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Aereo Litigation 101

JURIST Guest Columnist Harry Cole of Fletcher, Heald & Hildreth provides a quick introduction to all things Aereo...

The case of Aereo v. American Broadcasting Companies has gathered momentum for the last two years—a big deal by any measure—to copyright mavens, the video industry (including broadcasting and cable) and the video-consuming public. Now that the Supreme Court has agreed to weigh in on the issues, we can expect a resolution shortly, probably before July.

What the Heck is Aereo?

Aereo is a service which allows its subscribers to view over-the-air ("OTA") broadcast television programming on internet connected devices (e.g., smartphones, tablets, desktops, smart TV's) whenever the subscriber wants. Subscribers can either watch programs as they are broadcast in almost real time (there is a couple of seconds delay) or have programs recorded for later viewing.

Technically, Aereo's system consists of a huge number of dime-sized antennas. Each of those antennas does, in effect, what old-fashioned rabbit ears antennas used to do: receive OTA broadcast signals. Aereo deploys so many separate antennas—the precise number unclear, presumably in the hundreds of thousands—because when a subscriber logs on and asks Aereo's system to access a certain program (whether for immediate viewing or recording), that subscriber is supposedly given exclusive access to one of the teensy antennas for purposes of that session. The subscriber also gets exclusive storage space on the Aereo cloud server.

Is Aereo's Design Not a Bit Odd?

The notion of setting up a gazillion tiny antennas strikes many as unusual. Judge Denny Chin of the US Court of Appeals for the Second Circuit called it an "overengineered," "Rube Goldberg-like contrivance."

But there is method to Aereo's madness.

It all starts with the Supreme Court's 1984 Betamax case. At the dawn of the home video recording era, then-new-fangled VCR's were viewed with alarm by copyright holders concerned that the value of their copyrights was about to go in the toilet as VCR owners freely copied OTA programming. Some copyright holders sued Sony, maker of the Betamax VCR, claiming that, by putting such a recording device in the hands of the Great Unwashed, Sony was contributorily infringing on copyrights.

The court held for Sony, 5-4. In its view, the recording of OTA programming in the privacy of one's own home for "time-shifted" viewing was a fair use not subject to copyright protections. In particular, that practice did not violate the "exclusive right to reproduce" guaranteed by the Copyright Act.

Fast forward to 2008. Everything is digital, and the venerable VCR has been replaced in everybody's home by the digital video recorder ("DVR"). Cablevision, a cable TV operator in New York, develops a "remote storage-DVR" ("RS-DVR") system by which Cablevision's subscribers can record content into a repository located somewhere in the cable system. It acts just like a plain old DVR, but the consumer has no separate box in his home holding the recording.

Copyright owners sue, claiming that the RS-DVR infringes both the exclusive right to reproduce and the separate and distinct exclusive right to "publicly perform" copyrighted works. (That latter right had not arisen in the Betamax case.)

The trial judge in the Southern District of New York holds that the RS-DVR does indeed infringe. But on appeal, the Second Circuit reverses, concluding generally that the RS-DVR provides the essential functionality of a VCR and, thus, does not infringe. In essence, the court holds that the copies and transmissions of the programming are being made by the subscriber and not by Cablevision. This interpretation involves a somewhat convoluted interpretation of an already convoluted statute (i.e., the Copyright Act's "definition," and we're using that term loosely here) of "to publicly perform." The relevant portion—and mind you, this is only a portion—of the definition is known as the "Transmit Clause", which reads:

[T]o 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.

The Supreme Court eventually declined to review the Second Circuit's handiwork, leaving the Cablevision decision as the law of the Circuit.

Enter Aereo.

Aereo figured that, as long as it is providing essentially the same service as Cablevision's RS-DVR, then Aereo should be able to provide subscribers that service without having to worry about paying copyright royalties. But one of the crucial attributes of the RS-DVR (at least as far as the Second Circuit was concerned) was the fact that the system, at the specific direction of a particular cable subscriber, made a separate and individual copy for that subscriber. So Aereo had to come up with a way to mimic that feature.

Hence the tiny antenna system, apparently designed to support the view that Aereo's system permits the subscriber to make his/her own individual, personal copies just like the Cablevision RS-DVR system did.

The Aereo Litigation to Date

No big surprise: broadcasters sued Aereo for infringement. The suit was brought in New York because that is where Aereo started its roll-out. Aereo's choice of roll-out venue was no accident: it presumably wanted any judicial test of its system to be brought in the jurisdiction where Cablevision was the governing law.

The broadcaster-plaintiffs asked for a preliminary injunction to shut Aereo down while the trial went forward. The trial judge denied the request [PDF] based on Cablevision. She concluded that, even though the broadcaster-plaintiffs would likely suffer irreparable harm absent an injunction, they had not shown a likelihood of success on the merits because if the Cablevision RS-DVR was OK, then so was the Aereo system modeled after it.

On appeal, a panel of the Second Circuit affirmed, 2-1, purely on the basis of Cablevision. The Second Circuit declined an en banc rehearing, the broadcaster-plaintiffs filed for cert and the Supreme Court granted their petition.

After winning its initial Second Circuit decision, Aereo rolled its service out in Boston, where the same litigation scenario played out, with broadcaster-plaintiffs unsuccessfully petitioning for an injunction (as an appeal is pending in the US Court of Appeals for the First Circuit).

Meanwhile, out on the west coast, an Aereo-lookalike company initially named Aereokiller (later changed to FilmOn X) tried to crank up an Aereo-like teeny-antenna video service in Los Angeles. Things played out much differently. Broadcaster-plaintiffs convinced the trial judge in Los Angeles to enjoin FilmOn X, largely on the theory that the Second Circuit's reading of the Transmit Clause was wrong. In the interest of comity with the Second Circuit, however, the geographical reach of the injunction was limited to the US Court of Appeals for the Ninth Circuit. (FilmOn X appealed the injunction to the Ninth Circuit where the case is still pending).

FilmOn X also tried to get started in Washington, D.C. There, too, a trial judge granted broadcasters an injunction [PDF] but this time the notion of "comity" was considerably less restrained than was the case in Los Angeles—the D.C. judge enjoined FilmOn X from operating its system anywhere in the country other than the Second Circuit. While FilmOn X appealed that ruling to the US Court of Appeals for the D.C. Circuit, that court decided to hold the case in abeyance until the Supreme Court has concluded the Aereo case.

Quick Recap

So Aereo has been cleared for operation in the Second Circuit and the First Circuit (although in both venues the merits trials have yet to be concluded). Aereo has also commenced operation in at least eight other markets, including Utah, where broadcasters have initiated an infringement action. FilmOn X, by contrast, has been enjoined from operating anywhere but the Second Circuit.

Why Should You Care?

Aereo's theory is that it owes no royalties to the copyright owners of any of the OTA programming it makes available to its subscribers. Validation of that theory by the Supreme Court could lead to major upheaval in the video delivery business. OTA TV stations (and the producers of programmers on those stations) derive a considerable amount of royalty revenue from cable and satellite TV operators who re-transmit OTA programming. If Aereo is correct that, by utilizing a one-tiny-antenna-per-subscriber system, a company can avoid copyright royalty obligations to OTA broadcasters, there is a good chance that cable/satellite TV providers will move in that direction quickly. A number of them have said as much. And a number of OTA TV networks have indicated that, if that happens, they may be inclined to yank their programming off of broadcast stations and move it to cable-only channels.

In other words, broadcast television as we have known it for the last 60 years could be in for huge changes—probably not for the best—if Aereo prevails.

Harry Cole is a member of the law firm of Fletcher, Heald & Hildreth, where he specializes in mass media law and manages the firm's blog, CommLawBlog.com. The primary focus of his practice is broadcasting, including transactional, regulatory and appellate work.

Suggested citation: Harry Cole, Aereo Litigation 101, JURIST - Sidebar, Feb. 10, 2014, http://jurist.org/sidebar/2014/02/harry-cole-aereo-101.php.

This article was prepared for publication by Michael Muha, an associate editor with JURIST's professional commentary service. Please direct any questions or comments to him at professionalcommentary@jurist.org

Opinions expressed in JURIST Commentary are the sole responsibility of the author and do not necessarily reflect the views of JURIST's editors, staff, donors or the University of Pittsburgh.

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