"Patents and copyrights approach, nearer than any other class of cases belonging to forensic discussions, to what may be called the metaphysics of the law, where the distinctions are, or at least may be, very subtile and refined, and, sometimes, almost evanescent. "
--Justice Joseph Story, Folsom v. Marsh, 9 F. Cas. 342 (C.C.D. Mass. 1841)
I: AN INTRODUCTION TO AEREO A. How Aereo Worked B. An Introduction to the Litigation Surrounding Aereo II: HOW AEREO STOOD TO DISRUPT THE BROADCAST BUSINESS MODEL A. The Basics of Broadcasting 1. The Development of the Broadcast Industry 2. The Public Interest Standard B. The Basics of Cable 1. The Development of the Cable Industry 2. Legal Challenges to CATV Systems 3. The Statutory and Administrative Regulation of Cable C. The Broadcasting Business Model. 1. The First Prong of the Dual-Revenue Stream: Advertising 2. The Second Prong of the Dual-Revenue Stream: Retransmission Consent Agreements D. Discussion III: DID AEREO PERFORM THE BROADCASTERS' WORKS?. A. Statutory Text B. The Difference Between Direct and Secondary Copyright Liability C. The Volitional-Conduct Requirement D. The Supreme Court Determines Whether Aereo Performed 1. The Majority Opinion: Arguing Aereo Performs Because it Resembles a Cable System 2. The Dissenting Opinion: Arguing the Majority's Rationale was Flawed and Offering Support for the Volitional-Conduct Requirement E. Discussion. IV: DID AEREO PERFORM THE BROADCASTERS' WORKS PUBLICLY? A. Statutory Text B. Applying the Transmit Clause: Relevant Decisions Prior to Aereo C. Applying the Transmit Clause: The Lower Courts Determine Whether Aereo and FilmOn Performed the Broadcasters' Works Publicly D. The Supreme Court Determines Whether Aereo Performed the Broadcasters' Works Publicly 1. The Majority's Primary Rationale: Aereo (Again) Resembles a Cable System 2. The Majority's Secondary Rationale: The Text of the Transmit Clause Supports the Finding that Aereo Performed the Broadcasters' Works Publicly 3. Justice Scalia's Dissent E. Discussion V: THE IMPACT ON THE CLOUD A. Aereo Argues Policy B. The Majority Distinguishes Aereo from "Different Kinds of Technologies" C. Justice Scalia's Dissent D. Discussion VI: CONCLUSION A. Reflections on Aereo III B. An Epilogue to Aereo III I: AN INTRODUCTION TO AEREO
At the National Association of Broadcasters' annual convention in April of 2013, Chase Carey, the COO of 21st Century Fox, threatened to turn the Fox Network into a pay-television channel. (1) Carey's comment surprised many. It's hard to imagine the network that forever changed television with hits like The Simpsons, The X-Files, Family Guy, and American Idol, and made billions doing so, would cease to exist as one of America's broadcast networks. Carey, nevertheless, said the step might be necessary to protect 21st Century Fox's "product and revenue stream." (2)
What would cause Carey to consider such a monumental shift? The answer: Aereo--a company that retransmitted, without a license, broadcast content over the Internet to paying subscribers.
Although many were quick to decry Carey's comment as saber rattling, (3) the remark displayed the fear many in the television industry had of Aereo. Aereo, after all, threatened the revenue that television networks and television broadcasters earned from retransmission consent agreements, agreements in which cable and satellite providers compensate broadcasters for the right to retransmit their signals. Retransmission consent agreements provide the television industry with an important source of income, and a loss of revenue from them would unquestionably alter the television landscape.
Aereo's low subscription costs added to fears. Aereo's basic service, which provided subscribers with access to the broadcast networks and 20 hours of DVR space, cost just eight dollars per month. The cost of the average monthly cable TV bill, in contrast, will soon hit $123. (4)
Predictably, a group of television producers, marketers, distributors, and broadcasters sued to stop Aereo--claiming the company's conduct violated copyright law. (5) The broadcasters' case ultimately went to the Supreme Court and, in the process, became one of the most important copyright cases in recent history.
How Aereo Worked
Streaming content created by others over the Internet without a license typically constitutes copyright infringement. (6) Yet, Aereo contended that it designed a system, which employed "servers, transcoders, and thousands of dime-sized antennas," that adhered to copyright law. (7) Specifically, Aereo asserted that its system complied with the law as dictated by the United States Court of Appeals for the Second Circuit in Cartoon Network LP, v. CSC Holdings, Inc., (8) a case commonly referred to as Cablevision. (9)
From the subscribers' perspective, Aereo's system was simple to operate. Subscribers logged in to Aereo using an Internet-enabled television, computer, or mobile device. (10) Once logged in, subscribers were shown a programming guide that displayed the local broadcast content currently airing and the content that would air in the future." For programming currently airing, subscribers could select "Watch" or "Record." (12) Selecting "Watch" allowed subscribers to view programming "nearly live," meaning Aereo would stream the selected program with a six-to-seven second delay to enable pausing and rewinding. (13) For content airing in the future, subscribers could only select "Record." (14)
From Aereo's perspective, the content-delivery process was far more complex. Although highly technical, this system can be boiled down to four steps. First, when a subscriber selected to "Watch" or "Record" a program, one of Aereo's dime-sized antennas tuned to the frequency of the program's over-the-air broadcast. (15) Second, as the antenna received the program's signals, one of Aereo's transcoders translated those signals into data capable of being streamed over the Internet. (16) Third, a unique copy of the data that composed the program was then saved in the subscriber's personal directory on one of Aereo's servers. (17) Finally, if a subscriber selected "Watch," Aereo streamed the unique copy of the program to the subscriber six or seven seconds after the program began airing. (18) If a subscriber chose "Record," Aereo streamed the unique copy to the subscriber at his or her request. (19)
Three aspects of Aereo's system should be stressed. First, (D. Utah 2014) ("Aereo's response to Plaintiffs' claims of copyright infringement is that it designed its system specifically to avoid the application of the Transmit Clause and in accordance with the Second Circuit's decision in Cartoon Network LP v. CSC Holdings, Inc....").
Aereo's dime-sized antennas were dynamic, meaning that no two users shared an antenna at a given time. (20) Second, as noted, Aereo made unique copies of programs, meaning that no two subscribers shared copies of programs. (21) Third, the transmissions Aereo sent to subscribers were generated from each subscriber's unique copy, meaning that no two subscribers ever received the same transmission. (22)
An Introduction to the Litigation Surrounding Aereo
In WNET, Thirteen v. Aereo, Inc. ("Aereo II"), (23) the broadcasters challenged Aereo's system, claiming Aereo violated their exclusive right under the Copyright Act to perform copyrighted works publicly. (24) Setting up the Supreme Court showdown, the Second Circuit held the broadcasters failed to show a likelihood of success on the merits and refused to grant their request for a preliminary injunction.
Looking for a reprieve from the Second Circuit's ruling, the broadcasters appealed to the Supreme Court. In their petition for writ of certiorari, the broadcasters asked the Supreme Court to determine "whether a company 'publicly performs' a copyrighted television program when it retransmits a [nearly live] broadcast of that program to thousands of paid subscribers over the Internet." (25) The broadcasters limited their petition to this inquiry even though they believed Aereo's transmission of recorded programs also violated the public performance right and that Aereo's system infringed "other exclusive rights granted by the Copyright Act, such as the reproduction right." (26) In granting the broadcasters' Petition, the Supreme Court thus agreed to address the narrow issue of whether Aereo infringed the public performance right "by selling its subscribers a technologically complex service that allows them to watch television programs over the Internet at about the same time as the programs are broadcast over the air." (27)
The broadcasters cited, as a justification for their legal action, a portion of the Copyright Act known as the Transmit Clause, (28) which they argued made clear that Aereo violated the public performance right. (29) The Transmit Clause is one of two sections included within the Copyright Act that define what it means to perform a work publicly. (30) For its part, Aereo contended that, because only a single subscriber could receive one of its transmissions, it merely transmitted non-actionable private performances. (31) Aereo also put forth a policy argument, asserting that a ruling against its cause would endanger the future of the cloud computing industry. (32)
In American Broadcasting Cos., Inc. v. Aereo, Inc. ("Aereo III"), (33) the Court issued a highly functionalistic six-to-three decision in the broadcasters' favor. (34) In holding that Aereo performed the broadcasters' works publicly and thus committed copyright infringement, the majority opinion drew parallels between Aereo's system and the cable systems Congress, in writing the Copyright Act, "sought to bring within the scope" of copyright law. (35) Although the nation's highest court purported to issue a "limited holding," reverberations from the case will be felt for years to come. (36)
The primary purpose of this article is twofold: (1) to explain and...