In a case with far-reaching implications for the television business, for cloud computing and for new technologies, the U.S. Supreme Court found that Aereo’s online video service infringed copyrights held by television producers, broadcasters, marketers and distributors in broadcast television programming.  In a 6-3 decision, the Court decided in American Broadcasting Cos., Inc. et al. v. Aereo, Inc., FKA Bamboom Labs, Inc. that Aereo “publicly performs” a copyrighted work within the meaning of the Transmit Clause of the U.S. Copyright Act and thereby infringed exclusive rights of the copyright holders because Aereo did not license the content.  

Aereo’s service allows subscribers, for a monthly fee, “to watch television programs over the Internet at about the same time as the programs are broadcast over the air.” According to Aereo, the system consists of thousands of small antennas in centralized location that receive over-the-air broadcast programming. The company uses special equipment to allow subscribers to stream the programming. The petitioners in this case were copyright holders who sought a preliminary injunction against Aereo, alleging copyright infringement. The Court did not rule on other claims of copyright infringement raised in the lower courts.

Justice Stephen Breyer, writing for the majority, wrote that Congress amended the Copyright Act in 1976 in part to overrule two U.S. Supreme Court decisions (Fortnightly Corp. v. United Artists Television, Inc. and Teleprompter Corp. v. Columbia Broadcasting System, Inc.) that held that cable systems’ retransmissions of over-the-air broadcasts were not public performances under the Copyright Act. He concluded that

having considered the details of Aereo’s practices, we find them highly similar to those of the CATV systems in Fortnightly and Teleprompter. And those are activities that the 1976 amendments sought to bring within the scope of the Copyright Act. Insofar as there are differ­ences, those differences concern not the nature of the service that Aereo provides so much as the technological manner in which it provides the service. We conclude that those differences are not adequate to place Aereo’s activi­ties outside the scope of the Act.

The majority found, in essence, that Aereo’s system was the modern equivalent of these early CATV, or community antenna television, systems, which used centralized antennas on hilltops or other sites to receive off-air broadcast signals and retransmit those signals via coaxial cable to subscriber homes.  Justice Antonin Scalia, writing the dissent, rejected the majority’s conclusion about Aereo’s resemblance to cable TV services, finding that sufficient technological distinctions existed for purposes of the public performance right and that the majority’s ruling was an “ad hoc rule for cable system lookalikes.” He also argued that Aereo could not be held directly liable for copyright infringement on public performance grounds because “it does not make the choice of content” and therefore does not “perform.” That said, the dissent makes clear that other legal grounds for potential copyright liability were not before the Court, stating that the Networks’ “request for a preliminary injunction – the only issue before this Court – is based exclusively on the direct-liability portion of the public-performance claim (and further limited to Aereo’s ‘watch’ function, as opposed to its ‘record’ function).”

The majority described its decision as a “limited holding” and that Congress “did not intend to discourage or to control the emergence or use of different kinds of technologies.” Justice Breyer wrote:

We cannot now answer more precisely how the Transmit Clause or other provisions of the Copyright Act will apply to technologies not before us. We agree with the Solicitor General that '[q]uestions 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.” … And we note that, to the extent commercial actors or other interested entities may be concerned with the relationship between the development and use of such technologies and the Copyright Act, they are of course free to seek action from Congress…

The majority did not address the legal effect of Cartoon Network LP, LLLP v. CCS Holdings, Inc., a 2008 decision by a panel of the U.S. Court of Appeals for Second Circuit. In ruling for Aereo in 2013, a three-judge panel of the same Court cited the Cartoon Network case for the proposition that Aereo’s transmissions were not “to the public” for purposes of the Transmit Clause.  Cartoon Network involved whether transmissions using remote storage DVR services were public performances for purposes of the Copyright Act. While the precise legal issue in Aereo involved near-real-time streaming rather than content storage, the omission is noteworthy because Aereo reportedly relied on the Cartoon Network precedent in designing its system. 

Some Implications of the Court's Decision

There is much ambiguity in the Court’s decision, and its application to new technologies will be a source of much analysis and debate. Even if Aereo had prevailed on the public performance claim at the preliminary injunction stage, other theories of copyright liability would have been considered in further proceedings on remand. In addition, the Court’s decision on public performance grounds meant that the Court did not need to determine whether Aereo would have qualified as a “cable system” that was eligible to obtain statutory copyright licenses for the broadcast programming. Similarly, the Court did not look beyond copyright law to communications law and the rules for broadcast retransmission consent. Moreover, the “record” function was not at issue in the case, so the decision’s application to cloud storage services is undetermined at the U.S. Supreme Court. In short, Aereo represents only a portion of the larger legal picture.

I’ve said before that disruption does not occur in a vacuum. The multi-billion-dollar marketplace for video programming services is shaped heavily by regulatory forces. Franchising, copyright, retransmission consent and other legal issues play a role in defining the industry’s buyers and sellers, as well as the terms and conditions of the availability of programming. New providers must manage a variety of legal and regulatory risks to enter and to succeed in this marketplace.

Aereo’s legal approach challenged the existing business model in an effort to bypass licensing negotiations to determine compensation for copyright holders. Chief Justice John Roberts told Aereo’s counsel at oral argument that “your technological model is based solely on circumventing legal prohibitions that you don’t want to comply with, which is fine.” The majority’s reasoning ties Aereo’s practices to precedent from decades ago, despite the technological differences between today's cloud/DVR/Internet services and the community antennas of that era.  Justice Scalia in dissent stated that “I share the Court’s evident feeling that what Aereo is doing (or enabling to be done) to the Networks’ copyrighted programming ought not to be allowed. But perhaps we need not distort the Copyright Act to forbid it.” A major point of contention between the majority and the dissent is whether the case showed that Copyright Act had a “loophole” that should be addressed by the Court or by Congress.

It is noteworthy that the result in Aereo turned less on nuanced technological distinctions and more on broader legal policy:

In other cases involving different kinds of service or technology providers, a user’s involvement in the opera­tion of the provider’s equipment and selection of the con­tent transmitted may well bear on whether the provider performs within the meaning of the [Copyright] Act. But the many similarities between Aereo and cable companies, consid­ered in light of Congress’ basic purposes in amending the Copyright Act, convince us that this difference is not critical here.

This language also illustrates the challenges in applying to new technologies the longstanding legal principle of stare decisis, which means judicial adherence to settled precedent from prior decisions.  The majority endeavored to use legislative history and “Congress’ basic purposes in amending the Copyright Act” to fit Aereo’s business practices into legal precedent. Whether made by lawmakers, judges or regulators, legal rules have a difficult time keeping up with technological change. Rules that are too specifically tailored run the risk of being rendered obsolete, while broader rules can be more vague and difficult to apply as a matter of stare decisis.

The majority stressed that its holding was “narrow” in terms of the intended impact on new technologies. For now, expect the ruling to result in more payments to producers, broadcasters and copyright holders when program distributors seek to license retransmissions of broadcast programming. In any case, as new providers seek to become video programming distributors and existing providers evaluate their options, Aereo will be an important legal touchstone for assessing new business models and technologies for the delivery of broadcast programming.