Symposium: Aereo copyright decision creates uncertainty for the Cloud

Matt Schruers is VP, Law & Policy at the Computer & Communications Industry Association, which submitted a brief in support of Aereo, its member, in this case.  He is also an adjunct professor at Georgetown, and writes at length about copyright and technology at http://www.project-disco.org, and at less length at @mschruers on Twitter.

Yesterday the Supreme Court decided ABC v. Aereo, one of the most closely watched intellectual property cases of the year.  The Court voted six to three in favor of broadcasters who claimed that Aereo infringed copyright, ending the “IP nerd vigil” over the case.

The Court held that Aereo’s Internet-based service, which retransmits local over-the-air broadcast television signals to its users, was “publicly performing” copyrighted works, and therefore infringed copyright.  Although the case pertained to television signals, the Court’s interpretation of the Copyright Act will have lasting consequences for the technology sector.  In particular, it creates substantial uncertainty for online services, including cloud computing.

Aereo’s technology lets users receive their local, free over-the-air broadcast signals on an Internet-connected device by accessing a remote, dime-sized antenna.  Aereo viewed itself as an equipment supplier – an antenna rental service – that enabled its users to access what they were lawfully entitled to receive.  Broadcasters disagreed, and sued under the Copyright Act.

Even though over-the-air broadcasts are available for free, broadcasters may still invoke traditional exclusive rights under the Copyright Act to control their signals, and cable providers pay handsomely to retransmit them.  By threatening these fees andencouraging so-called cable “cord cutters,” Aereo was endangering broadcaster revenue streams.  The broadcasters’ claim, affirmed by the Court yesterday, was that Aereo infringed copyrights in violation ofSection 106(4) of the Copyright Act by “publicly performing” over-the-air broadcasts to its users.

The Foundation for Aereo and the Cloud: Cablevision

Aereo’s legal rationale turned on the reasoning of the 2008 Cablevision decision in the Second Circuit, which the Supreme Court declined to hear.  In that case, captioned Cartoon Network v. CSC Holdings, but widely referred to as “Cablevision,” Cablevision had offered its subscribers a “remote DVR.”  Cablevision’s product was similar to conventional digital video recorders (DVRs) like TiVo, but instead of sitting on top of the subscriber’s television at home, the box remained in Cablevision’s facilities, and users controlled it remotely through their Internet connection.  Consumers benefitted by eliminating hardware and messy wires; Cablevision benefitted by lowering device-servicing costs.  Rights-holders protested however, claiming that Cablevision was infringing copyright by transmitting content to users over the Internet.

Rights-holders argued that even if providing a product to play back a lawfully acquired program in the home were fair use, providing that same feature over the Internet constituted a “public performance” which had to be licensed.

Cablevision’s supporters contended that it would be absurd for the length of the cord between the box and the television to dictate copyright liability.  It shouldn’t matter whether the DVR was located across the living room, or across town.  The Second Circuit agreed, holding that a one-to-one performance of a work was not “public,” and therefore not regulated by the Copyright Act.

This rationale provided numerous online services with legal certainty to launch and build out cloud computing services – particularly cloud storage, from which media could be played back.  All told, Cablevision was followed by an estimated $.7 to $1.3 billion in additional venture capital investment over the next two-and-a-half years.

The Aereo litigation

As Aereo launched, the service wasmet with sprawling litigation across the country.  The litigation soon focused on the “Transmit Clause,” part of the Copyright Act’s definition in Section 101 of what it means to perform “publicly.”  Aereo successfully argued that it did not “transmit” a “performance” under Section 106(4) of the Copyright Act, and therefore cannot “perform,” publicly or otherwise.  (To take a brief trip down one of the Copyright Act’s many rabbit holes, a similar inquiry also drove the 1968 Fortnightly case and the 1974 Teleprompter case.  Those decisions effectively exempted cable companies from paying royalties for retransmitting terrestrial broadcasts.  The issue delayed the then-pending overhaul of the Copyright Act until 1976, which supplanted these Supreme Court cases with a compulsory license that enabled cable companies to continue retransmitting, and also enacted the “Transmit Clause” as it is known today.)

After Aereo prevailedin the district court and theSecond Circuit, broadcasterssought Supreme Court review.  In a bold move reflecting the start-up’s need for nationwide legal certainty, Aereo declined to oppose the broadcasters’ petition, and the Courtgranted certiorari in January.  The case immediately received nationwide attention: by putting the Cablevision principle at risk, the Aereo case posed substantial legal risk for cloud services now widely deployed in the market.  This fact was widely evident in the oral argument, with multiple Justicesopenly wrestling with the technological complexities of cloud services, and the potential effect that a broadened public performance right might have.

The Court’s holding

In a nutshell, the majority’s opinion says “I know cable when I see it.”  The Court saw in Aereo an “overwhelming likeness to the cable companies” that Congress had previously sought to regulate, and concluded that Aereo’s conduct must therefore fall within the Transmit Clause.  The dissent quite reasonably criticizes this results-oriented approach as “guilt by resemblance.”

The Court begins by pointing out that the Copyright Act does not define when a party “performs,” and “when it merely supplies equipment that allows others to do so.”  Nevertheless, it arrives at what the dissent calls a “looks-like-cable-TV solution.”  Justice Breyer, writing for the majority, concludes that “when read in light of its purpose, the Act is unmistakable: An entity that engages in activities like Aereo performs.”  In short, we’re not precisely sure what the Copyright Act regulates, but whatever it is, Aereo’s doing it.  If a service “looks like” a cable company, it – and not its users – is doing the performing.

The Court refuses to inspect exactly how Aereo works, asking: “Viewed in terms of Congress’ regulatory objectives, why should any of these technological differences matter?”  Of course, these technological differences will matter greatly to innovators trying to design new technology, who have only the guidance, “don’t look like cable.”

What does Aereo mean for the Cloud?

On the one hand, Aereo could be construed as a very narrow and inconsequential opinion, since the majority clearly attempts to fashion an Aereo-specific rule that would limit its reasoning to the cable television context.  The majority also disclaims any intention of creating liability risks for other new technologies.  It also attempts to limit the public performance right by stating that the term, “the public” does not include “those who act as owners or possessors of the relevant product” (emphasis supplied).  Thus, a service that performs a work to the owners or possessors (i.e., licensees) of that copy is not making public performances.  It seems clear that services which allow users to access content they have already lawfully acquired and placed in the cloud themselves are not “publicly performing.”  Importantly, yesterday’s decision doesn’t reach the question of Aereo’s DVR-like features, and it seems clear that the Court’s opinion does not aim to upset Cablevision.

On the other hand, the Court’s approach offers technology lawyers counseling clients little guidance.  Who can predict whether a non-tech savvy federal judge will think that the next innovative service “looks like cable”?  Yesterday’s decision creates considerable uncertainty, suggesting that lawyers should counsel their clients based on what analogy will most appeal to a federal judge in the distant future.  The Court — like others in the lead-up to the decision — promises its opinion won’t threaten new technology, but as the dissent points out, it cannot deliver on that promise.

While basic cloud storage seems to be in the clear, other services, including those that remotely host communications hardware (some of which were detailed in CCIA and Mozilla’s amicus brief in this case) might yet be accused of publicly performing copyrighted works under the “looks like cable” rule.  The result may be that investors and venture capitalists will direct their resources away from anything that could be construed to “perform” potentially copyrightable works.  Unfortunately, this is precisely the time that content creators need more lawful services to compete with increasingly sophisticated unlawful offerings available online.

The majority approach also seems to collapse direct and secondary liability.  As the dissent argues, the majority leaves unclear when technology services are regulated under rules of standard secondary liability, with its well-established requirement of volitional conduct, “and which get the Aereo treatment.”

Strangely, the Court’s “looks like cable/regulate like cable” approach is crafted against the backdrop of a Copyright Act that very deliberately treats substantially similar services quite differently.  Even as yesterday’s decision was being handed down, the House Judiciary Committee washearing how the Copyright Act treats very similar services in radically different ways (often for reasons having more to do with political economy than information policy).  For example, terrestrial radio pays no performance fees for sound recordings; satellite radio must pay, however, based on one standard; Internet radio pays even more, based on an entirely different standard.  Yet all of them “look like” radio.  The “looks like” standard may have some positive effects, however: Aereo is incongruent with the result of a 2012 case, WPIX v. ivi, Inc., which held that an Internet service could not obtain a cable compulsory license to retransmit broadcasted television signals over the Internet.  If an Internet service has an “overwhelming likeness” to cable companies, it should presumably be entitled to the compulsory license crafted for cable companies.

Ultimately, today’s results-oriented opinion may boil down to an interpretation as simple as “don’t look like cable.”  While other uncertainty-inducing constructions are also possible, this would be the interpretation of Aereo that does the least violence to innovation.