<i>Aereo</i> Analysis: What Does the U.S. Sup. Ct.'s Ruling Mean?

Factual Background

After a subscriber chose a television program at Aereo's website, that user would automatically be assigned to one of the thousands of dime-sized antennas that Aereo maintained, and that individual user-”rented” antenna would be tuned to the selected over-the-air broadcast. The programming from that antenna would be transcoded into data suitable for Internet transmission and then briefly stored in a folder on one of Aereo's hard drives temporarily assigned to that subscriber's exclusive use. After several seconds of programming had been recorded, the programming data from that folder would be streamed to the subscriber's computer or device.

Importantly, although multiple subscribers might view the same program, each subscriber would have his or her own unique (temporary) copy, received via a transmission from the antenna uniquely assigned to him or her. This Rube Goldberg arrangement was manifestly designed to fit Aereo's streaming service into the technically complex model blessed by the Second Circuit in Cartoon Networks v. CSC Holdings and Cablevision Systems, 536 F.3d 121 (2d Cir. 2008), cert. denied, 129 S.Ct. 985 (2009).

Under 17 U.S.C. '106(4), copyright owners have the exclusive right “to perform the copyrighted work publicly.” In Cartoon Networks, the U.S. Court of Appeals for the Second Circuit held that defendant Cablevision, which stored each customer's copy of a TV program at a separate assigned server location, and then transmitted distinct streams of the programming to each customer, had not thereby violated the public performance right. Like Cablevision, Aereo temporarily stored separate replications of television programming for each customer on a unique hard drive location and transmitted a separate stream to each customer from that “copy.”

Notwithstanding the Second Circuit precedent, the networks sued Aereo, alleging, inter alia, that the company directly infringed their exclusive right to publicly perform the works. As the Supreme Court noted, “the [Copyright] Act's Transmit Clause defines that exclusive right as including the right to:

'transmit or otherwise communicate a performance ' of the [copyrighted] work ' to the public, by means of any device or process, whether the members of the public capable of receiving the performance ' receive it in the same place or in separate places and at the same time or at different times.' [17 U.S.C.] '101.”

Justice Stephen Breyer, who wrote the Supreme Court's majority opinion, considered two issues: Did Aereo “perform” the works?; and did Aereo perform them publicly?

When Congress amended the Copyright Act in 1976, it clarified or revised (depending on one's perspective) what it meant to “perform” a work, and enacted the Transmit Clause. These amendments made clear that anyone who causes an audiovisual work to be played (made visible and audible) has “performed” the work. In this case, the Supreme Court majority held first that Aereo ' not its subscribers ' performed the works. Since the Aereo system “is for all practical purposes a traditional cable system,” the court treated it as such for performance purposes.

As to whether the performance was “public,” the court accepted arguendo Aereo's position that multiple performances occurred when the copyrighted programs were retransmitted through the Aereo system to Aereo's multiple subscribers, after being separately received on multiple unique antennas and stored separately for each viewing subscriber. By Aereo's logic, because each subscriber's transmission was a distinct and separately directed performance, then none should be deemed “public” because each such performance typically went only to one subscriber, at home, with his or her family members or friends, not to the public.

The Supreme Court rejected this argument on two grounds. First, again, similarity to cable TV providers: the multiplicity of performance streams did “not render Aereo's commercial objective any different from that of cable companies. Nor do they significantly alter the viewing experience of Aereo's subscribers,” who did not care whether their program came from one big antenna or myriad small dedicated antennas. Second, Aereo's argument assumes as a premise that transmitting a performance means engaging in a single transmission. But the text of the Transmit Clause contradicts that premise because the clause expressly anticipates that a public performance can be received by members of the public “at different times.” The multiplicity of viewers of the different streams of the same underlying performance of the work therefore made the Aereo performances public ones.

The critical considerations appear to include the purported similarity to cable of the service provider's commercial objectives, and the similarity of the consumer's experience of the copyrighted work. What this has to do with whether a performance is public in character is not so clear, though, nor how to apply these principles. At one level of generality, everyone in the entertainment business has the same “commercial objective”: making money by providing content to wide audiences who care more about experiencing the work than about the technology by which it is delivered. Surely that does not mean that distribution of copies, public performance and public display all come to the same thing. Similarity to cable was enough for the majority. But perhaps this is a situation in which a page of history is not a sufficient substitute for a volume of logic.

Dissent

Justice Antonin Scalia's Supreme Court dissent argued that the majority ignored what the minority consider “a simple but profoundly important rule: A defendant may be held directly liable only if it has engaged in volitional conduct that violates the Act.” (Emphasis added.) Under the well-established volition rule, courts have commonly rejected claims that a service provider is directly liable for copyright infringement for hosting an automated, user-controlled system that end-users might use to infringe (though that conclusion would not necessarily preclude the possibility of secondary liability). See, e.g., Cartoon Networks, 536 F.3d at 130-31.

In other words, under the “volition” line of cases, the subscriber or consumer who uses a technology to engage in a volitional act of selecting and triggering a performance (or some prima facie act of copyright infringement, such as copying) might be directly liable. But the company that provided the automated technology would not be directly liable. To hold the technology provider liable, a plaintiff would have to establish secondary liability.

Although Scalia therefore disputed that Aereo was a direct infringer, he “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.” Nonetheless, he offered no view on whether Aereo was likely secondarily liable, and accepted the possibility that Aereo's actions might not be a copyright violation under current law. And for good reason: once the volition principle is embraced, finding secondary liability in the Aereo situation may be difficult since there might be no underlying direct infringement for secondary liability to rest upon.

What Does the Aereo Decision Not Do?

Curiously, although the majority responded to part of the dissent's argument, it did not directly or expressly confront the volition issue, neglecting even to utter the term “volition.” The majority opinion found Aereo directly liable without discussing whether Aereo (as opposed to its users) had engaged in any volitional act in regard to any particular performance.

The majority's failure to engage with this rule, Justice Scalia argued, throws into doubt and confusion the line between direct and secondary liability. It leaves uncertainty about the scope of the ruling because the Copyright Act doesn't say that “operations similar to cable TV are subject to copyright liability,” and it is not clear just how much similarity to cable TV may be sufficient to cause the Aereo holding or its similar-to-cable standard to apply.

The Breyer majority, in attempting to calm concerns that its decision will discourage new technologies, cautioned “the history of cable broadcast transmissions ' informs our conclusion that Aereo 'perform[s],' but does not determine whether different kinds of providers in different contexts also 'perform.'”

The unsettled issues that Aereo leaves in its wake include these:

• Is the public performance holding of Cartoon Networks still good law?
• Might Aereo still have a fair use defense ' that its public performance of the works was simply a means of facilitating its end-users' right to engage in space shifting regarding works they have a right to view for free on their individual antennas?
• If Aereo does not sub silentio disapprove the volition doctrine in its entirety ' and it does not appear to ' how broad or narrow is the implicit holding regarding volition? Can volition be omitted as an element for some contexts, some plaintiffs, some of the exclusive rights under '106, but not others? “Only” in relation to the public performance right as performed by cable-like parties? In relation to the other “public” rights under '106, to distribute and to display as well as to perform?
• What are the implications of Aereo for cloud computing services that impact the distribution of copyrighted works?
• What about other new technologies that provide video service without authorization from copyright holders?
• The court applies the supposed policy regarding the public performance right to Aereo, based not on the activity of the defendant ' how it is alleged to have engaged in an action reserved for copyright owners under the Act ' but based on the character of the defendant's enterprise ' whether it is the functional equivalent of a regulated enterprise or has a similar “commercial objective.” Will this functional equivalence approach be applied to other parties and other rights? How might it be limited or expanded?

For the answers to these and other questions: Stay tuned! But do not expect answers any time soon.

Mitchell Zimmerman, Of Counsel at Fenwick & West LLP in Mountain View, CA, focuses his practice on intellectual property, copyrights and trademarks in computer software, Internet-based works and traditional forms of authorship. He can be reached at [email protected].

In June, a 6-3 majority of the U.S. Supreme Court held that Aereo's streaming service ' which allowed customers to view over-the-air TV broadcasts via the Internet ' violated the broadcasters' public performance right under the Copyright Act. Applying what the dissent derided as “an improvised standard ('looks-like-cable-TV'),” the majority held that Aereo infringed copyrights owned by the television networks. The court was careful to attempt to limit the reach of its holding, leaving many issues as to different technologies unanswered. But however those questions may be resolved in future cases, the Supreme Court's decision appeared to doom the “view” functionality of Aereo's Internet/mobile device transmission service, and likely the company along with it. American Broadcasting Companies v. Aereo Inc., 134 S.Ct. 896 (2014) ().

The bottom line: Notwithstanding Aereo's deployment of a complex transmission system carefully designed to avoid copyright infringement, the Supreme Court found Aereo liable for direct infringement on the ground that Aereo had “performed” the copyrighted works and that Aereo's performances were “public.” That conclusion was substantially driven by the court's sense that Aereo's viewing service was functionally equivalent to cable TV, and therefore a contrary result would be inconsistent with Congress's intent when it amended the Copyright Act in 1976 to apply copyright restrictions to cable.

Although the outcome was a huge defeat for defendant Aereo, its ultimate implications for other Internet-based services will be much debated. On the one hand, the majority sought to downplay fears that its “limited holding” would discourage the emergence or use of new technologies such as cloud computing, expressly disclaiming any conclusions as to remote DVR or cloud storage services. On the other hand, the dissent argued that the court's analysis would sow confusion and generate uncertainty regarding the application of the well-established “volitional act” standard and the distinction between direct and secondary liability for copyright infringement.

Factual Background

After a subscriber chose a television program at Aereo's website, that user would automatically be assigned to one of the thousands of dime-sized antennas that Aereo maintained, and that individual user-”rented” antenna would be tuned to the selected over-the-air broadcast. The programming from that antenna would be transcoded into data suitable for Internet transmission and then briefly stored in a folder on one of Aereo's hard drives temporarily assigned to that subscriber's exclusive use. After several seconds of programming had been recorded, the programming data from that folder would be streamed to the subscriber's computer or device.

Importantly, although multiple subscribers might view the same program, each subscriber would have his or her own unique (temporary) copy, received via a transmission from the antenna uniquely assigned to him or her. This Rube Goldberg arrangement was manifestly designed to fit Aereo's streaming service into the technically complex model blessed by the Second Circuit in Cartoon Networks v. CSC Holdings and Cablevision Systems, 536 F.3d 121 (2d Cir. 2008), cert. denied , 129 S.Ct. 985 (2009).

Under 17 U.S.C. '106(4), copyright owners have the exclusive right “to perform the copyrighted work publicly.” In Cartoon Networks, the U.S. Court of Appeals for the Second Circuit held that defendant Cablevision, which stored each customer's copy of a TV program at a separate assigned server location, and then transmitted distinct streams of the programming to each customer, had not thereby violated the public performance right. Like Cablevision, Aereo temporarily stored separate replications of television programming for each customer on a unique hard drive location and transmitted a separate stream to each customer from that “copy.”

Notwithstanding the Second Circuit precedent, the networks sued Aereo, alleging, inter alia, that the company directly infringed their exclusive right to publicly perform the works. As the Supreme Court noted, “the [Copyright] Act's Transmit Clause defines that exclusive right as including the right to:

'transmit or otherwise communicate a performance ' of the [copyrighted] work ' to the public, by means of any device or process, whether the members of the public capable of receiving the performance ' receive it in the same place or in separate places and at the same time or at different times.' [17 U.S.C.] '101.”

Justice Stephen Breyer, who wrote the Supreme Court's majority opinion, considered two issues: Did Aereo “perform” the works?; and did Aereo perform them publicly?

When Congress amended the Copyright Act in 1976, it clarified or revised (depending on one's perspective) what it meant to “perform” a work, and enacted the Transmit Clause. These amendments made clear that anyone who causes an audiovisual work to be played (made visible and audible) has “performed” the work. In this case, the Supreme Court majority held first that Aereo ' not its subscribers ' performed the works. Since the Aereo system “is for all practical purposes a traditional cable system,” the court treated it as such for performance purposes.

As to whether the performance was “public,” the court accepted arguendo Aereo's position that multiple performances occurred when the copyrighted programs were retransmitted through the Aereo system to Aereo's multiple subscribers, after being separately received on multiple unique antennas and stored separately for each viewing subscriber. By Aereo's logic, because each subscriber's transmission was a distinct and separately directed performance, then none should be deemed “public” because each such performance typically went only to one subscriber, at home, with his or her family members or friends, not to the public.

The Supreme Court rejected this argument on two grounds. First, again, similarity to cable TV providers: the multiplicity of performance streams did “not render Aereo's commercial objective any different from that of cable companies. Nor do they significantly alter the viewing experience of Aereo's subscribers,” who did not care whether their program came from one big antenna or myriad small dedicated antennas. Second, Aereo's argument assumes as a premise that transmitting a performance means engaging in a single transmission. But the text of the Transmit Clause contradicts that premise because the clause expressly anticipates that a public performance can be received by members of the public “at different times.” The multiplicity of viewers of the different streams of the same underlying performance of the work therefore made the Aereo performances public ones.

The critical considerations appear to include the purported similarity to cable of the service provider's commercial objectives, and the similarity of the consumer's experience of the copyrighted work. What this has to do with whether a performance is public in character is not so clear, though, nor how to apply these principles. At one level of generality, everyone in the entertainment business has the same “commercial objective”: making money by providing content to wide audiences who care more about experiencing the work than about the technology by which it is delivered. Surely that does not mean that distribution of copies, public performance and public display all come to the same thing. Similarity to cable was enough for the majority. But perhaps this is a situation in which a page of history is not a sufficient substitute for a volume of logic.

Dissent

Justice Antonin Scalia's Supreme Court dissent argued that the majority ignored what the minority consider “a simple but profoundly important rule: A defendant may be held directly liable only if it has engaged in volitional conduct that violates the Act.” (Emphasis added.) Under the well-established volition rule, courts have commonly rejected claims that a service provider is directly liable for copyright infringement for hosting an automated, user-controlled system that end-users might use to infringe (though that conclusion would not necessarily preclude the possibility of secondary liability). See, e.g., Cartoon Networks, 536 F.3d at 130-31.

In other words, under the “volition” line of cases, the subscriber or consumer who uses a technology to engage in a volitional act of selecting and triggering a performance (or some prima facie act of copyright infringement, such as copying) might be directly liable. But the company that provided the automated technology would not be directly liable. To hold the technology provider liable, a plaintiff would have to establish secondary liability.

Although Scalia therefore disputed that Aereo was a direct infringer, he “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.” Nonetheless, he offered no view on whether Aereo was likely secondarily liable, and accepted the possibility that Aereo's actions might not be a copyright violation under current law. And for good reason: once the volition principle is embraced, finding secondary liability in the Aereo situation may be difficult since there might be no underlying direct infringement for secondary liability to rest upon.

What Does the Aereo Decision Not Do?

Curiously, although the majority responded to part of the dissent's argument, it did not directly or expressly confront the volition issue, neglecting even to utter the term “volition.” The majority opinion found Aereo directly liable without discussing whether Aereo (as opposed to its users) had engaged in any volitional act in regard to any particular performance.

The majority's failure to engage with this rule, Justice Scalia argued, throws into doubt and confusion the line between direct and secondary liability. It leaves uncertainty about the scope of the ruling because the Copyright Act doesn't say that “operations similar to cable TV are subject to copyright liability,” and it is not clear just how much similarity to cable TV may be sufficient to cause the Aereo holding or its similar-to-cable standard to apply.

The Breyer majority, in attempting to calm concerns that its decision will discourage new technologies, cautioned “the history of cable broadcast transmissions ' informs our conclusion that Aereo 'perform[s],' but does not determine whether different kinds of providers in different contexts also 'perform.'”

The unsettled issues that Aereo leaves in its wake include these:

• Is the public performance holding of Cartoon Networks still good law?
• Might Aereo still have a fair use defense ' that its public performance of the works was simply a means of facilitating its end-users' right to engage in space shifting regarding works they have a right to view for free on their individual antennas?
• If Aereo does not sub silentio disapprove the volition doctrine in its entirety ' and it does not appear to ' how broad or narrow is the implicit holding regarding volition? Can volition be omitted as an element for some contexts, some plaintiffs, some of the exclusive rights under '106, but not others? “Only” in relation to the public performance right as performed by cable-like parties? In relation to the other “public” rights under '106, to distribute and to display as well as to perform?
• What are the implications of Aereo for cloud computing services that impact the distribution of copyrighted works?
• What about other new technologies that provide video service without authorization from copyright holders?
• The court applies the supposed policy regarding the public performance right to Aereo, based not on the activity of the defendant ' how it is alleged to have engaged in an action reserved for copyright owners under the Act ' but based on the character of the defendant's enterprise ' whether it is the functional equivalent of a regulated enterprise or has a similar “commercial objective.” Will this functional equivalence approach be applied to other parties and other rights? How might it be limited or expanded?

For the answers to these and other questions: Stay tuned! But do not expect answers any time soon.

Mitchell Zimmerman, Of Counsel at Fenwick & West LLP in Mountain View, CA, focuses his practice on intellectual property, copyrights and trademarks in computer software, Internet-based works and traditional forms of authorship. He can be reached at [email protected].