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Justices Appear to Be Searching for A Way to Craft Narrow Ruling in Aereo

Wednesday, April 23, 2014

By Tamlin H. Bason  

April 22 --Supreme Court Justices during oral argument in a copyright infringement suit brought by network broadcasters against a company that allows users to view television programs over the Internet seemed wary of what a broad infringement ruling would do to the cloud computing industry and “disturbed” by the defendant's apparent audacity to engineer a complex system specifically designed to skirt copyright laws.

The court, therefore, seemed to search for guidance on how to fashion a narrow rule that would find Aereo--the company that seemingly flaunts copyright laws--liable for “publicly performing” copyrighted content while leaving undisturbed legal precedent that has allowed cloud computing companies to flourish. A number of justices probed the broadcasters' attorney, Paul D. Clement of Bancroft PLLC, Washington, D.C., and Deputy Solicitor General Malcolm L. Stewart--who both urged the court to overturn the Second Circuit's holding that Aereo's service was not infringing--about what a narrow rule distinguishing between Aereo on one hand and legitimate cloud storage companies on the other would look like. But the court bucked at a few of the proffered distinctions and seemed particularly troubled by Clement's suggestion that the court need not decide today anything other than that Aereo's service is infringing without worrying about other services.

“I don't find that very satisfying,” Justice Samuel Alito said. “I need to know how far the rationale that you want us to accept will go, and I need to understand, I think, what effect it will have on those other technologies.”

Aereo's attempt to paint itself as nothing more than a company that rents users antennas and DVRs, and its contention that its use of thousands of antennas is relevant only because it allows the company to “replicate” the system that a user would have in his own living room, was likewise met with skepticism. Aereo's attorney, David C. Frederick of Kellogg, Huber, Hansen, Todd, Evans & Figel PLLC, Washington, D.C., came back again and again to the latter argument precisely because a number of justices were trying to get him to concede that the use of thousands of antennas serves no other purpose than to allow the company to stream a single copy of a broadcast program to a single subscriber, which allows Aereo to escape copyright liability under relevant Second Circuit precedent. Aereo seemed to concede the point in its merits brief, but Frederick was reluctant to make the admission during argument, instead suggesting that the design permitted a user to “replicate on the cloud what they can do at home.”

“I'm not saying its outcome determinative or necessarily bad, I'm just saying that your technological model is based solely on circumventing legal prohibitions that you don't want to comply with, which is fine,” Chief Justice John G. Roberts Jr. said.

Small Antennas Lead to Big Second Circuit Victory

Initially filed in March 2012 (56 PTD, 3/23/12), the lawsuit challenges Aereo's service--which assigns each paying subscriber a separate dime-sized antenna that is used to capture over-the-air broadcasts--as violating the broadcasters' exclusive right to “to perform the copyrighted work publicly.” 17 U.S.C. § 106(4). A determination of whether a work is publicly performed relies on the “transmit clause” of Section 101 of the Copyright Act, where “publicly” is defined to mean:

(1) to perform or display it at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered; or  

(2) 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.  

 

17 U.S.C. § 101.

The Southern District of New York held, WNET v. Aereo Inc., 871 F. Supp. 2d 281, 2012 BL 12619, 102 U.S.P.Q.2d 1853 (S.D.N.Y. 2012)(135 PTD, 7/16/12), and the Second Circuit affirmed in a 2-1 ruling, with Judge Denny Chin dissenting, 712 F.3d 676, 2013 BL 87728, 106 U.S.P.Q.2d 1341 (63 PTD, 4/2/13), that Aereo's retransmission over the Internet of copyrighted television programming to individual users was not a public performance. Rather, since each antenna is capable of making just a single copy, and then transmitting that single copy to the single user who requested it in the first place, Aereo's service results in a private performance under controlling Second Circuit precedent, the lower courts held.


“Perhaps we should remand.”
--Justice Stephen G. Breyer

The Cablevision and Cloud Conundrums

And so although the Supreme Court was ostensibly hearing argument on whether to affirm or reverse the Second Circuit's April 2013 decision, it in fact had to look back to a case that was decided in 2008. That is because the Second Circuit's determination that Aereo's service was not infringing was inevitable given the appeals court's 2008 ruling in Cartoon Network LP v. CSC Holdings Inc., 536 F.3d 121, 87 U.S.P.Q.2d 1641 (2d Cir. 2008) (151 PTD, 8/6/08), which held that the transmission of a single copy to a single subscriber is not a “public performance” within the meaning of the Copyright Act's transmit clause. That case, commonly referred to as Cablevision, thus provided a backdrop for the April 22 argument.

“Assume that [Cablevision] is binding precedent,” Justice Anthony M. Kennedy told Clement and Stewart, asking them to distinguish that case from the facts at hand.

Clement responded by first “assuming” that the result in Cablevision may be correct, but that the reasoning was “profoundly wrong.” He then urged the court to distinguish Cablevision's Remote-Storage DVR (RS-DVR) device from Aereo's service on the grounds that unlike Aereo, Cablevision had a license to the content in the first place. Cablevision then is like a typical cloud locker service where a user can only gain access to the content that he has placed in the locker, Clement said.

If after winning at the Second Circuit, Cablevision decided to just operate as an RS-DVR device and stopped licensing content, but did not block customer access to the content, then that system would look a lot like what Aereo's service looks like, Clement said. “If that were the hypothetical, I don't know how that wouldn't be the clearest violation of the 1976 [Copyright] Act,” he said.

“That's exactly our problem,” Justice Stephen G. Breyer said. “I will be absolutely prepared, at least for argument's sake, to assume with you that if there were ever anything that should be held to fall within the public performance [right], this should be [it],” Breyer said. But Breyer said that the problem is that when he looks at the statutory language it is not immediately apparent how the language would support a ruling finding Aereo liable somehow while not also “catching other things that really change life and shouldn't [be found infringing], like cloud computing.”

Like Clement, Stewart also sought to distinguish Cablevision on the grounds that the content was licensed in that case. Since the company that owned the device licensed the content in the first place, the subsequent playback of the recorded content to the subscriber is likely fair use under the Supreme Court's decision in Sony Corp. of Am. v. Universal City Studios Inc., 464 U.S. 417, 220 U.S.P.Q. 665 (1984), Stewart said.

Stewart also agreed with Clement “that there is no reason that a decision in this case should imperil cloud locker services generally.” Stewart said:

If you have a cloud locker service, somebody has bought a digital copy of a song or a movie from some other source, stores it in a locker and asks that it later be streamed back, the cloud storage service is not providing the content. It is providing a mechanism for watching it.  

 

The court could therefore craft a rule that finds services that provide a user access to unlicensed content infringing while cloud services that just give users access to storage or equipment would escape liability. However, “I do not pretend that there is a bright line between providing a service and providing equipment,” Stewart said. Indeed, “It is an authentically hard call as to where to draw the line,” he said.

Is Aereo a Cable Company?

Justices Sonia M. Sotomayor and Breyer appeared to sense that the best way to rule on public performance in a way that does not result in unintended consequences may be to not rule on public performance at all. The first questions directed at Clement were about whether the broadcasters considered Aereo to be a cable company, which would entitle Aereo to a compulsory license under Section 111 of the Copyright Act. Neither of the lower courts ruled on the issue, and in fact Aereo maintains that they are not a cable company.

“Everybody has been arguing this case as if for sure they are not [a cable company], but I look at the definition of a cable company and they seem to fit,” Sotomayor said.

“Perhaps we should remand” for a determination on whether Aereo fits the definition of a cable company, Breyer said. He said that such an action would allow the court to steer clear of issuing a broad ruling that could harm cloud computing or could result in other unintended consequences. The notion that the court's ruling could impact entire industries that are not party to this suit “make[s] me nervous” Breyer said.


“[Y]our technological model is based solely on circumventing legal prohibitions that you don't want to comply with, which is fine.”
--Chief Justice John G. Roberts Jr.

Rather than punting on the issue, “I think the better way to avoid your concerns is to maybe take them on directly,” Clement told Breyer. He urged the court to look at how the cloud computing industry has evolved. In particular, he said the court should take note of the fact that cloud storage companies that allow users to access content that the user did not specifically place in the cloud generally secure licenses for that content.

'That's What Disturbs Everyone.'

Breyer also challenged Frederick on whether Aereo was analogous to a cable service. Frederick repeatedly argued that Aereo does nothing more than allow a user to record and view over-the-air broadcasts that he would be able to watch if he had an antenna and a DVR. Thus, the question is “how significant should it be how long the cord between the antenna and the DVR” is, Frederick asked

“The answer is very significant,” Breyer said. He noted that Aereo is technically capable of using antennas to capture video broadcasts from all over the world and then stream those broadcasts to users, regardless of where they are located.

“And that sounds so much like what a [cable television] system does or what a satellite system does that it looks as if somehow you are escaping a constraint that has been imposed upon them,” Breyer said. “That's what disturbs everyone.” Breyer told Federick that he was likewise “disturbed” that he does not know how to fashion a rule, either for or against Aereo, without harming other technologies.

“That isn't your problem, but it might turn out to be,” Breyer said.

Frederick suggested that it instead should be the broadcasters' problem. After all, it is “their interpretation of the transmit clause” that causes “so many problems for the cloud computing industry,” Frederick said.

One problem with the broadcasters' interpretation of the transmit clause, Frederick said, is that they seek to look back at the original transmission from the broadcaster--or content owner--and if that transmission is to the public then the fact that a subsequent transmission went from Aereo to just one subscriber will be rendered irrelevant.

“And that's why the cloud computing industry is freaked out about this case because they invested tens of billions of dollars into the notion that a user-specific, user-initiated” transmission “is a private performance and not a public performance,” Frederick said.

'Replicating What Happens in the Home.'

Aereo, too, has invested substantial resources into building a system that results in the creation of user-specific, user-initiated copies.

Roberts wondered if those investments served a purpose other than to insulate the company from liability. He said:

There's no reason its a user-specific copy, is [there]? They're making 10,000 copies. It'd be much easier for you if you would just have to make one copy and everybody would get a copy.  

 

Justice Ruth J. Bader Ginsburg used nearly identical language when she was questioning Frederick. Ginsburg asked whether Judge Chin, who authored an aggressive dissent at the Second Circuit, “was right when he said that there was no technically sound reason to use multiple antennas?”

The broadcasters and a number of amici in support of the petitioners also echoed Chin's observation that Aereo used the individual antennas specifically in order to fall under Cablevision's interpretation of public performance. Aereo's merits brief seemed to embrace the argument, stating:

[D]esigning technologies to comply with the copyright laws is precisely what companies should do. If petitioners believe a technology that operates within existing laws to allow individual consumers to watch television shows petitioners have offered for free is causing them economic harm, they are entitled to ask Congress to change those laws. But this Court should not rewrite the Copyright Act in an effort to protect petitioners from lawful and logical advancements in technology or from the economic consequences of their transmitting works for free over the public airwaves.  

 

But during oral argument Frederick was unwilling to concede the point, stressing instead that by “replicating what happens in the home” Aereo is able to more closely track what happens with a DVR. Specifically, if a user forgets to record a program or records only a portion of the program then the user either cannot watch the program at all, or can only watch the portion that he recorded. This function is one of the main differences between Aereo and a video-on-demand service, Frederick said.

Clement said that if there really is a technological advantage to Aereo's design then the company can probably survive even if the court rules against them in the instant case.

“But on the other hand, if all they have is a gimmick, then they probably will go out of business and nobody should cry a tear over that,” he said.

 

To contact the reporter on this story: Tamlin Bason in Washington at tbason@bna.com

To contact the editor responsible for this story: Naresh Sritharan at nsritharan@bna.com


Transcript of argument available at http://www.supremecourt.gov/oral_arguments/argument_transcripts/13-461_o7jp.pdf

Analysis of the petitioners' and government's briefs (47 PTD, 3/11/14), amici briefs in support of the petitioners (49 PTD, 3/13/14), Aereo's brief (60 PTD, 3/28/14), and amici briefs in support of Aereo (70 PTD, 4/11/14) can be found in recent issues of this publication.

 

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