The Aereo Crashed: Cheap Internet TV Thwarted

by McDermott Will & Emery

American Broadcasting Cos., Inc. v. Aereo, Inc.

The Supreme Court of the United States has now determined that internet streaming services directly infringe the copyrights of several television networks.  American Broadcasting Cos., Inc. v. Aereo, Inc., Case No. 13-461 (Supr. Ct.,  Jun 25, 2014) (Breyer, Justice) (Scalia, Justice, dissenting).


At the heart of Aereo’s system is an antenna.  Aereo employs thousands of dime-sized antennas stored in warehouses located in the geographic markets the company services.  Aereo assigns a particular antenna to each of its subscribers.  The subscribers select the network television shows they want to watch by clicking the “watch” button on Aereo’s website.  The subscriber’s assigned antenna then begins to capture the desired television show from the local airwaves and stores the broadcast signal to a data file exclusively assigned to the subscriber on a company server.  In other words, Aereo’s system creates a subscriber-specific copy—a “personal” copy—of the subscriber’s desired television program. Aereo’s system then transforms the stored broadcast data into digital streaming video for viewing on internet devices.  There is a short lag time between the original broadcast and the internet stream.  A subscriber can also choose to store the broadcast and view it later.  Aereo charges its customers eight dollars a month for its services.

Several network television broadcasters jointly filed a copyright infringement action against Aereo in federal district court, alleging that Aereo was infringing their right to perform their copyrighted audiovisual works publicly, in violation of the Transmit Clause (§ 106(4)) of the Copyright Act.  The broadcasters sought a preliminary injunction, claiming that the very existence of broadcast television as we know it was at stake.

Aereo argued that it is no more than an antenna rental service—its subscribers choose the television shows they wish to watch and Aereo merely supplies a subscriber-specific antenna that captures the show from public airwaves and makes a personal copy of the show in a subscriber-specific file, and the show is then transmitted to the subscriber’s internet device in digital streaming format.

The district court denied the request for preliminary injunction and the U.S. Court of Appeals for the Second Circuit affirmed.  (See IP Update, Vol. 16, No. 5.)  The lower court reasoned that Aereo did not perform the network broadcaster’s copyrighted works publicly because it does not transmit the programs to the public.  Instead, each time the Aereo system streams a program to a subscriber, it sends a private transmission that is available exclusively to that subscriber and not to other subscribers.  The broadcasters sought, and the Supreme Court granted, certiorari to consider the issue (IP Update, Vol. 17, No. 1).

The Supreme Court’s Decision

A six-member majority reversed the 2d Circuit decision, concluding that Aereo infringes the network broadcasters’ copyrighted programs by publicly performing the programs.  Writing for the majority, Justice Breyer first explained that Congress had amended the Copyright Act in 1976 specifically to overturn the Supreme Court’s previous decisions in Fortnightly Corp. v. United Artists Television and Teleprompter Corp. v. Columbia Broadcasting System.  In those decisions, the Supreme Court held that CATV companies (early versions of today’s cable companies) did not violate the copyright laws by merely providing an enhanced antenna and retransmitting network television broadcasts to customers via coaxial cables.

Breyer explained that, based on the legislative history, Congress amended the language of several sections of the Copyright Act to ensure cable companies fell within the scope of the Transmit Clause.  “In 1976 Congress amended the Copyright Act in large part to reject the Court’s holdings in Fortnightly and Teleprompter.”  Justice Breyer noted the amended act clarifies that to “perform” an audiovisual work means “to show its images in any sequence or to make the sounds accompanying it audible.”  He further pointed out that Congress also enacted the Transmit Clause, which states that an entity performs publicly when it “transmit[s] … a performance … to the public.”  He went on to note that, “[c]able system activities, like those of the CATV systems in Fortnightly and Teleprompter, lie at the heart of activities that Congress intended the language to cover.”

The majority then concluded that Aereo’s activities are governed by the Copyright Act (and violate the network broadcasters’ copyrighted works) because Aereo’s services resemble the transmission services provided by cable companies.  Justice Breyer explained:

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. … Aereo sells a service that allows subscribers to watch television programs, many of which are copyrighted, almost as they are being broadcast.  In providing this service, Aereo uses its own equipment, housed in a centralized warehouse, outside of its users’ homes.

The majority did note a distinction between Aereo’s transmission services and those of the CATV companies addressed in Fortnighly and Teleprompter.  Although the latter transmitted constantly, sending the same continuous programing to each subscriber’s television sets, Aereo’s system remains dormant until a subscriber choses a program to watch.  Only then, in an automatic response to the subscriber’s request, does Aereo’s system activate the subscriber-specific antenna and begin transmitting the chosen program.  However, the Supreme Court rejected the notion that this distinction was meaningful:

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.  The subscribers of the Fortnightly and Teleprompter cable systems also selected what programs to display on their receiving sets. … [I]n Fortnightly, the television signals, in a sense, lurked behind the screen, ready to emerge when the subscriber turned the knob.  Here the signals pursue their ordinary course of travel through the universe until today’s “turn the knob”—a click on a website—activates machinery that intercepts and reroutes them to Aereo’s subscribers over the Internet.

The majority concluded that because Aereo was “for all practical purposes a traditional cable system,” the sole technological difference on which Aereo sought to distinguish itself from cable companies was not persuasive, and Aereo’s services constitute “performance” of the network broadcaster’s copyrighted works.

In addressing Aereo’s argument that it did not perform the works publicly because its system transmits the subscriber-chosen program to the single, specific subscriber and not to other subscribers, the majority explained that was not relevant:  “the subscribers to whom Aereo transmits programs constitute ‘the public.’  Aereo communicates the same contemporaneously perceptible images and sounds to a large number of people who are unrelated and unknown to each other.”  In the view of the majority, this matters because the Copyright Act states that an entity performs a copyrighted work publicly when it performs at “any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered.”  In other words this suggests that the public “consists of a large group of people outside of a family and friends.”

The Supreme Court sought to assuage the fears of other companies in the communications technology sector, such as those engaged in cloud storage and computing or selling DVRs, by characterizing its decision as a “limited holding” that should not impose blanket copyright liability on new technologies that Congress did not wish to reach:  “We agree that Congress, while intending the Transmit Clause to apply broadly to cable companies and their equivalents, did not intend to discourage or to control the emergence or use of different kinds of technologies.  But we do not believe that our limited holding today will have that effect.”

The Dissent

A three-member dissent, authored by Justice Scalia and joined by Justices Thomas and Alito, argued that the majority disregarded widely accepted rules for assessing service-provider liability and adopted an improvised “looks-like-cable-TV” standard that “will sow confusion for years to come.”  The dissent first drew the distinction between direct and secondary liability for copyright infringement and argued that Aereo was not culpable for direct infringement because it did not perform the copyrighted works—the subscriber did by selecting the copyrighted subject matter to be transmitted.  Justice Scalia illustrated his point by using internet service providers as an example:

When one user sends data to another, the provider’s equipment facilitates the transfer automatically.  Does that mean that the provider is directly liable when the transmission happens to result in the “reproduc[tion],” § 106(1), of a copyrighted work?  It does not.  The provider’s system is “totally indifferent to the material’s content,” whereas courts require “some aspect to volition” directed at the copyrighted material before direct liability may be imposed.  The defendant may be held directly liable only if the defendant itself “trespassed on the exclusive domain of the copyright owner.”  Most of the time that issue will come down to who selects the copyrighted content: the defendant or its customers.

Justice Scalia concluded that “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.”  The dissent recognized that, although not a direct infringer, Aereo may be liable for secondary infringement because it facilitates and induces subscribers to perform the network broadcasters’ works using its system.  However, secondary liability was not before the Supreme Court.

In a section of the dissent entitled “Guilt by Resemblance,” Justice Scalia took aim at the majority’s “if-it-looks-like-a-duck” liability analysis, questioning the propriety of assessing Aereo’s direct liability for copyright infringement simply because its services appear to be a next-generation cable television service.  Justice Scalia equated Aereo’s internet digital streaming services to “a copy shop that provides its patrons with a library card.”  In other words, Aereo’s system merely provides the technological wherewithal to its subscribers to select, copy and view copyrighted content at the subscriber’s sole discretion—something a subscriber could purportedly do through legal means with a rabbit ear antenna, a television and a DVR.

The dissent also pointed out what it deemed key material differences between Aereo’s services and the services cable companies offer:  cable companies select the content of the programs they transmit, while Aereo does not (the subscriber selects the show to be transmitted) and cable companies transmit the full range of broadcasted programs to all subscribers at all times, while Aereo’s system transmits a single selected program at a specific time to a single subscriber at the request of that subscriber.   Finally, the dissent argued that the majority’s “cable-TV-lookalike rule” lacks analytical integrity, omits criteria for when it should or should not be applied and “greatly disrupts settled jurisprudence which, before today, applied the straightforward, bright-line test of volitional conduct directed at the copyrighted work.”

Practice Note:  On June 28, 2014, Aereo announced that it was “temporarily” shutting down its streaming video service in order to determine if it can devise a new business model consistent with the Supreme Court decision.

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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