The Aereo Decision

By Evan Jensen

The Aereo decision gives the impression of the Supreme Court twisting itself into knots to find a reason why Aereo is infringing. And ultimately the Court decided to help broadcasters kill off the competition, rather than push broadcasters to innovate.

On June 25 the Supreme Court’s decision in the ABC v Aereo case came down.[1] The Supreme Court sided with ABC and the other broadcasters against Aereo. In its opinion, the Court held that Aereo’s transmissions are public performances and that therefore Aereo is infringing on copyrights owned by ABC and the other petitioners.

The majority opinion drew an analogy between Aereo and cable TV providers in the Fortnightly[2] and Teleprompter[3] cases. Specifically, that Congress intentionally countermanded the Court’s decisions that CATV providers did not perform through the language of the 1976 Copyright Act. And therefore, because Aereo is similar to a CATV provider, that Aereo, too, is publicly performing under the 1976 Act. Oddly, the Court did not delve into a discussion of Cablevision,[4] leaving everyone wondering whether Cablevision is still good law, or whether Aereo overruled Cablevision.

Commentators have humorously described the Court’s test in Aereo as a “looks like a duck” test.[5] The majority simply ignored the functional aspects of Aereo’s technology which Aereo carefully designed to comply with the law at the time. Because Aereo’s service “looks like” cable rebroadcasts of network TV, the majority determined it should be treated like CATV. As a result Congress must have meant its changes in the 1976 Copyright Act to apply to a service like Aereo as well.

As a result of this decision Aereo appears to be dead in the water.

 

Potential Chilling Effect on Innovation

The ripple effects of Aereo will rebound far and wide across the tech industry. Cloud storage services, such as Dropbox, which maintain a separate ‘box’ for each user could be seriously impacted by the decision.

But cloud storage is just the tip of the iceberg. Remote computing, 3D printing, the “internet of-things,” and other applications and services we can’t think of yet must deal with the specter of ‘guilt by resemblance’ copyright liability. Especially if that service delivers a similar functionality to some service in the past. The Aereo decision shows that opening up the analogy that it “looks like” some historical service can convince the Court to consider the historical service instead of the features of the modern service at issue in the case. The same approach could be applied in a wide variety of contexts.

Unfortunately, the Aereo decision’s disregard for the actual features of Aereo’s technology may have a chilling effect on innovation.

Consider the Sony case from 1984, which is similar in many ways to the situation in Aereo. The videocassette recorder (VCR) was a brand-new invention, and at the time it was a highly disruptive technology for media consumption because the VCR enabled users to view and copy videos at home. The television and movie industries predicted utter ruin for their businesses if consumers were able to view and copy video content using VCRs, and they sued Sony for copyright infringement for manufacturing and selling VCR players.

In the Sony case the Supreme Court was only one vote away from destroying the VCR as a technology, at the urging of the existing television and movie industries.[6] Fortunately, in Sony good sense prevailed and the Court saw fit to allow manufacturers to sell VCRs without copyright infringement liability. Eventually the content industries’ apocalyptic predictions were forgotten, and consumers enjoyed viewing movies at home. In an alternate universe where VCRs died in that legal battle, most likely CDs, DVDs, and Blu-Ray discs would be gone as well.

Predictably, the VCR was a boon to the movie and TV industries. Americans spent $2.55 billion on video rentals in 1985, and video sales revenue totaled $773 million.[7] For comparison, the gross revenue of the entire cinema industry (theaters) in 1985 was $3.75 billion.[8]

At the time, the VCR was an innovation in distribution technology which could be used to distribute copyrighted content. After they lost the case, the very companies who opposed VCRs in court subsequently leveraged them to make more money than ever. After they failed to suppress the technology, they were pressured to actually deliver what their customers wanted.

Just like how the news and music industries opposed radio, and how the movie industry opposed television, and how the television and movie industries opposed VCRs, the broadcast networks now oppose the internet. And the broadcasters make similarly apocalyptic predictions about their destruction if Aereo is allowed to distribute TV over the internet.

It’s the same old song and dance. The entrenched content industry fights tooth and nail to kill the new distribution technology. Eventually, the less efficient distribution model loses. Then, once the existing industry starts to use the new distribution technology, it flourishes because the new technology facilitates selling more content.

Broadcasters could easily offer an Aereo-like online service if they wanted. But they won’t because their own online option would cannibalize their core business by attracting viewers who would otherwise watch the broadcast. Instead, some broadcasters offer pay-TV authentication. Pay-TV authentication provides access to internet distribution only if the customer authenticates that he or she already has a cable subscription. The broadcasters’ strategy seems carefully calculated to eliminate the possibility of consumers choosing to pay less for only internet distribution and avoid paying for cable.

The broadcasters should be pushed by their competition to either adapt along with the improved efficiency of modern technology, or be destroyed in the marketplace by others who do take advantage of those improvements to deliver a cheaper and higher-quality product.

Aereo’s technology is to use the internet to distribute over-the-air TV. The broadcasters sued for copyright infringement because they do not want to use the internet to distribute content. Except this time the entrenched industry won.

 

Opinion

The Aereo decision is an unfortunate setback for digital content distribution. The Court sided with the entrenched broadcast industry, and its decision has the effect of killing a company that is representative of an emerging threat to the traditional broadcast industry.

The context of the case is copyright infringement; that Aereo is essentially stealing from ABC by rebroadcasting ABC’s content. But ABC clearly doesn’t mind if consumers watch its content, since over-the-air content is free to view for anyone. In fact, broadcasters’ core business depends on getting as many viewers of its free broadcast as possible.

So in my opinion ABC’s copyrighted content is not what this case is really about. This case is really about distribution technology. And broadcasters like ABC absolutely do mind if consumers are able to watch content without using over-the-air broadcast technology.

The strangest and most problematic aspect of the Aereo decision is simply that times have changed since Fortnightly was decided in 1968. Cable rebroadcasts of network television in the 1960’s can hardly be compared to internet streaming in the 2010’s. The differences in broadcast technology, cable technology, and changes from the invention of the internet are massive.

If the Act’s text was clear on the subject then at least the decision would make more sense. But the Court could only interpret the intent of Congress when it enacted the 1976 Copyright Act. And the Court determined that Congress literally intended the Act to apply to internet streaming. In my opinion Congress did not anticipate the internet in 1976, to say nothing of other statutory and common law changes since 1976, particularly the Sony[9] and Cablevision[10] cases which are more reflective of modern technology than Fortnightly and Teleprompter.

The Court makes the jaw-dropping statement that, “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.”[11] There is no ‘overwhelming likeness’ between Aereo and the cable companies targeted by the 1976 amendments. Even Aereo’s opponents must concede the technological difference from the invention of the internet, if nothing else.

What should follow is an argument why the technological differences of internet distribution result in infringement of ABC’s copyright, not whether ABC wants to use internet distribution from a business perspective. In a free market, competitors offer different and potentially superior services all the time, pressuring companies to improve, much as the radio harmed print newspapers and the refrigerator destroyed the ice delivery industry.

Which is why the Supreme Court’s decision is so frustrating. Aereo does not “look like” cable TV providers in the 1960’s and 1970’s, except that they both can be used to watch video. But the Supreme Court’s insistence that Aereo actually does look like cable leaves us with a difficult interpretation of whether the “looks like” test is extremely broad on purpose, or whether the Court simply doesn’t understand the technology and mistakenly believes they are similar.

I think it is important for broadcasters to remember that over-the-air broadcast relies upon the privilege of using the public’s spectrum for profit. Spectrum is limited, which is a huge limitation of over-the-air radio, television, and cellular service. An exclusive spectrum license is an enormous business advantage that incumbent broadcasters will go to great lengths to protect. But the internet eliminates that scarcity, and enables anyone to send data without needing expensive radio equipment.

The internet is also a public space, with the absolutely critical difference that no exclusive license to transmit is necessary. Small companies (like Aereo) without spectrum licenses can actually compete on capability and price with broadcasters in the internet sphere. Companies like ABC could do the same, of course, but they would rather maintain their exclusivity in over-the-air broadcast than compete on even terms with everyone else.

I contend that broadcasters like ABC would make more money by decisively adopting internet distribution. Internet distribution is cheaper, viewership and ad views can be counted with precision, customizable and interactive ads are possible, and users and advertisers can both get additional flexibility and content richness such as links, interactive media, content selection, social media, etc. As over-the-air broadcasters, they would lose their unique advantage in the form of the spectrum license. But as internet content providers those same companies can deliver more content and more ads than they ever did over the air, at a higher quality and lower price, and make more money.

If ABC is so concerned about Aereo, ABC should buy the startup and offer the service for its own profit instead of shutting Aereo down in court.

 

Conclusion

The most prescient words in the decision are Justice Scalia’s, “The Court manages to reach the opposite conclusion only by disregarding widely accepted rules for service-provider liability and adopting in their place an improvised standard (‘looks-like-cable-TV’) that will sow confusion for years to come.”[12] I share Justice Scalia’s concerns that the Court’s evident dislike for Aereo’s model and belief that it ‘ought not to be allowed’ has tainted the rule applied in this case and prompted the Court to bend copyright law to the breaking point so it can be used to reach Aereo’s distribution technology.

The Aereo decision is certain to cause immense confusion in the future as digital distribution becomes more and more prominent. Aereo is not a one-time occurrence. Disruptive technologies are coming. And as digital systems become increasingly sophisticated and widely-used, strange and diverse systems will appear that challenge basic assumptions about the law, like Aereo did for public performance in copyright.

Under Aereo’s ‘guilt by resemblance’ doctrine, a weak analogy to an old technology can destroy your startup. An entrenched industry can use copyright to shut a potential tech competitor down using the courts rather than compete, adapt, and improve. Instead, their competition should pressure them to deliver what customers actually want, which at this point is time-shifting, place-shifting, device-shifting, and lower-cost distribution using the internet. It is a dark day for innovation and for a competitive free market.

Ultimately, Aereo boils down to one question: we have the technology to distribute TV over the internet for drastically reduced cost; why aren’t we using it?

 

[1] Am. Broad. Cos. v. Aereo, Inc., 134 S. Ct. 2498, 2507 (2014).

[2] Fortnightly Corp. v United Artists Television, Inc., 392 U.S. 390 (1963).

[3] Teleprompter Corp. V Columbia Broadcasting System, Inc., 415 U.S. 394 (1974).

[4] Cartoon Network LP, LLLP v. CSC Holdings, Inc., 536 F.3d 121 (2d Cir. 2008).

[5] Masnick, Mike, Supreme Court Uses The Bizarre “Looks Like A Cable Duck” Test To Outlaw Aereo, https://www.techdirt.com/articles/20140625/09340227683/supreme-court-uses-bizarre-looks-like-cable-duck-test-to-outlaw-aereo.shtml.

[6] Sony Corp. of Amer. v. Universal City Studios, Inc., 464 U.S. 417 (1984).

[7] Industry History of Home Video and Video Game Retailing, http://www.entmerch.org/press-room/industry-history.html.

[8] Yearly Box Office, Box Office Mojo, http://boxofficemojo.com/yearly/.

[9] Sony Corp. of Amer. v. Universal City Studios, Inc., 464 U.S. 417 (1984).

[10] Cartoon Network, LP v. CSC Holdings, Inc., 536 F.3d 121 (2d Cir. 2008).

[11] Am. Broad. Cos. v. Aereo, Inc., 134 S. Ct. 2498, 2507 (2014).

[12] Id. at 2512.

Opinions expressed in this article are those of the author and do not necessarily represent the views of Stein IP.

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