Copyright Law Alert: Copyright Worries for Cloud Service Providers Following Aereo Decision

by Stoel Rives LLP
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The U.S. broadcasting industry scored a significant win yesterday, when the U.S. Supreme Court determined that internet TV provider Aereo infringed the copyright of broadcasters by streaming their over-the-air broadcasts to Aereo subscribers. Given that Aereo had designed its system around a perceived loophole in the Copyright Act, the decision did not come as a surprise to many industry analysts. Questions remain, however, as to how the decision will ripple against cloud providers and other technology developers, as the Court’s reasoning left their legal rights murky at best. We consider these potential ripple effects below.

Aereo’s System

The Aereo content delivery system that was the subject of the dispute involved thousands of small antennae housed in a centralized warehouse. Each antenna was assigned to a specific subscriber, and only that specific subscriber. The subscriber would log into Aereo’s website and select the live program that he or she wished to watch. Aereo would then save the program to a specific file for that subscriber and stream the program a few seconds after the live over-the-air broadcast. Aereo designed this system to comply with a 2008 Second Circuit ruling, which held that Cablevision’s remote storage DVR did not infringe because, in part, playing back the program stored by the customer was not a public performance.

If it Walks Like a Duck, and Quacks Like a Duck…

Television producers, broadcasters and distributors sued Aereo, arguing that the system infringed their exclusive rights to “perform” the copyrighted shows “publicly.” Aereo had argued that its system did not “perform” the shows because it merely supplied the equipment to enable its users to access content. Just as Sony does not “perform” movies when it sells VCRs to customers (as the Supreme Court held in 1984 in Sony Corp. of America v. Universal City Studios, Inc.), Aereo said it does not “perform” television shows by renting the tiny antennae to its subscribers.

The Court rejected Aereo’s arguments, finding that Aereo was essentially the same as the early cable providers that Congress had sought to regulate in the 1976 amendments to the Copyright Act that were at issue in this case. Like the early cable providers, Aereo subscribers selected the content to view, but the technological difference in the “knob” that was used to make such selection was irrelevant in the court’s view.

Aereo also argued that even if it was “performing” the television shows, it was not a “public” performance because each antenna was separately streaming to an individual subscriber—not to large groups of people simultaneously.

The Court rejected this argument, as well, because the end result of Aereo’s system is the transmission of the same show to multiple, unrelated subscribers, e.g., the “public.”

Are Cloud Providers Collateral Damage Under Aereo?

Cloud providers that offer remote storage of user-directed content provide similar services to those Aereo provided. The question remains whether this cloud access could be considered a “rebroadcasting” of the content under the Aereo reasoning.

The Court acknowledged that its decision could be interpreted to apply to “other technologies” and took pains to narrow its holding to “cable companies and their equivalents.” Yet, the decision offered little guidance about when a cloud provider would be acting like a cable company, which is what sank Aereo’s arguments. In fact, the decision contains an obvious contradiction. On one hand, the Court said that “behind-the-scenes technological differences”—such as individually assigned antennae—between Aereo and cable companies of the 1970s don’t distinguish Aereo from the cable companies. On the other hand, the Court said that other technological differences could save other services from Aereo’s fate. The Court offered some guidance to cloud providers and other technologies companies, but acknowledged that a resolution would have to await cases on point to particular cloud services, which may chill innovation.

Digging Deeper into the Majority’s Potential Contradiction

First, the Court provided that its decision would not apply to services that offer “primarily … something other than the transmission of copyrighted works, such as the remote storage of content,” an indication that the Cablevision decision will survive. Second, the Court recognized that many cloud providers simply provide access to content that users themselves own or possess. This means the user’s first interaction with the content is through (presumably) legal means, such as downloading it through iTunes. By contrast, the Aereo service itself provided subscribers with their first interaction with the content it streamed. The Court also noted that, at least for “different kinds of service or technology providers,” the user’s involvement in selecting the content to be streamed could determine the provider’s liability under the Copyright Act.

This point was key to the dissent. Justice Scalia argued that Aereo had no volitional conduct because it did not select the programs to be streamed to its subscribers, unlike, for example, Netflix, which carefully selects and curates the content provided to its subscribers. Scalia forecast that it will take “years, perhaps decades, to determine which automated systems now in existence are governed by the traditional volitional-conduct test and which get the Aereo treatment.”

Conclusion

One important lesson the Aereo decision reinforces for technology developers is that building a business around a legal loophole can be a risky strategy. The Court focused on the purpose of the Copyright Act, as well as its text, to close the loophole identified by the Second Circuit in the 2008 Cablevision decision for cable-like companies. Disruptive technologies are wise to remember that the Copyright Act is a protective regime. The Supreme Court has been relatively consistent in recent years in maintaining copyright protections in the face of technological challenges, for example striking down services that encouraged infringing peer-to-peer copying in Grokster and prohibiting republication of articles in digital format without explicit licenses in Tasini. The Aereo opinion leaves room for innovation, but continues the message that systems built solely to skirt copyright protections are unlikely to survive.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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