Symposium: Preferring substance over form and nature over manner, Supreme Court finds that Aereo runs afoul of the purposes of the Copyright Act

Eleanor M. Lackman is a partner at Cowan, DeBaets, Abrahams & Sheppard LLP.  She filed an amicus brief on behalf of the Copyright Alliance and several professors in support of the networks.

In American Broadcasting Cos., Inc. v. Aereo, Inc., the question before the Court was whether Aereo infringed the broadcasters’ exclusive right of public performance by offering a service that permitted customers to view television programs over the Internet “near live” – i.e., at around the same time as the programs are broadcast over the public airwaves.  Aereo’s primary defense was that, as a result of its architecture, the transmissions sent to each customer were individual “private” performances.  The Court, in a six-to-three decision, rejected that argument and concluded that the ultimate purpose of Aereo’s system – picking up broadcast signals and retransmitting them to subscribers – was no different than the nature of what cable systems do when they retransmit broadcast signals to subscribers.  Congress had expressly targeted the latter activity in the 1976 Copyright Act, and the majority indicated that had Aereo been in existence at the time, Congress would have found Aereo’s activities to be within the scope of the activity that Congress found to be public performances under the copyright laws.

While even the dissent “share[d] the Court’s evident feeling that what Aereo is doing (or enabling to be done) to the Networks’ copyrighted programming ought not to be allowed[,]” the aspect of the case that proved thorniest and most controversial was whether and to what extent the Court’s ruling would have an impact on other technologies that may host or carry copyrighted works.  This issue formed the center of the oral argument before the Court in April, and it runs through both the majority and dissenting opinions.  The Court took efforts to limit its holding to just the technology at bar, but the question remains as to whether the opinion is as narrow as the Court hoped.  Notably, the court in the decision that inspired Aereo’s architecture (known as the Cablevision decision) also said that the holding was limited to its facts.  It may be the end of Aereo, but if history repeats itself, Aereo may live on.

The way the Court framed the issue in the case speaks volumes about the fundamental problem that the Court saw in Aereo:  it was “technologically complex,” and more so than it needed to be in order to perform its function of delivering live broadcast television over the Internet and mobile devices.  Aereo explained that it was designed to follow Cablevision, which held that individualized transmissions of programming from a “remote storage DVR” maintained by a cable operator could not be public performances because they were not “public.”  Rather, each stream from the buffers at Aereo’s facility was viewable by only one subscriber and therefore was private.

The question of whether an activity violates the right of public performance inherently involves two questions:  whether it is a “performance,” and whether it is “public.”  In Cablevision, the Second Circuit – apart from noting that the contours of the various exclusive rights under Section 106 of the Copyright Act differ – did not address Cablevision’s argument that the customer, rather than Cablevision, “performs” the work.  Instead, it found no violation of the right on the ground that the playback did not involve the transmission of a performance “to the public.”  As several lawsuits involving Aereo and an Aereo competitor wound their way through the lower courts, the discussion and focus in those cases similarly centered on the “public” part of “public performance.”

The Aereo Court took on both issues.  In assessing whether Aereo “performs” at all under the Copyright Act, the Court set up a dichotomy:  cases in which an entity performs or transmits, and cases in which an entity “merely supplies equipment that allows others to do so.”  Without any express answers in the Act on this question, the Court found the language of the Act to be unclear.  However, when “read in light of its purpose, the Act is unmistakable:  An entity that engages in activities like Aereo’s performs.”

The way that the Court chose to analyze the issue demonstrates that the Court’s identified “purpose” applicable in this case was quite specific and tailored to certain events in history.  In particular, the Court observed that in two Supreme Court decisions prior the 1976 Act, the Court had held that passive, community antenna television (CATV) systems (the precursors of modern cable systems) did not “perform” broadcasted works when it merely transmitted broadcast signals to viewers.  But then the 1976 amendments to the Copyright Act “completely overturned” those holdings.  Relying on the House Report, the Court observed that under the new Act, both the broadcaster and the viewer “perform.”  The Act also confirmed that a transmission of a performance from one place to another was a performance.  More importantly here, the amendments expressly addressed cable television transmissions, including all acts in the chain from the initial rendition to receipt by the public.  The Act further set up a statutory licensing scheme in Section 111 of the Act to regulate cable companies’ performances of copyrighted works.

Under this framework, the Court found that Aereo was “not simply an equipment provider,” but that it (and apparently its subscribers, too) perform or transmit.  That Aereo “may serve a ‘viewer function’” and “may even emulate equipment a viewer could use at home” was irrelevant.  The “overwhelming likeness” to the cable companies informed the Court’s conclusion.  The Court noted the dissent’s cited technological differences between cable companies and Aereo and rejected those differences, finding that the system “is for all practical purposes a traditional cable system.”  The many similarities, “considered in light of Congress’ basic purposes in amending the Copyright Act,” convinced the majority that Aereo “is not just an equipment supplier and that Aereo ‘perform[s].’”

The Court then turned to the question of whether Aereo’s series of one-to-one transmissions are private transmissions.  While the court in Cablevision and the lower courts in Aereo found that sending each transmission to only one subscriber constituted a “private” performance, the Court could not see how – in terms of the Act’s purposes – the technological differences distinguished Aereo from cable systems:  “They do not render Aereo’s commercial objective any different from that of cable companies.”  Pointing to the language of the Transmit Clause in the Act, the Court noted the myriad ways in which a public performance can be effectuated, including by a series of transmissions.  In elaborating on this point, however, the Court appeared to waver on whether a performance is to the public if it comes from the “same work” or the “same contemporaneously perceptible images and sounds[.]”  In dicta, the Court also suggested that the public’s “relationship to the underlying work” is relevant:  if the subscriber has a prior relationship to the work, then the performance might not be “public,” while transmission “to large numbers of paying subscribers who lack any prior relationship to the works” is a public performance.  While the architecture of cloud-based “lockers” must have been on the Court’s mind when describing the “relationship” distinction, what may constitute a “relationship” – be it a cable subscription, a prior purchase of the specific work, or something else – is left unexplained.

In concluding, the Court confirmed that its holding was narrow.  While rejecting the reasoning of Cablevision, the Court indicated that it was not opining on remote time-shifting technologies such as the RS-DVR:  “The subscriber may instead direct Aereo to stream the program at a later time, but that aspect of Aereo’s service is not before us.”  Neither was the question of “whether the public performance right is infringed when the user of a service pays primarily for something other than the transmission of copyrighted works, such as the remote storage of content.”  It expressly curtailed any application of its holding to “those who act as owners or possessors of the relevant product.”

The Court also warned that its reliance on the history of the enactment of the Transmit Clause did “not determine whether different kinds of providers in different contexts also ‘perform[,]’” but it suggested that the transmission of a performance may not occur at all unless the provider communicates “contemporaneously perceptible images and sounds of a work.”  And if there were ever any doubt in a future case, courts could avoid “inappropriate or inequitable applications” of the Transmit Clause by applying the doctrine of fair use.  As to those entities that did not wish to wait for the courts to assess whether a new service violated the Copyright Act, they should go to Congress.

In a strong dissent, Justice Scalia (joined by Justices Thomas and Alito) took aim at the Court’s approach, asserting that it “distort[ed]” and “ben[t] and twist[ed]” the Act’s terms, and finding the approach ad hoc, too reliant on analogies to the function of other technological services, and highly unpredictable in its application.  While finding problems with Aereo, the dissent proposed that the Court should have looked at the question as one of direct versus secondary liability, a principle that arises from common law.  The approach – concerned about “the distinction between direct and secondary liability” – bears echoes of the Sony VCR case as well as what appeared to be motivating the Second Circuit in Cablevision (i.e., the analogy to the traditional DVR).  Yet the very language of Sony suggests that this is not the proper approach:  “As the District Court correctly observed, however, ‘the lines between direct infringement, contributory infringement and vicarious liability are not clearly drawn . . . .’”

Under the dissent’s framework, a bright-line rule would exist:  the party that “chooses the content” is the direct infringer.  In a conclusion reminiscent of the holdings in the congressionally overturned CATV cases, the dissent concluded that Aereo did not choose the content and therefore did not “perform.”  Rather, the subscribers do.  However, particularly in the context of the definition of “transmit,” analogizing Aereo to an ISP or stand-alone equipment provider arguably creates odd results:  by the same logic, someone who purchases a ticket to a stage play performs the play, and an entity that provides interactive radio streaming of thousands of songs performs while one that provides non-interactive radio streaming does not.

Activities that “ought not to be allowed” need not trouble interested parties, according to the dissent.  While the Copyright Act was clear that Aereo was legal, Aereo exploited what appeared to be a “‘loophole’ in the law.”  And, the dissent concluded, when “good lawyers [ ] identify and exploit [loopholes],” it is “the role of Congress to eliminate them if it wishes.”

While the Court intended for its holding to be narrow, some broad principles come out of Aereo.  First, the nature of a service and its objectives will carry more weight than complex architecture designed to try to exploit perceived loopholes in the law.  Second, while the Court suggested that some bright-line rules exist, each new service should be assessed on its facts.  And finally, the analysis of whether a given technology violates the copyright laws should include consideration of the general purposes of the statute.  When aggregated, these principles send a message that technological growth should be driven by something other than copyright avoidance, making the ruling a win for not merely the networks, but for creators and consumers of copyrighted works and new technology alike.