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.
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.
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.
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