Will Aereo’s Internet Streaming Service Survive Second Circuit Review?

Innovation breeds copyright litigation. The scenario is often the same. The copyright holder whose market share is eroded by the innovative product claims it infringes its statutory-protected rights. The technologist responds that its innovation is simply another authorized improvement in an evolutionary chain that benefits the public. These arguments are at play in ABC et al. v. Aereo and WNET v. Aereo (the complaints are here and here); but as this latest battle moves to the Second Circuit the stakes are escalating.

To date, the TV and cable industries have squashed all the startups that have tried to wrest control of the delivery, pricing and accessibility of broadcast content. VuVision started a similar service in December 2009. By January 4, 2010, it consented to an injunction ending that service. iCravetv.com tried to stream network broadcasts from Canada into the US in 2000 and again was shut down. The decision is here. More recently FilmOn and ivi, T.V. attempted to stream arguing they were online cable companies. That effort failed.

But Aereo’s internet streaming service, unlike its predecessors, survived the 1^st round of litigation. Judge Alison Nathan denied plaintiffs’ motion for a preliminary injunction even though the Court found that Aereo’s system threatens plaintiffs with irreparable harm.  In response, Aereo immediately ramped up its marketing and intends to go nation-wide by next year. Plaintiffs have successfully moved for an expedited appeal before the Second Circuit. But if Aereo prevails, it will change the entertainment landscape. Thus, Aereo merits careful attention.

Background

Aereo enables consumers to use their internet-enabled devices to access free, live broadcast television through antennas and hard discs located at Aereo’s facilities. The user, after logging into Aereo’s website, activates Aereo’s system by selecting a program to record. In response a remote dime-sized antenna is dedicated to the user and tunes to the broadcast signal of the selected program.

The user records the selected broadcast signal on a cloud-based DVR for live viewing and, if the user chooses, viewing later. All content, whether viewed live or later, is recorded to enable functions such as pause and rewind. The recording created at the request of the user is a unique copy of a broadcast program that is then transmitted back to the user. The playback that follows is similar to that of a standard set-top DVR.

The Litigation

Even before Aereo launched its internet streaming service, big media pounced. 17 TV production, marketing and distribution entities brought two litigations now consolidated before Judge Nathan. After expedited discovery, plaintiffs moved to enjoin Aereo from allowing its users to play back content from their remote DVRs while the programs were being broadcast. Plaintiffs asserted in its pre-hearing memo that the playbacks were public performances within the meaning of the Copyright Act (the Act).

The public performance right is set forth in § 106(4) of the Act. Section 101 of the Act, in turn, broadly defines public performance. It states that to perform a work publicly means to “transmit or otherwise communicate a performance or display of [a] work … 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” (referred to below as the transmit clause).

Plaintiffs asserted that Aereo’s streaming service violated the transmit clause because its antennas were “any device or process,” to transmit a performance of a work that was “capable” of being received by different members of the public in “separate places” and at “different times.”

Cablevision  

Aereo relied on the Second Circuit’s decision in Cartoon Network v. CSC Holdings (referred to as Cablevision). Aereo asserted that its service was the functional equivalent of the Remote Storage DVR (RS-DVR) Cablevision protected.  Its pre-hearing memo is here. The RS-DVR system in that case allowed customers without a stand-alone DVR to record cable programming on central hard drives remotely maintained by Cablevision. The recording produced a unique copy of the program to be sent to the customer on demand. The Second Circuit held that the transmittal of that playback copy to the subscriber was not a public performance.

Cablevision reached that result by treating the terms transmission and performance in Section 101 of the Act as synonymous. In other words, the appellate court viewed the transmittal as the performance: “we believe that when Congress speaks of transmitting a performance to the public, it refers to the performance created by the act of transmission.”

The Second Circuit also said the transmit clause “speaks of people capable of receiving a particular ‘transmission’ or ‘performance’ and not of the potential audience of a particular work.” Because the circuit court considered the relevant performance to be the discrete transmission of each user’s unique playback copy, the “universe of people capable of receiving an RS-DVR transmission is the single subscriber whose self-made copy is used to create the transmission.” Under those circumstances each transmittal or performance was necessarily private.

Plaintiffs Not Likely to Prevail on the Merits

Judge Nathan found that plaintiffs were likely to win an injunction “but for” Cablevision. Nevertheless, the Court felt constrained to follow Cablevision finding that Aereo’s system was “materially identical” to Cablevision for 3 reasons. First, Aereo creates a unique copy of each TV program for each subscriber who elects to watch it saved to on a unique directory on Aereo’s hard disks assigned to that user. Second, the transmission Aereo makes from an individually functioning antenna to the subscriber is from that unique copy. Third, Aereo transmits that unique copy solely to the subscriber who requested it. Thus the Court concluded the act of playback, from a unique, user-made copy solely to the user who made that copy was not public performance.

The Court added that the performance remained private even though other users of the Aereo system may have been transmitting their own unique copies of the same performance to themselves. Further, the Court rejected plaintiffs’ argument that a public performance includes each step in the process by which a protected work wends its way to the audience. The Court stated that Cablevision, in determining whether the transmission was public, declined to look back or upstream to the point at which the cable system receives the transmission.

Plaintiffs Established Most of the Other Elements Necessary for an Injunction

Although Aereo thwarted plaintiffs’ attempt to establish a likelihood of success on the merits, the Court found that Aereo’s service threatened plaintiffs with irreparable harm. But the Court concluded that plaintiffs would not suffer the full magnitude of that harm during the pendency of the litigation. Further although the balance of hardships did not tip “decidedly” for plaintiffs, the Court found that public interest “would not be disserved” by an injunction. The Court suggested that Aereo’s system might dampen the motivation of copyright holders to make their creative works available to others.

Thus Aereo won, but barely. The Court felt it had no choice but to follow Cablevision even though the Court exposed plaintiffs to continuing irreparable harm and in the face of the public interest which the Court suggested would be served by the grant of the motion.

What’s Next?

The networks now face an unprecedented problem: Aereo is free until the Second Circuit rules to legally retransmit broadcast content without payment. Aereo is also not hampered by any licensing restraints nor does it have to share revenue with anyone. Aereo can therefore vastly underprice the networks thereby diminishing the value of their broadcast content they spent millions to create. Aereo has already announced a one-dollar, one-day pass. See the Wall Street’s Journal article (subscription may be required) outlining Aereo’s marketing options.

Further, Aereo is likely to encourage imitators to build similar transmission systems that track the business model Aereo approved. Improvements in technology and ease of use have sparked the growth of video streaming and with 50 million iPads in the hands of consumers the desire to cut the cord and watch TV from wherever is ever stronger.

The networks will argue before the Second Circuit (as they have in their motion to expedite) that there are significant differences between Cablevision and Aereo’s system. For one Cablevision was paying the networks for the broadcast content it allowed its subscribers to copy. Here Aereo is monetizing content it receives for free. Nevertheless, Aereo’s functionality mirrors a system Cablevision approved.

The Second Circuit will then be faced with a problem it has had before—whether to apply precedent that has led to unexpected consequences. I think the appellate court will reverse the denial of the injunction. There needs to be some copyright restrictions on the retransmission of broadcast content; otherwise why invest heavily to create it if we all can watch it for nothing. But what those restrictions will be remains to be seen. Stay tuned.

For my earlier take on the FilmOn and ivi, T.V. litigations click here and here. For some good analysis by Jessica McKinney at Bloomberg re the issues raised in Aereo click here. For an update of what happened in this case in the Second Circuit and the Supreme Court click here.

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