Impact of the Aereo Supreme Court Decision on Broadcasters, Cloud Content Storage

 
              Broadcast stocks rose as much as double digits on the day the Supreme Court released its Aereo decision.  The decision underscores the value in broadcasters’ copyrighted content, but also the importance—and staying power—of income streams accruing to broadcasters.  Any venture seeking commercially to exploit broadcaster content will not readily find a way to avoid having to secure retransmission/copyright consent.

              Because new ventures cannot easily cut out local broadcasters, perhaps network content creators might consider ways to deal directly with new distributors.  Regardless of the technology delivering content to end users, a payment likely will flow upstream.  Accordingly it appears even more unlikely that local broadcasters will participate in an incentive auction to part with all or a portion of their 6MHz channels.  Why abandon recurring and growing compensation for a one time infusion of cash?  Bad news for the FCC and others keen on extracting large swaths of additional spectrum for wireless broadband service.

              The Aereo decision also suggests that one cannot underestimate the power of broadcasters to establish themselves, even now, as benefactors of the public interest, localism, “free” content and candidates for elective office.  In the 1970s Congress amended the Copyright Act to mandate community antenna television (“CATV”) operator payments to broadcasters in exchange for a compulsory copyright license for retransmission, now deemed a public performance.  At that time, candidates for elective office heavily relied on television and radio to get their message out.  The National Association of Broadcasters ("NAB") was considered one of the most effective lobbying organizations on Capitol Hill.  NAB framed the cable issue as one of "siphoning," market fragmentation, a threat to localism and outright thievery. 

        While CATV actually helped expand market penetration into fringe, hinterland locations, it also "imported" signals and jeopardized local broadcasters' shared monopoly.  As Justice Scalia noted in dissent, incumbents have a history of forecasting disaster, e.g., the demise of “free television.”

        In short order (at least for Congress) local broadcasters got relief, including the right to force cable operators to block channels containing duplicative networks and syndicated content, such as Jeopardy and Wheel of Fortune.  Perhaps amending the Copyright Act was the most expedient legislative option to devise a mechanism whereby broadcasters received compensation and consumers, including first time, rural residents, continued to have the opportunity to view content.

        Reliance on 1976 Copyright Act amendments may have an adverse impact on new technologies and entrepreneurial business plans.  Any venture offering cloud-based storage of content now has to consider whether it may incur secondary liability for the direct infringement of their customers.  My free advice: make sure copyrighted content travels a round trip from the content source/distributor to the consumer and then back upstream to the cloud for storage.  In this bandwidth doubling routing, the cloud locker operator has a better legal argument for associating with consumers’ copyright fair use, or non-infringing use.

Summary of the Supreme Court Aereo Decision

            The Supreme Court has ruled that the Aereo operates much like a cable television service whose retransmission of copyrighted material constitutes a public performance requiring broadcaster consent. [1] The decision effectively shuts down Aereo and appears to nullify the lower court decision in Cartoon Network LP, LLLP v. CSC Holdings, Inc., 536 F. 3d 121 (2008) that considered subscriber ordered copying of content a private act that does not violate copyright law.

            Writing for the majority Justice Breyer distilled the case into two questions: “First, in operating in the manner described above, does Aereo “perform” at all? And second, if so, does Aereo do so ‘publicly.’” [2]  The majority decision answers both question in the affirmative.  Aereo performs, because its broadcast signal retransmission and copying function parallels the functions of a cable television venture and satisfies the definition of performance enacted by Congress in the 1976 amendment of the Copyright Act. [3] 

            Referring to the legislative history of the 1976 amendment, Justice Breyer reports that Congress consciously sought to reverse two Supreme Court decisions that considered the cable television retransmission function not a public performance. In Fortnightly Corp. v. United Artists Television, Inc., 392 U. S. 390 (1968), the Court held that a community antenna television (“CATV”) system did not publicly perform copyrighted broadcast television content  when it simply distributed it to subscribers without alteration in much the same way that individuals could have done using their own antennas. In Teleprompter Corp. v. Columbia Broadcasting System, Inc., 415 U. S. 394 (1974), the Court considered the copyright liability of a CATV provider that delivered broadcast television programming from distant sources that subscribers could not receive if they had erected a rooftop antenna.  The Court had reasoned that cable operators functioned like a private viewer and not a broadcaster, or performer. [4] Justice Breyer reasoned that because Congress expressly created language deeming content transmission a public performance, the Court had to treat the Aereo delivery service as the functional equivalent of a transmission and public performance, notwithstanding the fact that subscribers initiate the transmission and copying functions performed by the company:

This history makes clear that Aereo is not simply an equipment provider. Rather, Aereo, and not just its subscribers, “perform[s]” (or “transmit[s]”). Aereo’s activities are substantially similar to those of the CATV companies that Congress amended the Act to reach. [5] 

            The majority decision rejects as insignificant a difference in the manner by which copyrighted content reaches subscribers. [6] Cable retransmission occurs simultaneously and continuously without authorization, or direction from subscribers while Aereo requires subscribers to initiate the service and determine whether to direct equipment to make copies.    Writing in dissent, Justice Scalia considers this difference significant, because the transmission and copying function does not occur unless and until a subscriber directs Aereo equipment to activate. [7] Justice Scalia analogized the coordination between Aereo and its subscribers to that which occurs when a copy center issues an equipment activation and library card for customers who make copies on their own volition using the copy center’s equipment. [8]

            On the issue of whether Aereo publicly performs copyrighted material, the Court majority determined that the company did despite having installed a dedicated antenna for the exclusive use of one subscriber.  Even if the Court were to accept the view that Aereo initiated a new performance in its reception and retransmission function, the majority still considered the performance public. [9]  Justice Breyer reasoned that Congress intended on protecting broadcasters’ copyrights even if technological innovations involved subscriber interaction with equipment and content streams did not flow instantaneously and constantly to subscribers:

[W]hy should any of these technological differences matter? They concern the behind-the-scenes way in which Aereo delivers television programming to its viewers’ screens. They do not render Aereo’s commercial objective any different from that of cable companies. Nor do they significantly alter the viewing experience of Aereo’s subscribers. Why would a subscriber who wishes to watch a television show care much whether images and sounds are delivered to his screen via a large multisubscriber antenna or one small dedicated antenna, whether they arrive instantaneously or after a few seconds’ delay, or whether they are transmitted directly or after a personal copy is made? 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? Congress would as much have intended to protect a copyright holder from the unlicensed activities of Aereo as from those of cable companies. [10] 

            The majority opinion interprets the Transmit Clause contained in the 1976 Copyright Act amendments[11] as applicable regardless whether there are multiple, geographically diverse, discrete, time-delayed or subscriber-initiated transmissions from Aereo equipment.[12] While sensitive to the possibility that its decision at least temporarily block technological and entrepreneurial innovations, the Court suggests that Congress can and will act, just as it did in response to the onset of cable television. The Court also recognizes that fair use may allow some innovations to flourish and also seeks to exempt the decision from related questions about Internet-based, “cloud” storage of content.

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[1]           American Broadcasting Cos., Inc. v. Aereo, Inc., ___ U.S. ___ (June 25, 2014) (slip op.); available at: http://www.supremecourt.gov/opinions/13pdf/13-461_l537.pdf [hereinafter cited as Aereo Revesal].

 

[2]           Id. at 4.

 

[3]              17 U.S.C. §101 et seq. (2012).

 

[4]           “Although the Court recognized that a viewer might not be able to afford amplifying equipment that would provide access to those distant signals, it nonetheless found that the CATV provider was more like a viewer than a broadcaster.” Aereo Reversal at 6.

 

[5]           Id. at 8.  “Aereo’s equipment may serve a ‘viewer function’; it may enhance the viewer’s ability to receive a broadcaster’s programs. It may even emulate equipment a viewer could use at home. But the same was true of the equipment that was before the Court, and ultimately before Congress, in Fortnightly and Teleprompter.” Id. at 9. 

 

[6]              “Given Aereo’s overwhelming likeness to the cable companies targeted by the 1976 amendments, this sole technological difference between Aereo and traditional cable companies does not make a critical difference here.” Id. at 10. 

[7]           “Rather, it assigns each subscriber antenna that—like a library card—can be used to obtain whatever broadcasts are freely available. Some of those broadcasts are copyrighted; others are in the public domain. The key point is that subscribers call all the shots: Aereo’s automated system does not relay any program, copyrighted or not, until a subscriber selects the program and tells Aereo to relay it.” Justice Scalia Dissent at 6.

 

[8]            “A comparison between copy shops and video-on-demand services illustrates the point. A copy shop rents out photocopiers on a per-use basis. One customer might copy his 10-year-old’s drawings—a perfectly lawful thing to do—while another might duplicate a famous artist’s copyrighted photographs—a use clearly prohibited by §106(1). Either way, the customer chooses the content and activates the copying function; the photocopier does nothing except in response to the customer’s commands. Because the shop plays no role in selecting the content, it cannot be held directly liable when a customer makes an infringing copy.” Id. at 4. “Aereo does not “perform” for the sole and simple reason that it does not make the choice of content. And because Aereo does not perform, it cannot be held directly liable for infringing the Networks’ public-performance right.” Id. at 6.

 

[9]           “When an Aereo subscriber selects a program to watch, Aereo streams the program over the Internet to that subscriber. Aereo thereby “communicate[s]” to the subscriber, by means of a “device or process,” the work’s images and sounds. §101.And those images and sounds are contemporaneously visible and audible on the subscriber’s computer (or other Internet-connected device). So under our assumed definition, Aereo transmits a performance whenever its subscribers watch a program.” Aereo Reversal at 12.

[10]            Id. at 12.

 

[11]            17 U.S.C. §101.

 

[12]          “Therefore, in light of the purpose and text of the Clause, we conclude that when an entity communicates the same contemporaneously perceptible images and sounds to

multiple people, it transmits a performance to them regardless of the number of discrete communications it makes.” Aereo Reversal at 14. “So whether Aereo transmits from the same or separate copies, it performs the same work; it shows the same images and makes audible the same sounds. Therefore, when Aereo streams the same television program to multiple subscribers, it ‘transmit[s] . . . a performance’ to all of them.” Id.