Oral Argument in the Second Circuit in Aereo Makes Predicting the Outcome Not for the Faint of Heart

The oral argument in WNET et al. v. Aereo before the 2d Circuit panel of Judges Denny Chin and Christopher Droney and Eastern District Judge John Gleeson was long (more than 45 minutes) and spirited. The transcript is here. The panel’s questions suggest the court is still undecided whether Aereo’s online transmission of live TV performances is an unlicensed public performance violating the Copyright Act.

The stakes are huge as evidenced by the flood of amicus briefs. The networks are almost too big to fail when confronted by Aereo’s innovative but disruptive technology. The networks spend untold millions to create and distribute programming content knowing they can recoup those expenditures through advertising and substantial distribution and license fees. In contrast, Aereo pays the networks nothing. Instead it retransmits unlimited TV network programming to its New York customers for $8 per month. For more on how Aereo operates see my earlier post here.

If the 2d Circuit were to affirm the district court’s determination that Aereo’s TV retransmissions are simply the digital equivalent of a set of rabbit ears, Aereo’s technology threatens to severely change the entertainment landscape.

The Second Circuit Must Distinguish Cablevision to Reverse

But reversal requires this Second Circuit panel to distinguish the Circuit’s earlier decision in Cartoon Network v. CSC Holdings, better known as Cablevision. Aereo modeled its service on Cablevision and seeks its protection.

For those unfamiliar with Cablevision here’s a summary. This technology offered a Remote Storage Digital Video Recorder system (RS-DVR) allowing subscribers to record live programming housed on a central hard drive at a Cablevision remote location and play it back at a later time. The recording produces a unique copy of the program sent to a consumer on demand. Judge Chin, then on the district court, held that the transmittal of the playback to the subscriber was an infringing public performance. The district court stated each of Cablevision’s RS-DVR subscribers were being transmitted the same underlying program, who may receive the performance at different times if they view the program a later time as an RS-DVR playback and found that this resulted in a public performance.

The 2d Circuit reversed, holding the playback to the consumer was not a public performance. Cablevision reached that result by treating the terms “transmission” and “performance” in Section 101 of the Copyright Act as synonymous. In other words, the appellate court viewed the transmittal of the playback as the performance: stating “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.

Paul Smith and Bruce Keller, counsel for the networks in Aereo, each attempted to distinguish Cablevision in oral argument before the 2d Circuit.

Counsel for WNET Failed to Distinguish Cablevision

Mr. Smith argued that Cablevision was a licensed retransmission service with the only issue whether it needed a 2d license to provide a personalized copy to its customers. In contrast he urged that “everything” Aereo “does from the moment it receives the programming over its antennas is unlicensed.”

In response Judge Droney asked “how does the fact of a license matter”? Mr. Smith replied somewhat equivocally “[w]ell the license was what confined the attention of the Cablevision panel just to the final end of the transmission.” Judge Droney shot back, “[i]s that the basis for the decision”? Judge Smith said rather weakly, “I think it is.”

But there is nothing in Cablevision indicating its license to retransmit broadcast content to its subscribers made any difference in the court’s determination that the final individualized playback was a private performance.

Judge Gleeson then asked Mr. Smith about a Slingbox that takes a video signal from the TV broadcast source, transcodes it and transmits it over the Internet enabling a consumer to view the program on a computer monitor. When Mr. Smith admitted that a transmission via a Slingbox was a private performance, Judge Gleeson stated, “it sure looks like you have a problem with the Cablevision case.”

Mr. Smith ended by arguing the court should limit the stare decisis impact of Cablevision. That doctrine tasks courts to adhere to decided cases. Mr. Smith argued that Cablevision cannot bind the court with respect to “entirely different” “factual situations.” But the only factual difference Mr. Smith ever referred to was Cablevision’s retransmission license that played no role in that case’s holding.

Counsel for the Other Networks Also Had Difficulty Distinguishing Cablevision

Bruce Keller who followed Mr. Smith also tried to distinguish Cablevision on the grounds that it was a storage service like a VCR not a retransmission service and that the storage service, unlike in Aereo, did not permit consumers to watch TV in real time. But whether the broadcast viewing was simultaneous or time delayed was also not a factor in Cablevision.

The Panel Sharply Questioned Counsel for Aereo

When David Hosp representing Aereo took the lectern, the questions became more pointed. He was interrupted more than 40 times in a 20-minute presentation. Mr. Hosp first argued, in response to Judge Chin’s question, that Cablevision’s license was irrelevant to the decision there.

Next Judges Chin and Droney asked, if 5,000 Aereo subscribers were watching a Redskins/Giants game at the same time, wouldn’t that be a public performance. Again Hosp disagreed stating that what each would be transmitted might be slightly different than what others saw. That prompted Judge Gleason to quip “”you mean the Redskins might win in DC and lose elsewhere.”

Mr. Hosp did concede that, if Aereo simply streamed the broadcast, as opposed to making an individualized copy available to its subscribers, that stream would be a public performance.

The court then turned to the array of Aereo’s dime-sized antennas it uses to transmit programs to its subscribers. Judge Droney asked whether the result would be the same if Aereo simply had one antenna rather than hundreds. When Mr. Hosp said yes so long as the one antenna was capable of making individualized copies, Judge Droney asked “[s]o why did you build all these antennas”?

Mr. Hosp was at first at a loss how to respond. But after Judge Chin asked if there was “any technological reason” for the antennas, Mr. Hosp conceded that the system was built to follow Cablevision.

That concession prompted Judge Gleeson to comment “you don’t have all these antennas because it makes any sense, it’s kind of like constructing your business affairs to avoid taxes.” He added it’s “a belt and suspenders approach to avoiding public performance.” To which Mr. Hosp replied, “[a]n it follows the law.”

The Second Circuit Is Likely to Find a Way to Reverse

Mr. Hosp is correct up to a point. Aereo’s system, as Judge Nathan below determined (her opinion here), “is materially identical to that in Cablevision.” But there is deliberately vague language in Cablevision the Circuit Court will most probably focus on when it may find a way, however plausible, to distinguish Cablevision. That case noted:

This holding, we must emphasize, does not generally permit content delivery networks to avoid all copyright liability by making copies of each item of content and associating one unique copy with each subscriber to the network, or by giving their subscribers the capacity to make their own individual copies.

Cablevision chose not to explain the facts that might result in such “copyright liability.” But as I pointed out in my earlier post, policy considerations underlying the purpose of copyright argue for some restraints on the unauthorized retransmission of broadcast content; otherwise, networks will have no incentive to create content we can watch for next to nothing.

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Postscript. The Second Circuit in Aereo affirmed the district court (here) and denied rehearing en banc prompting a sharply worded dissent from Judges Chin and Wesley, here.  The Supreme Court reversed the 2d Circuit in an opinion by Justice Breyer (here) finding Aereo’s retransmissions were infringing public performances.