Argument preview: Free TV, at a bargain price?

At 11 a.m. next Tuesday, the Supreme Court will hold one hour of oral argument on copyright issues surrounding a new technology for Internet streaming of free TV programs to customers for a monthly fee.  Arguing for the over-the-air broadcasters in American Broadcasting Companies, Inc. v. Aereo, Inc., will be Paul D. Clement of the Washington, D.C., office of Bancroft PLLC, with twenty minutes of time.  The views of the federal government as an amicus in support of the broadcasters will be presented by Deputy U.S. Solicitor General Malcolm L. Stewart, with ten minutes.  The streaming TV entrepreneur Aereo will be represented by David C. Frederick of the Washington, D.C., office of Kellogg, Huber, Hansen, Todd, Evans & Figel, PLLC, with thirty minutes of time.

Background

Some years ago, the Supreme Court held the view that if an enterprising firm came along that made it easier for television viewers or radio listeners to get the programs they wanted, if they paid a fee, free over-the-air programs were fair game:  royalties to the broadcasters didn’t have to be paid even though their programs were copyrighted.  This was just a matter of customer choice, the Court said.

Congress did not seem to agree, but maybe it was not so clear in saying so — especially if the technology changed, as was inevitable.  That is the issue the Court has now agreed to explore, in a case that the broadcast TV industry is treating as a make-or-break fight for its financial survival — and, indeed, for the survival of free TV itself.  And it is a new test of whether federal copyright law has kept up with rapidly changing technology, including new ways to use the Internet to watch TV.

At its core, this dispute is about the meaning for the broadcast world of two words (and variations thereon): “perform” (or “performance”) and “public” (or “publicly”).  Those words appeared in the landmark Copyright Act of 1909, and have remained in that law ever since.

As long ago as 1931, the Supreme Court interpreted those words from the perspective of what the broadcast audience was or would be for a program, and on how they got it.  “The parties agree,” the Court said then, “that the owner of a private radio receiving set who in his own home invites friends to hear a musical composition which is being broadcast, would not be liable for infringement [of the music’s copyright].  For even if this be deemed a performance, it is neither public nor for profit.”

In that case, however, the Court went on to rule that the owner of the LaSalle Hotel in Kansas City, Missouri, who put radios in each room so the occupants could pick up a popular song from a master receiver in the hotel, had infringed on the copyright for that music.

That opinion established two concepts for broadcast copyright law:  the nature of the middleman in delivering the entertainment counts, but so does the identity of the end user, or listener.

Nearly four decades later, the Supreme Court applied both of those concepts to find, first, that the provider of a hilltop television antenna did not violate a copyright on the programs picked up because the device only enabled the viewer to receive the signals; second, that there was no violation when a cable TV system picked up and re-transmitted broadcasts from distant cities because that, too, only enabled viewer access, and, third, that a restaurant owner did not perform music illegally by letting his customers listen to broadcast music on the owner’s receiver.

Congress moved in 1976 to stop that trend, passing changes in the Copyright Act to go beyond the simple recitation of the words “perform” and “public.”

To “perform” an audiovisual work (a TV program, for example), Congress said, meant to “show its images in any sequence or to make the sounds accompanying it audible.”  To do so in “public,” it said, meant to display it for “a substantial number of persons outside of a normal circle of a family and its social acquaintances,” or to send it to such a place, or to transmit it to the public “by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times.”

That, Congress apparently thought, was enough to put the ultimate focus on the kind of audience that would get the program, and part of the reason for that was to make sure that the average TV listener would not invade a copyright simply by switching on a TV set.

Congress also decided then to write into law a guarantee of royalties for the owners of copyrighted TV programs and other creative sounds and images.  It mandated that cable TV operators — like those involved in two of the three Supreme Court rulings that had troubled Congress — be given a license and a duty to pay royalties to owners of copyrighted works that they pick up and air via cable.  Later, Congress required TV companies that picked up their signals by orbiting satellites to do the same.

No doubt, Congress assumed that it had written the Copyright Act amendments in language that was both flexible and comprehensive enough to keep up with advances in technology that would later emerge.

Innovations in technology, of course, did come, especially in the capacity to record for playing or replaying copyrighted works. A recurring question, then, was this: if the ultimate consumers are taking advantage of the new techniques of copying to give themselves more flexibility in when they listened or viewed, do the providers of those techniques get blamed for infringing on copyrights on that entertainment?  In other words, how did new technology affect the legal principles of “performance” and “public” consumption?

Those principles were tested, for example, with the marketing of home video tape recorders, such as the “Betamax” system produced by Sony Corporation.  When TV broadcasters claimed that Sony was inducing home users of Betamax to infringe on copyrights, the Supreme Court ruled in 1984 that it wasn’t.

The only role Sony played, the Court said, was to put its device on the market, and it was then up to the consumers to decide when to use it to record a program for later or repeated viewing — a practice that the Court suggested would not be objectionable to most broadcasters.  This decision provided a new focus on the ultimate consumer as the one who gained access to the protected TV programs; such a lone customer, it was clear, was not “the public.”

Along came the Internet, and with it the creation of new ways of gaining access to copyrighted works. Now downloading software was becoming a widely used method of copying, with the copied programs stored in a computer’s memory.  When the new technology enabled individual computer owners to swap downloaded movies with each other, however, that got the distributors of so-called “peer-to-peer file-sharing” software into copyright trouble.

The Supreme Court decided in 2005 that this was different from the Betamax approach, because the distributor of the software made significant efforts to actually encourage file-sharing of the copyrighted movies, and so was a copyright violation enabler.

A variation on the technology that escaped a copyright problem in the Betamax case provided a sequel test.  Also designed to give the consumer a way to do time-shifting of TV program viewing, one version of the new technology was the “Remote-Storage DVR,” developed in the cable TV industry.

Rather than having the listener make a copy of a program and store it on a home computer, the new device used the hard drive of Cablevision Systems Corp. at a central location to record and store the desired program or movie.  The customer could call up the choice from there, for viewing; only the customer who made a copy of a particular program could do so.

The resulting legal dispute, in a lawsuit brought by Cable News Network and other owners of copyrighted TV programs and movies, focused on whether Cablevision, as the middle man, was actually performing those protected works by distributing them to the public.

The U.S. Court of Appeals for the Second Circuit, in a ruling in 2008, said no.  It was the customer, that decision said, who was doing the copying, so each playback transmission went to a single customer, not to the public, so there was no performance, in legal terms.  (The Supreme Court refused to review that decision in 2009, at the suggestion of the federal government, whose views it had sought.)

Once more, the courts had revived the notion, going all the way back to the Supreme Court’s view in 1931, of a sole listener dialing in to be entertained in the privacy of the home, with only the family or close friends as the audience.

Enter, then, a new technological idea, making direct use of the legal opening that the Second Circuit’s decision in the Cablevision case appeared to have left, and exploiting the increasingly easy access to the Internet.

The new innovator was Aereo, Inc., a small Brooklyn, N.Y., firm with a large ambition:  it wanted, eventually, to go from coast to coast with a system for which TV viewers could sign up, at eight dollars per month, to get access to TV broadcasters’ free over-the-air offerings, without even needing a TV set, relying on a smartphone, a laptop, a desktop, or an electronic tablet.

Its system, Aereo has said, operates in much the same way as “a home DVR.”  In other words, it is, according to Aereo, all about the choice of the ultimate viewer.

That choice is enabled by Aereo’s system, which maintains thousands of tiny antennas, mounted on circuit boards.   Each paying customer logs on to Aereo’s website, picks out a program for reviewing, then decides whether to watch it then or record it for viewing later.  The tiny antenna, said to be the size of a dime, is — for that transaction — used only by that single consumer.

A single copy of the desired program is made through the temporarily “rented” antenna, and it is then stored on a disk assigned to that customer, on a hard drive.  The program is thus ready for the viewer, for “live” viewing (with only a few seconds of delay) or viewing later.  “Those processes,” Aereo has summed up, “occur only at the direction of the user….From the beginning to the end of this process, the data stream received by an antenna is available only to the user who tuned the antenna by selecting a program to watch.”

To Aereo’s customer-is-king claims, broadcast TV networks and companies counter that it is Aereo that captures the free TV programs, and then uses its system to re-transmit them en masse.  “Aereo is in the business of retransmitting broadcast television to thousands of members of the public, and has not obtained authorization to do so….Whether a retransmission service uses one transmission or ten thousand transmissions does not change the basic reality” that Aereo is “transmitting a performance.”

So: is Aereo’s system just like, or very similar to, the technology that prior court rulings have found to be user-directed, or, when thousands of viewers are accessing the system perhaps for the same program, and maybe at the same time, has Aereo carried out a “performance” to the “public,” under the Copyright Act?

Challenged by broadcast TV networks and others who produce copyright-protected programs for over-the-air distribution, the legality of Aereo’s system was upheld by a federal district judge.  The system, the judge ruled, was shielded by the Second Circuit’s 2008 ruling in the Cablevision case.  Each customer’s selection, the judge found, creates a unique copy, and that copy is sent to only the requesting customer.

The Second Circuit Court agreed, in a split decision.  The majority relied heavily upon its decision in the Cablevision case.  (The dissenting judge on the Aereo panel had been a district judge at the time of the Cablevision case involving the remote storage recording system, and had ruled that system to be illegal, only to be overturned by the Second Circuit.  In Aereo’s case, the dissenting judge — now a judge on the court of appeals — dismissed its system as a clever mode of engineering around the Copyright Act.)

That is where the copyright feud between Aereo and the broadcast industry stood when the broadcasters and other owners of copyrighted creations took the case on to the Supreme Court last October.

Petition for certiorari

The challengers, using the long-standing words from the text of the Copyright Act, asked the Supreme Court to decide whether a company “publicly performs” a copyrighted TV program “when it retransmits a broadcast of that program to thousands of paid subscribers over the Internet.”  Together on that side of the case are the major commercial and cable broadcasters, their production studios, and individual broadcast stations.

The Second Circuit decision, the petition argued, had given its “blessing” to “a business model that retransmits live TV to paying customers without obtaining any authorization or paying a penny to the copyright owners.”  Already, it argued, the ruling is “transforming the [broadcast] industry and threatening the very fundamentals of broadcast television.”

Having diminished their reliance on advertising revenue because of stiffer competition for the ad dollar, the broadcasters said, they are now relying heavily on the revenue that cable and satellite companies pay for the right to re-transmit their programs.  Aereo, because it pays nothing for obtaining the TV programs, is able to undercut the price that cable and satellite customers pay to those broadcasters, and the cable and satellite firms are pondering adopting the Aereo model, the broadcasters contended.

Aereo answered the petition, choosing to characterize the issue at stake as whether a consumer can use new technology to get access to free TV programs without making the source of their service liable for copyright violation.

Contending that the broadcast networks were filing a series of lawsuits against Aereo, in what it called “a war of attrition,” the Brooklyn company joined in urging the Court to take on the copyright issue and settle it.

However, Aereo asked the Court to rephrase the question it would answer.  The question posed by the broadcasters, it said, wrongly asserts that Aereo is retransmitting the broadcasts to paid subscribers. It is the users, not Aereo, that use its system, the response contended.   The more appropriate question for the Court, the company argued, would be to ask whether Aereo “publicly performs” copyrighted programs by supplying equipment that lets the consumer make a personal choice and a personal copy of a desired program.

Obviously, Aereo hoped to steer the Court’s attention to the role of the consumer, not its own role.  In a reply brief, the broadcasters dismissed the idea of substituting a new question.  Aereo, that reply said tartly, “is not a hardware supplier.  It offers a subscription service….Make no mistake about it.”

The Court did not modify the issue it would answer when it granted review on January 10.  At that time, the Court’s order noted that Justice Samuel A. Alito, Jr., would not take part; it gave no reason.  Just this week, however, Justice Alito removed whatever obstacle there was to his participation, so the case will now go before all nine Justices.

Briefs on the merits

The broadcasters’ merits brief has two central themes:  an intense focus on the actual text of the Copyright Act’s “transmit” clause, and a broad copyright policy argument against allowing clever inventors to devise ever-new ways to pirate the protected works of creative entities like TV broadcasters.

Throughout the brief, the TV industry entities sought to keep the Court’s attention on what Aereo does with a system of its own creation:  it picks up programs off the air, and then re-transmits them, for a fee that seriously undercuts their competitors, to a public that can simultaneously watch the very same program — like the Super Bowl, for example — without paying a cent for the opportunity.  “That is a textbook public performance under the transmit clause,” the document asserted.

When Congress wrote the Copyright Act revisions in 1976, mainly to overturn Supreme Court decisions that gave broad exemptions to copyright protection, the industry brief said, it did so in a “technology-neutral” way, to cover modes of transmission that existed at the time, as well as any that might be invented in the future.

If, however, the Court might find itself looking to the role of the ultimate consumer, the  broadcasters’ brief lumps Aereo’s paying customers into a single whole that represents “the public” — precisely the mass audience that the broadcasters say Congress had in mind in 1976 when it curbed the opportunity to create new technologies to avoid paying royalties to the originators of copyrighted TV and other creations.

The federal government has entered the case as an amicus supporting the broadcasters’ plea to overturn the Second Circuit ruling.  However, it sought to add a note of caution, telling the Justices that they should craft a ruling that would not “call into question the legitimacy of innovative technologies that allow consumers to use the Internet to store, hear, and view their own lawfully acquired copies of copyrighted works.”

The key phrase in that suggestion, though, is “lawfully acquired.”  The government brief clearly sided with the broadcasters in condemning the Aereo system, arguing that, with the pervasive control that the company has over every facet of its system, it is directly infringing on copyrighted TV programs.  Aereo, it noted, “both owns and actively controls the individual antennas, centralized servers, and software that operate together to receive broadcast signals and transmit copyrighted content to the public.”

It does not make a difference, the government document argued, that individual customers of Aereo decide what they want to watch.  It is the “commercial actor” who serves those customers, with a system of its own devising, that counts the most for purposes of copyright law, the brief asserted.

On both the issue of what “performance” means, and on what transmission to “the public” means, according to the government, Aereo loses.

The cautionary note that the government put into its brief, it indicated, was designed to assure that the decision in this case does not “threaten the legality of cloud computing” — that is, the recently developed technology that gives digital consumers new ways to play back copies that they have obtained legally in the first place.  Contrasting that service with Aereo’s, the government argued that Aereo is illegally obtaining access to the copyrighted works in the first instance.

Aereo, throughout the briefing on this case, has regularly added in a reminder that the broadcast companies are the very special beneficiaries of the right to use the hugely valuable public broadcast spectrum, and that the price they must be willing to pay for that is to keep their programs available free.  Its brief on the merits seeks to add new emphasis to that point, presumably to try to show that these companies are hardly in a distressed condition, and to subtly hint that it takes some temerity for them to try to keep consumers from getting wider access to those programs at lower prices than they pay to cable TV companies now.

Very early in the new brief, Aereo commented upon the broadcasters “enforceable public obligations,” including the obligation to make even copyrighted programs that “will be made available to the entire public within range of [the broadcasters’] signals.”

That obligation has been long-standing, Aereo noted, but what has changed is that consumers regularly have been gaining new ways of getting access to those programs.  The service now provided by Aereo, it suggested, is merely another innovation in that history.  The difference with its service is that consumers no longer have to have receiving and recording equipment in their homes, because the shows they want will be stored on “the Internet ‘cloud.'”

What Aereo is doing, the brief added, is capitalizing on “widespread access to high-speed Internet connections.”

The new filing also disputed the broadcasters’ claim that they are getting less of their revenue from advertising and more from fees from the cable companies that re-transmit their programs.  They still get about ninety percent of their revenue from sales of broadcast time to advertisers, Aereo said, citing a broadcast organization’s brief.

The copyright arguments Aereo made in this fuller brief are contained in two summary assertions, both to make the point that its service is nothing more than enabling “completely lawful private performances.”

First, it said, what Aereo does is not the transmission of programs to the public.  What Aereo does is simply facilitate individual transmissions of individually chosen recordings.  Second, it said, when one of its customers actually watches a chosen TV program, they are merely watching a playback of the program, not the broadcaster’s “prior performance.”

Throughout, Aereo’s lawyers sought to stress that its system involves transmissions that are “user-created and user-controlled copies…The undisputed facts…establish that nothing goes into or comes out of Aereo’s equipment except in response to a user’s commands.”

The flow of amicus briefs runs stronger in the broadcasters’ favor, with nearly twice as many as on Aereo’s side — plus the obvious very helpful support of the federal government.  The briefs on the broadcasters’ side range from those from news, entertainment, and film industries to software developers and other digital interests, professional sports leagues, professors of intellectual property law, and conservative advocacy groups.

In support of Aereo are consumer advocacy organizations, small and independent broadcasters, satellite TV networks, digital open source advocates, computer development companies, copyright law professors, and Film On X — a firm that offers a service similar to Aereo’s and has also been a target of several lawsuits by broadcasters.

Analysis

In some significant ways, this case puts the Court back on quite familiar ground:  it has examined, over and over again, the meaning and scope of the 1976 limitations written into the Copyright Act, and it has done so by encountering new technologies with regularity.

It thus is, presumably, entirely comfortable sorting out when a form of distribution of  copyrighted material is a “performance” and when the audience gaining access is “the public.”  As a reader goes over its opinions back to 1968, the impression emerges that the Court does not roam widely between variable interpretations depending upon the specific details of new technology, although it was not always perfectly consistent.

Each side in this new case has tried, often with considerable energy, to make it easy for the Court to decide this new case: the broadcasters want the focus entirely on what Aereo itself does and how it operates its system from the top down; Aereo wants the focus entirely on the choices that its customers make from the bottom up.

On legal interpretation, the broadcasters want the Court to use a broad-brush treatment, proceeding from the premise that the 1976 Act fully anticipated that there would be new technology, but maintained enduring principles that would continue to govern; Aereo, however, wants the Court to look at the legalities entirely through the specific details of the mechanisms it has made available to its customers and why they use them.

Those alternative approaches seem likely to make it difficult for the Court to find a middle ground between them, especially since each side has argued that it finds support in the Court’s own precedents before and after the 1976 copyright amendments.

What may be most challenging in this case, though, is for the Court to make sure that it does not write too broadly so that the result might stifle further digital-age innovation.  The Justice Department’s brief on the merits suggested some of the potential risks of resolving the case more broadly than the context of Aereo’s system.

When the Court was going through cases like the Betamax and DVR disputes, it could not have imagined the concept of the “cloud” as a digital storehouse that enables the average user of a computing device to play and replay material of interest.  It almost certainly did not imagine that a music lover or a movie or sports fan would be able to find his programs by way of a very small device that does not even fill a coat pocket.

In some cases testing the Court’s appreciation of new technology, it has shown some tendency to proceed incrementally, understanding that it cannot fully anticipate, and make rules for, what may come next.  That is a discipline that suggests that, this time, the Court may want to rigorously focus on Aereo’s system, and just that.