ABC v. Aereo, Innovation, and the Cloud

This essay first appeared in the Internet Monitor project’s second annual report, Internet Monitor 2014: Reflections on the Digital World. The report, published by the Berkman Center for Internet & Society, is a collection of roughly three dozen short contributions that highlight and discuss some of the most compelling events and trends in the digitally networked environment over the past year.

The act of storing, accessing, or delivering content online can implicate the exclusive rights that Section 106 of the United States Copyright Act confers upon copyright owners. For some types of works (including audiovisual works), those exclusive rights include the right to perform or transmit those works to the public.

The US Supreme Court addressed the scope of the public performance right in a major decision this year, ABC v. Aereo, 134 S.Ct. 2498 (2014). Certain features of the case — including the unique nature of the service that Aereo offered — suggest that the Court’s holding might be limited. But, the Aereo ruling has the potential to impact a wide range of services that grant users access to content stored in locations other than those users’ own hard drives.

Aereo allowed each of its paid subscribers to rent one of thousands of small antennas that Aereo installed in a warehouse. Each antenna picked up over-the-air broadcast television signals and delivered programming via the Internet to the subscriber assigned to that antenna, at the subscriber’s request. The service offered an alternative to cable or satellite for consumers who could not easily receive over-the-air broadcast signals and facilitated cord-cutting for those who wanted to watch network programs via the Internet.

Aereo argued that its service was effectively like an antenna that any viewer might connect to her TV set and use to access free broadcast signals; Aereo did not publicly perform the copyrighted programs that its subscribers accessed, and it thus did not infringe content owners’ rights. Several TV producers and broadcasters claimed, to the contrary, that Aereo publicly performed their copyrighted television programs by transmitting them to viewers, much like cable providers that carry local broadcast stations. Cable providers pay to license broadcast programming; Aereo did not.

Those producers and broadcasters filed a federal lawsuit against Aereo claiming copyright infringement, and the Supreme Court ruled in favor of the plaintiff copyright owners. The Court’s decision rested upon two major sets of discrete (and important) conclusions. First, the Court held that Aereo itself “performed” the works at issue, even though its subscribers selected whether and when to view content and which content to view. Second, those performances by Aereo were held to be performances or transmissions to the public, notwithstanding the fact that each antenna delivered content to only an individual Aereo subscriber.

The long-term legacy of the Aereo decision remains to be seen, but it offers some lessons for anyone seeking to innovate in a heavily-regulated environment and, in particular, those looking to develop cloud-based storage and content delivery systems.

On the broader innovation front, it is worth noting that the complex architecture of Aereo’s system, with its thousands of tiny antennas assigned to thousands of individual subscribers, seemed driven at least as much by legal considerations as technical ones. Aereo launched in New York City, and a prior decision from the federal appellate court that includes New York within its jurisdiction seemed to offer Aereo a roadmap for developing the one-antenna-one-subscriber model that was its hallmark.

In Cartoon Network, LP v. CSC Holdings, Inc., 536 F.3d 121 (2d Cir. 2008) (widely known as the “Cablevision” case), the United States Court of Appeals for the Second Circuit held that Cablevision’s “Remote Storage DV-R” system did not infringe TV content owners’ copyrights. The system allowed cable subscribers to record shows to and play them back from hard drives housed centrally in a Cablevision-operated facility (rather than on hard drives housed in set-top boxes in the subscribers’ homes).[i] Each user of the system was assigned her own hard drive, and each user made her own decisions about which shows to record and whether and when to play them back. Content owners argued that Cablevision made unauthorized copies of their programs and engaged in unauthorized public performances or transmissions to subscribers. The Court disagreed, finding that Cablevision subscribers (not Cablevision itself) made the copies and that the transmissions of those shows to individual subscribers were not transmissions to the public.

The analogy between the service offered by Aereo and that offered by Cablevision has at least some surface appeal:

• An individual may lawfully connect a VCR or a set-top digital video recorder to her television at home, record shows, and watch them at a later date. And, Cablevision holds that she may do so even if the DVR is moved to a remote facility.
• An individual may lawfully connect an antenna to her television at home and watch programming delivered via over-the-air broadcast signals. The logic of Cablevision dictates that she may do so even if the antenna is moved to a remote facility.

Not only did the Supreme Court see the case differently, it did so in a decision that cited Cablevision only once in its eighteen pages of analysis.

The result in Aereo underscores the inherent volatility of innovating in a space governed by limited legal precedent, in reliance on modern interpretations of statutes drafted long before the technology at issue was contemplated (let alone invented). Critics of Aereo suggested that the service was taking advantage of a legal loophole; proponents reframed the service as simply following the law set forth by the Second Circuit’s Cablevision decision. But, as the Court’s ruling demonstrates, the law can be uncertain, especially as it concerns new technology.

On the specific legal questions at the heart of the Aereo decision, one cannot ignore the setting of the case. Aereo’s position — that it was entitled to offer broadcast television programming to its users without paying fees to content owners — took direct aim at long-standing licensing regimes that permit cable providers to offer broadcast channels to their subscribers in exchange for royalty payments to the broadcasters. Although the Court’s decision ostensibly turned on technical application and interpretation of language in the Copyright Act — including definition of the term “transmission” and analysis of what it means for a transmission to be “to the public” — the Court noted that the functions of Aereo (which paid no royalties) mirrored functions offered by cable companies (which paid royalties). The Court referred to “Aereo’s overwhelming likeness” to cable companies, and Justice Scalia in his dissent characterized the majority’s decision as imposing “Guilt By Resemblance.”[ii]

It is difficult to say how the case would have come out if Aereo did exactly what it did as a technical matter but was not so blatantly and forcefully upending the existing business models and licensing regimes on which its competitors relied. But, the decision suggests that copyright law — which is ostensibly concerned with technicalities — may lend itself to more functional applications that look at the practical impact of a piece of technology rather than its narrow technical contours.

For what it’s worth, the Supreme Court went out of its way in the Aereo decision to say that its holding was limited to the facts before it and expressly concluded by noting that questions about the implications of copyright law on other technologies — including cloud computing — should await cases “in which they are squarely presented.”[iii] Whether or not the specific holding of Aereo is limited, one can be certain that lower courts grappling with those other technologies will look to Aereo for guidance in the coming years.

[i] It has long been established that a person recording television programs at home for purposes of “time shifting” — i.e., making a copy of a show now in order to watch it later, perhaps at a more convenient time — does not infringe copyright. See Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417 (1984).

[ii] ABC, 134 S.Ct. at 2501, 2515.

[iii] Id. at 2511.