streams were public performances but the court sided with Cablevsion stating that because each customer had their own copy of their shows recorded on the servers that the use was in fact a legal private performance. This one copy one customer logic is what made Aereo install thousands of small anteneas (one for each customer) instead of just one antenea which they could then stream out to all of their customers.

It was this Cablevision case that gave legal cover for cloud services like Dropbox and Google Drive to store users’ files even when those files contained copyrighted material. In the cloud storage context many users may save the same copyrighted song to their cloud account but a company like Dropbox is not liable for public performance infringement when each user plays their own copy of their song.

Aside from the copyright public performance issue, the case also deals with retransmission consent regulations set forth both in the 1976 Copyright Act and in a 1992 reform act. You can read more about this tangential aspect here.

Ripple effects

While this case focuses on Aereo, its implications are much wider and have many different industries on the edge of their seats awaiting the court’s decision.

betamaxDid you know: In 1984, copyright owners went to the Supreme Court in the famous Betamax Case to try to ban VCRs, claiming it would “destroy Hollywood”. The case was decided by a slim 5-4 decision.

On the broadcasters side, broadcasters worry that an Aereo victory would mean that cable and satellite companies would re-enginer their systems to mimic Aereo’s, as to avoid paying the retransmission fees that they current pay, and that gives broadcasters nearly $4 billion dollars each year (10% of their revenue). Perhaps overhyping these fears Fox and CBS have threatened to cease broadcasting their over the airways signals if Aereo wins. Ironically broadcast television is already on the decline and the FCC is already working to dismantle it due to it being an inefficient use of wireless spectrum. As University of Maryland Professor James Grimmelmann puts it

In the long run, broadcasting will go away, and Aereo will go away with it… The FCC’s incentive auctions are the writing on the wall: Broadcasting is a terrible use of spectrum compared with the other things we’re now capable of doing with it.

An alternitive result to an Aereo victory could also be that Congress passes legislation mandating that Aereo pay retransmission fees for it’s current practice. This is exactly what happened to cable companies in 1976 when Congress forced cable companies to pay retranmission fees, nullifying earlier court victories that cable companies had one in cases like Fortnightly Corp. v. United Artists Television and Teleprompter Corp. v. Columbia Broadcast SystemEither way the future of Aereo seems limited by the fact that it is tied to the existance of a dying broadcast TV technology.

The much larger question, and one that the justices struggled with, is this case’s impact on the cloud services market. Cloud services, also know as cloud computing, is the market of internet products that are stored not on customer’s individual devices, but on a service’s central server. Examples would be GMail, Facebook, YouTube, Dropbox. Each of these services reside in the ‘cloud’ and are available to their customers from anywhere with an internet connection. This market is already large, and growing rapidly toward an expected $1.1 trillion industry by next year.

General speaking, the Cablevision decision, mentioned above, protects services like Dropbox from liability when an individual user stores unlawful content in their personal account. Aereo founder Chet Kanojia relates these services to his own Aereo service when he lays out the implication of an Aereo lose here:

Whenever two users of a cloud-based ‘virtual locker’ service – such as Google Drive – separately play a song stored on the provider’s servers, the provider [would be] publicly performing by transmitting the same ‘underlying’ performance to multiple members of the public.

Put another way here:

…cloud computing services depend on the legal understanding that remote storage and transmittal of data is not a public performance. “If that understanding were thrown into doubt, cloud computing services would face a serious predicament: Their core functions would become susceptible to copyright claims from a virtually limitless class of possible claimants, with the potential for ruinous statutory damages

With so much on the line for one of the largest segments of the tech economy, companies like Google, Microsoft, and Facebook have submitted court document in favor of Aereo and will be keeping a very close eye on this case as the future of much of their business practices hangs in the balance.

Today In the Supreme Court

Aereo’s ascension from small startup to being heard in front of the Supreme court took only two years and was paved with several contradictory lower court decisions in various jurisdictions. However, today was the final showdown. On one side are broadcasters like ABC,  large media congloermates like Viacom, and the Obama White House. On the other side are pubic interest groups like EFF and Public Knowledge, satellite company Dish, small independent cable companies (not Comcast or Time Warner), Mozilla, and tech industry groups like the CCIA (who’s member include Google, Facebook, Yahoo, Microsoft, Ebay, Samsung and more.).

The broadcasters gave nearly one third of their oral argument time to the US Solicitor General, aware of the fact that the court sides with the Solicitor General more than 70% of the time. The justices seemed to have a hard time understanding how Aereo was any different from regular cable companies, which are compelled to pay retransmission licenses that Aereo currently does not. Justice Elena Kagan noted that,

…from a user’s perspective, [Aereo] is exactly the same as if I’m watching cable, right?

Sotomaor echoed this point when she said,

AT&T’s system, Netflix, Hulu, all of those systems get their content and they don’t push it down to you, they do exactly what you do. They let you choose what you want to see.

Justice Ginsberg then noted that Aereo seems to be the only one in the market that does not pay these fees

 If every other transmitter does pay a royalty—maybe it’s under compulsory license—and you are the only player so far that doesn’t pay any royalties at any stage,

Aside from this point the Justices seemed troubled by the possibility that Aereo was designed the way it is (with thoudands of indifvidual antennas) solely to ‘circumvent’ (or comply) with copyright law. Justice John Roberts said that this wasn’t “necessarily bad” but…

I’m just saying your technological model is based solely on circumventing legal prohibitions that you don’t want to comply with

This was after Aereo’s lawyer David Frederick did a poor job evading Justice Ginsburg question…

Was Judge Chin right when he said there was no technically sound reason to use these multiple antennas?” That the only reason for that was to avoid the breach of the Copyright Act?

After it seemed plain that indeed it was for legal, not efficient technical reasons, that Aereo is designed the way that it is, Mr. Frederick noted that…

…efficiency is not a consideration under the Copyright Act,

At the same time many of the justices seemed very concerned that their ruling could potential impact cloud computing in ways they didn’t intend. In a line of questioning involving Justice Breyer, Jusdtice Kagan, and Justice Sotomayor. Justice Breyer asked…

Are we somehow catching other things that really will change life and shouldn’t, such as the cloud? And you said, well, as the government says, don’t worry, because that isn’t a public performance. And then I read the definition and I don’t see how to get out of it,

Questions around Aereo and ‘the cloud’, as argued in Mozilla’s amicus brief, intensified after the broadcaster’s lawyer Mr. Clement gave this unsatisfying response to one of Alito’s questions on the difference between Aereo and other cloud services.

I think the potential difference… I don’t think this Court has to decide it… I think it can just be confident they are different.

Overall the justices seemed sketpical of Aereo’s legitimacy while at the same time seemed very concerned about the implications of their decision in the cloud computing market.

One thing that was clear was that the Justices had a very limited understanding of the technolgy aspects of the case. Justice Sotomayor made refernces to “iDrop” and “the iCloud” (presumably reffering to Dropbox and the cloud more generall), while Justice Scalia seemed to be under the impression that HBO is broadcast for free over the airways. While these facts seem disheartening at least one article has argued that the Supreme Court’s technical cluelessness makes them better justices, though I’m inclined to disagree.

Either way, it is extremely hard to predict an outcome based on the oral arguments and we will all have to wait until June when the decision is expected to be handed down.

Noteable Quotes About the Case

 

The most significant ‘threat’ Aereo poses is reminding the public that ‘network content is…readily accessed’ for free with an antenna.

– CBS Executive

People [broadcasters] say this is a copyright case. It’s not. It’s a business case. This is a [channel] bundling case. People want to protect their business model.

This is a business-model case masquerading as a copyright case… The real issue to them is that people don’t want to continue to pay the bundled outrageous prices.

– Aereo founder Chet Kanojia (2nd quote)

Aereo steals broadcast signals from the air and pipes them over the internet without paying a dime to the people who invested billions of dollars to produce that content,

– Broadcasters’ Lawyers in a statement to The Verge

 Additional Links

Good summaries / breakdowns of the Case
Audio/VIDEO materials
Reactions from the Oral Arguments
Arguements from Aereo’s side
Legal Documents
UPDATE

Here are two great academic papers about the Aereo Case and how it contorts copyright law.

  • Edgar Sánchez

    This is for the free access to public content. We can’t allow the privatization of telecoms