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Summary:

Aereo must go before the Supreme Court next week to explain how its tiny antenna service, which has rattled the TV industry, is legal. Here’s how it will make the case.

Photo from Aereo
photo: Aereo

The stakes can’t get any higher for internet TV service Aereo. One week from now, the two-year-old company will go before the Supreme Court to face off against a group of big broadcasters that want to shut it down. If Aereo loses, its biggest investor says the company is “finished.”

More significantly, the Supreme Court’s decision could alter the current business model of TV, which relies on selling large bundles of channels for ever higher prices. If the Justices side with Aereo, which rents subscribers a remote antenna to watch and record over-the-air stations like NBC, more consumers may become tempted to become “cord cutters” — leaving their TV provider in favor of some combination of internet TV services, including Aereo’s smaller and cheaper bundle of channels.

While Aereo now offers its $8/month service in just a dozen cities, it plans to expand to 50 by next year. And while Aereo reportedly has only 100,000 subscribers in New York, that number would likely rise rapidly if the company engaged in a major marketing push — which it will no doubt do if it gets a final green light from the court.

Aereo’s opponents, supported in court by the Justice Department, believe that Aereo is a signal-stealing freeloader poised to wreak damage on the TV industry. So if it is to survive, Aereo must persuade five Supreme Court Justices to accept its view on copyright law (UPDATE: while Justice Samuel Alito was initially recused, news came on Wednesday this is no longer the case) .

Aereo’s side of the story, set out in a 100-page Supreme Court brief filed last month, is a double-barreled appeal to both the past and the future. The brief (embedded below) casts its technology as a natural evolution of the VCR, which the court declared legal three decades ago, while also claiming kinship with the emerging cloud computing industry — an industry Aereo says will suffer if the broadcasters prevail. While making those appeals to policy principles, Aereo also makes a third argument about the letter of the law and companies’ right to rely on it when building their business.

Here’s an overview of how the case arrived at the Supreme Court, a look at three of the arguments that Aereo will put before the Justices on April 22, and how this could all turn out.New DVR with Old VCR

A lawsuit from the beginning

When ABC and other big broadcasters sued to shut down Aereo a month after it went live in February 2012, no one was surprised — Aereo least of all. According to a source familiar with the litigation, the company was ready with court briefs from the moment it started selling its service in New York (it’s now available in about a dozen cities, including Atlanta and Boston). For media mogul Barry Diller, whose company IAC has led a $97 million investment in Aereo, the money was a bet on copyright law as much as it was on the startup’s tiny antenna technology.

Aereo is hardly the first company to take on the broadcasters. Prior to Aereo, short-lived services like Ivi, FilmOn and iCraveTV offered internet-based access to the airwaves — and were promptly sued out of existence. For Aereo to get a foothold, it had to show it was different — that, unlike the earlier services, it didn’t infringe on copyright’s public performance right, which TV networks use to restrict others from re-broadcasting their over-the-air transmissions.

Aereo saw its legal opening with the arrival of cloud-based DVRs, which let consumers record and store live TV in a remote location. The DVRs have proven popular, and just as important for Aereo, they had already withstood a legal onslaught: in 2008, an appeals court refused a request by broadcasters to outlaw them. The court found that cloud-based DVRs are like a VCR or a set-top device like TiVo — a legitimate form of private copying outside the public performance right covered by copyright. (The broadcasters appealed, but the Supreme Court chose not to hear their plea.)

Now the issue has returned thanks to Aereo, which says its antenna service service is a cloud-DVR too.

The broadcasters, needless to say, disagree and are receiving support from sports leagues, Hollywood studios, big cable companies and the Obama administration, all of which filed briefs opposing Aereo’s position.

Aereo, of course, has allies of its own, who also filed briefs this month. Those allies include familiar Silicon Valley names like Google and Facebook, as well as small and medium-sized cable companies, and even some small broadcasters. (Full list of briefs for both sides here).

A canary in the cloud computing mine?

In its brief, Aereo says that a Supreme Court decision siding with its opponents “would gravely threaten cloud computing.” But would it really? Would the end of Aereo really ripple beyond the TV industry and harm popular consumer cloud services like Dropbox?

To understand Aereo’s argument, it’s necessary to understand how the service actually works: it rents each subscriber a tiny antenna coupled to a remote DVR for recording and distributing over-the-air TV. Subscribers store their shows with Aereo, and then watch the show on a phone or computer at a time and place of their choosing. They can watch the show in near-real time, just seconds after it goes live on the air, or store it on a personal cloud-based DVR to watch later. And, as Aereo points out, the service is not quite TV-like since there is no easy “channel-surfing,” and because the delay means “there is always the risk of hearing cheers from the next apartment moments before the big play.”

According to Aereo, the company is a remote storage service like Dropbox or Google Drive, which rent consumers space in the cloud where they can retrieve media — including videos. Aereo warns the court that, if its service is found to be illegal, those other cloud companies could be put in an impossible position of having to monitor what their users are doing. It would mean that:

there is no clear standard for determining when a technology company, rather than its customer, has engaged in volitional conduct. Instead, the government offers an indeterminate line, with most cloud computing companies apparently on the wrong side” [emphasis added]

(Aereo’s mention of “the government,” incidentally, refers to the fact that the White House has weighed in by filing a brief in favor of the broadcasters, and by asking the court to give the Solicitor General precious time in front of the Justices.)

Aereo also cites Google Drive as an example of another cloud provider that could be ensnared in a copyright dragnet of sorts, as content owners’ attempt to control public performances in the cloud:

“[W]henever two users of a cloud-based ‘virtual locker’ service – such as Google Drive – separately play a song stored on the provider’s servers, the provider is publicly performing by transmitting the same ‘underlying’ performance to multiple members of the public.”

Aereo, in other words, is attempting to cast itself as a canary in the cloud computing mine, saying that its legal death could imperil the larger fate of an important and growing industry. That threat would come if broadcasters used a Supreme Court ruling against Aereo to assert public performance rights against other storage services like Dropbox (which already restricts users from sharing copyrighted files with each other).

This argument, however, may not get much traction if the Supreme Court judges decides that, unlike Dropbox and Google, Aereo’s cloud storage is different because it comes with an antenna tuned to over-the-air TV — a fact the broadcasters will be glad to point out.

Aereo antennas

From cable to Betamax to Aereo

The story Aereo wants to tell the Supreme Court is, in many ways, also the history of TV and technology — a history than spans from local over-the-air signals, to national networks to the 1960’s era “community” antenna

that captured hilltop TV signals and ran them to individual homes with wires. More recently, this history has evolved to satellite TV and digital video recorders. To avoid being shut down, Aereo must persuade the court that it has a legal home within these technologies and the elaborate regulatory rules that have sprung up around them.

One way Aereo will try to do that is by likening its legal position to cases involving the Sony Betamax, which let consumers record analog TV signals onto magnetic tape, and to Cablevision’s remote DVR service. Taken together, those cases, handed down 25 years apart, established that consumers have a “fair use” right to record shows, and that no “public performance” takes place when the consumer plays them back later on.

Aereo says its tech does the same thing. As the company will tell the court, it is Aereo’s subscribers — not Aereo — who determine when the recording starts and stops, and when the show will start playing back. The company claims, in other words, that it’s protected by the same rules that protected other TV devices in the past.

History may help Aereo too in rebutting the argument that Aereo, if it were operating legally, it would be paying signal retransmission fees like cable and satellite companies do. As Aereo points out in its brief, the retransmission fees (which now account for about 10 percent of broadcasters’ revenue) don’t flow from the Copyright Act, but from a separate law that Congress passed to promote competition in different sectors of the TV industry. The implication is that, if these fees should be extended further, it’s a job for Congress and not the Supreme Court.

Finally, Aereo will try to tell the court that the local over-the-air TV signals that its antennas detect are free, and always have been. In the history of TV, Aereo says, these local signals stand apart and are part of an historical bargain in the TV industry under which the big broadcasters get access to public spectrum in return for beaming information to the public. It reminds the court:

“As one CBS executive noted, the most significant ‘threat’ Aereo poses is reminding the public that ‘network content is…readily accessed’ for free with an antenna.”

Aereo is reminding the court that its service is a way for consumers to consume something they get for free already, and could access with an antenna even if they don’t have cable.

Aereo window

Building a business on the letter of the law

The fate of the cloud and the television industry are policy arguments that will be used by Aereo and the broadcasters to tell the Supreme Court why the sky will (or won’t) fall if the service stays up. The court, however, has the option of avoiding sweeping policy discussions about TV and the cloud, and instead concentrating on the letter of the law.

In this case, the letters in question are two words — “transmit” and “publicly” — that appeared in a new section of the 1976 version of the Copyright Act, known as the “Transmit Clause.” The Transmit Clause says that “to perform or display a work ‘publicly'” means, in part:

“to transmit or otherwise communicate a performance or display of the work to a place specified by clause (1) or 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.”

In other words, the clause confirms hat a signal sent over-the-air by a broadcaster like ABC is a public performance — similar to a play or a poetry reading — that only ABC has the right to perform. That means that someone else can’t pick up the signal to the show “Nashville” and relay it to another batch of TV watchers.

Aereo and the broadcasters disagree, however, whether the Transmit Clause protects just ABC’s transmission (the original broadcast) or, instead, if it covers the underlying performance — such as “Nashville” — contained in that transmission. The distinction matters because Aereo does not re-broadcast the original transmission, but instead rents an antenna/DRV tool that lets its subscribers pull down thousands of discrete transmissions.

The broadcasters claim the distinction doesn’t matter, and are seizing on the words of dissenting judge U.S. Circuit Judge Denny Chin, who blasted Aereo’s service as a “Rube Goldberg” device and said the court should group all the discrete Aereo transmissions together and treat them as a single public performance. Chin failed to carry the day, however, and the appeals court concluded 2-1 that the letter of the law favors Aereo on the transmission vs. performance question.

Aereo, of course, is now urging the Supreme Court to adopt the appeal court majority’s definition of transmission too — and bolsters its case by saying that, even if Chin is right on the underlying performance question, it doesn’t matter: no one is transmitting the work to the public in the first place.  Instead, each viewing of “Nashville” is a private performance because it is the Aereo subscriber, not Aereo, who is pressing “play.”

At the Supreme Court, Aereo is likely to expound on this letter of the law story by saying companies should be able to build their business based on what the law says — and if the law is supposed to mean something different, then it’s up to Congress, not the courts, to say so.

What the Supreme Court will decide

The Aereo case is the most important TV-related case in two decades but, for now, there’s no easy wager on the outcome. Unlike cases about issues like abortion or campaign finance, there is no clear track record that show where each Supreme Court Justice stands on the issue. The one exception may be Justice Ruth Bader Ginsburg, who is known as a copyright hawk, and whose daughter, Columbia law professor Jane Ginsburg, has written an article critical of the lower court’s Aereo ruling that it is cited in the broadcasters’ Supreme Court brief.

Copyright lawyers, meanwhile, appear genuinely divided on the issue. In informal discussions, lawyers with ties to the TV industry express incredulity that Aereo could possibly succeed, while tech company lawyers are convinced the law is on their side.  Some argue that Aereo’s black letter law arguments may find sympathy with the court’s conservative Justices, who generally favor strict statutory construction — but that’s simply conjecture.

The scholarly community is split as well. Professor David Nimmer of UCLA, a famous name in copyright circles, has sided with the broadcasters. But on the other side, a group of 36 copyright professors, including tech authorities like James Grimmelmann, have submitted a forceful argument that the broadcasters entire performance rights theory is simply unfounded in the first place, and that the case is really about copyright’s reproduction right, where even the broadcasters concede that Aereo is on solid ground.

A final factor is the presence of the Solicitor General. The Supreme Court has yet to announce if the government’s top lawyer will be given time to argue but, if so, his presence will give a give a boost to the broadcasters.

The bottom line is that both the case and its consequences remain unpredictable. Few thought Aereo would end up before the Supreme Court so quickly, and few can say with confidence how it will turn out. (If I had to bet on the outcome, I would pick Aereo but that’s just a hunch — there are plenty who disagree).

If Aereo wins, it could unleash a tidal wave on the TV industry, and lead broadcasters to pull their signals off the air as they have threatened to do. Or Aereo could become just another bargaining chip, like the Dish Hopper, for powerful people to use as leverage in the great game of the TV business.

An earlier version of this story stated that Justice Ginsburg’s daughter submitted a brief to the court; it has been corrected to say that Ginsburg’s article is cited by the broadcasters 

Aereo SCOTUS Brief

  1. Really well written and researched article. I personally just use an antenna being out of a major market such as Atlanta. But the “renting” of the tiny antenna in other markets and local storage is quite an interesting idea. I’d like to know more about how they pull that off. Thanks for the interesting read Jeff!

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    1. Thanks for the kind words, Jason! If you live outside a major urban market, you’ll probably be just fine with antenna. In cities, however, it’s often hard to get a good signal so Aereo is helpful — plus the fact you can record TV and watch shows on your phone.

      As for how it works, Aereo finds a rooftop with a good sight line to the transmission tower (which in New York’s case is the Empire State building) and houses its antennas there. Its customers, who receive the signals by internet, choose when to turn the antenna on and off.

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  2. Great analysis.

    I think the key is that originally, a consumer only paid for the equipment required to receive the content (TV, Antenna), but along the way, we also starting paying for the transmission or transport as well (Cable, then Sat), but the original method was never outlawed, and more importantly, the value proposition of the latter has changed as the content owners have pushed for ever larger slices of the pie, first with movies, then with sports, and then with bundling, resulting in a value proposition that fewer people find interesting every day.

    Music went through the same issues (Why do I have to buy a whole CD when I only like one song is very much like why do I have to pay for 50 channels to watch 3?) and arrived at a new economic model, it was painful, but they have a viable path forward that aligns with the consumer and continues to innovate and grow.

    Movie, TV and books are going to have to come to the same conclusion and adapt their economic model to consumer’s desire rather than out dated revenue models that are going to die, no matter how hard they fight.

    Aereo walks a very fine line in delivering their service and I get the principal, but it is a dance on a technicality that doesn’t address the larger concern of how content is distributed in the digital realm.

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    1. Thanks for the thoughtful comment, Madlyb — you put your finger on it when you that the Aereo case for the TV industry represents the same phenomenon (the wonks call it disintermediation) that befell the news, music and book publishing industries.

      And, yes, even if Aereo wins, this is just the tip of a larger debate over who should pay for TV, and how they should do so.

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  3. Jeff,

    I have a slightly different analysis here. http://blog.wherever.tv/2014/04/if-no-one-pays-then-what.html

    -Mark

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  4. “who will be reading a brief in favor of the broadcasters from her own daughter, Columbia law professor Jane Ginsburg”

    3rd world legal system.

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    1. Infostack — I spoke too soon. As per David’s comment below, it is the broadcasters who have submitted Jane Ginsburg’s work, not Ginsburg herself

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  5. great story and really cool spin on the real issuse “protecting private enterprise”…not a
    lawyer however always cool to see how the “rules” are used to help private companies to
    continue to have the proverbial “unfair advantage”…
    even when said advantage goes against the very people the rule makers purport to represent …the term (quiseling) come to mind ..

    That being said one wonders how they will justify “continueing” to give freely “public” spectrum to private companies whose value proposition is only I can use any program I broadcast over spectrum given to me for free …
    furthermore other companies who where gestated due to our (spectrum broadcasters) technical lack ..now must pay us to put our signal over those compaines “private infrastrcture”…
    now comes along someone who wants to use an “information service” (internet) to allow for access to free program and then record it and watch later

    … my grandfather says “when you throw a rock in the chicken coop the one who screams the loudest is the who was hit”

    GOOD WORK AERO some are noticing we are not all stupid

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  6. This is a particularly good summary of the case. Mr. Roberts says: “If Aereo wins, it could unleash a tidal wave on the TV industry, and lead broadcasters to pull their signals off the air as they have threatened to do.” I will remind folks that the broadcasters said they would never broadcast high definition content if the broadcast flag protection mechanism were not required for all devices touching HDTV content. The DC Circuit threw that rule out, yet we have HDTV broadcast by every major network affiliate. So I wouldn’t take the threat seriously at this point. But if Aereo wins, and then cable operators adopt a similar mechanism, that might trigger serious broadcast network consideration of becoming just another cable programmer. At that point, there would be pressure for them to give up the valuable spectrum, which wouldn’t be used. That would be an interesting scenario. So abandoning over-the-air, even if only 18% of household rely on it, has serious consequences for the broadcasters.

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    1. Thanks for the kind words and the thoughtful comment, jmburger. I agree that the broadcasters’ threat to pull their signals is likely bluster, both for the reasons you state, and also for the incredible amount of sports money tied up in over-the-air TV. Even though the NFL and MLB have intervened on behalf of ABC, I don’t thin they would risk losing 18% of their viewers (and, in any event, existing contractual obligations run for years)

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  7. Jane Ginsburg has not filed a brief in the Aereo case. Because her mother is on the court, she does not file amicus briefs in any cases. The source cited in the article for this proposition did not report that she wrote or filed a brief; it simply said that the broadcasters’ brief “cited work critical of a lower court ruling favoring Aereo by Jane Ginsburg, a professor at Columbia University’s School of Law and daughter of Justice Ruth Bader Ginsburg.”

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    1. You’re right David. Thanks for flagging that — I’ve fixed above

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  8. Aereo’s argument is, I’m afraid, based on junk science. For them to have a strong legal position, their system must function so that (a )every single antenna element can function by itself and not be affected by or affect other, nearby antenna elements, (b) there must be a separate receiver decoder for every individual antenna, (c) there must be a separate DVR for each antenna and receiver, and (d) the H.264 streams must never be combined into a mux for delivery to subscribers.

    This system fails on every count. (a) It is impossible for any of these tiny antennas to have gain and resonance, and work equally well from 175 to 700 MHz, unless they are so close to the transmitter site that the signal simply couples into the antenna via “brute force.” Plus, the close spacing of the antenna elements ensures they do have an impact on each other, thanks to inductive and capacitive coupling, and create segments of a much larger antenna array. (b) Having 100,000 separate receivers would be prohibitively expensive and logistically impossible. (c) Ditto having separate DVRs for each subscriber. (d) Having 100,000 separate MPEG4 encoders and keeping those streams separate is also expensive, illogical, and impractical.

    If at any point two or more subscribers are sharing parts of this system, then Aereo becomes a community antenna television (CATV) system. CATV systems work the way they do because that is the most efficient way to deliver multiple channels of video to many subscribers. And if Aereo functions as a CATV system, then they are retransmitting copyrighted works in a public performance, and are required to get permission from the rights holders (i.e. the TV stations and networks).

    I’ll leave the business model arguments to someone else, but it disturbs me to see physics and common sense tossed aside here in what is a very cute, “engineered by lawyers” system that depends on obfuscation to gain a favorable decision by the courts.

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  9. Great article, i don’t agree with their point about cloud computing thou. It’s one thing to say that companies like drop box will have to monitor what their users do with their services. But in their case they are pretty much telling them to put it there…. so it’s not like they are unaware of it.

    But overall over the air networks are suppose to be for the people. And services like Aereos will help to keep them “honest” and not about ratings/funding. I mean they are over the air for a reason right were suppose to be able to get them with out paying a cable company or satellite.

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