Aereo: The Business and the Battle
The Aereo Lawsuit Background and Explanation
One of the most anticipated legal battles of 2014 is the case against Aereo, Inc., brought by the nation’s largest broadcasting networks. The Supreme Court granted cert to hear an appeal by several media moguls including ABC, 21st Century Fox, NBC Universal, and CBS. These media giants are determined to prove that Aereo is bad for the industry and that it violates copyright laws.
Getting to Know Aereo
Before getting into the legal disputes, let’s first educate ourselves on what exactly Aereo is. Founded by Barry Diller, the digital service launched on February 14, 2012. The goal of Aereo is to be a disrupter to the traditional TV model, by allowing subscribers of their service to stream broadcast television to their computers and mobile devices via mini antennas. The antennas are so small that one could fit on the tip of your finger. The service is location agnostic, enabling you to watch live television anywhere on any compatible device, as long as it has an Internet connection.
Directions from Aereo’s website will tell you:
As an Aereo member, you have access to a tiny TV antenna located in a data center near you. This antenna is connected to a remote DVR in the same data center. You control both from an Internet-connected device, such as your computer or smart phone. When you tune to a channel through the Aereo application on your device, you instruct your antenna to tune to that channel and start recording the programming to the DVR. This lets you pause and rewind the program while you’re watching. To save this recording for future use, you simply hit “Record” at any time while watching. You can also schedule your DVR to record shows that are on in the future, just like you can with a DVR in your home.
Aereo works on the most popular web browsers, iOS devices, the Apple TV, and Roku. The company is actively working on adding more devices, like Android and Kindle Fire. For a basic monthly membership, you need only spend $8 per month. That gets you 20 hours of DVR space to record your shows, but you can always pay a little more to upgrade to more DVR space. Basically, this means that Aereo is leasing one of these tiny antennas to you. All of the antennas are stored in “antenna-farms,” which are essentially giant warehouses across the U.S.
As far as what selection of shows you are able to watch, channel availability depends on the city you live in. Currently, Aereo has launched in Boston, New York, Detroit, Baltimore, Cincinnati, Miami, Atlanta, Dallas, Houston, and Salt Lake City. There are plans to expand to dozens of other cities within the coming year. Channel selection ranges from major networks, lifestyle and interest networks, syndicated programming, children programming, Spanish language, and home shopping.
Aereo doesn’t pay broadcasters. So, that $8 you fork over every month as a subscriber goes into Aereo’s pockets, instead of into the wallets of the major networks whose shows you are watching and recording. Traditionally, companies pay broadcasters billions of dollars in fees for the right to re-broadcast network TV shows. Again, Aereo pays nothing. Broadcasters allege Aereo’s failure to pay re-broadcasting fees is unfair and illegal. At the heart of the controversy is Aereo’s lack of authorization from broadcasters – and whether the startup legally needs that approval.
The TV networks argue that Aereo’s service is a “direct assault” on their business. Since Aereo first launched, it has faced a flurry of lawsuits all over the country from the likes of NBC, CBS, ABC, and Fox, among others. The opposing parties frame the case in their respective ways: Aereo views the issue as one about consumer access and innovative technology, while the broadcasters view the issue as Aereo stealing the creative content of others.
Broadcasters Begin a Litigious Battle
Shortly after launching in its first market, Aereo was sued by the country’s major broadcasters in two lawsuits. The first complaint was filed by WNET, a local station owned by Fox TV Stations, Twentieth Century Fox, Univision, and PBS on March 1, 2012 for copyright infringement of their exclusive rights to public performance and reproduction. [See: WNET v. Aereo, Inc., (SDNY, No. 12-01543)]. ABC and other broadcasters filed a second complaint in the same court on March 12, 2012, alleging violation of reproduction, distribution, and public performance rights. [See: ABC et al. v. Aereo (SDNY, No. 12-01540)]. The plaintiffs each sought a preliminary injunction to keep Aereo from retransmitting their programs.
Although there were multiple theories of liability, the issue before the court became limited to whether Aereo is liable for copyright infringement by publicly performing Plaintiff’s copyrighted works.
ABC’s complaint reads: “when Aereo retransmits the images and accompanying sounds of Plaintiff’s copyrighted audiovisual works to subscribers of the Aereo service, it performs Plaintiff’s copyrighted works publicly in violation of Plaintiff’s exclusive rights under § 106(4) of the Copyright Act.” (Complaint at ¶¶ 28-38, ABC et al. v. Aereo, Inc.). This public performance right, the plaintiffs argue, provides the economic foundation for TV production and distribution industries.
To the broadcaster’s chagrin, Aereo turned out victorious. On July 11, 2012, in a consolidated opinion for both suits, Federal Judge Alison Nathan for the USDC of SDNY denied plaintiffs’ motion for a preliminary injunction. She concluded that Aereo’s service, since it retransmits using a large number of antennas, is not a public performance, and thus not an infringement of the broadcasters’ exclusive right.
Naturally, the broadcasters did not let this lie, and the district court decision was appealed to the U.S. Court of Appeals for the Second Circuit. But not much luck was had for the plaintiffs at the appellate level either.
On April 1, 2013, the Second Circuit issued its divided opinion, affirming the order of the lower court denying plaintiffs’ motion for a preliminary injunction. The majority held that Aereo’s service is not a public performance within the meaning of the Copyright Act, and thus not an infringement of the broadcasters’ rights. For their reasoning, the majority relied on their 2008 decision in Cartoon Network v. CSC Holdings, Inc., also known as the Cablevision case.
Integral Precedent: The Cablevision Case
The Defendant in Cablevision provided the Remote Storage Digital Video Recorder (RS-DVR), which Cartoon Network contended directly infringed their copyrights. The Plaintiff’s argument was that the buffering of streaming data constituted the creation of unauthorized reproductions in the RS-DVR’s RAM, as did the persistence of complete recorded copies on Cablevision’s hard drives. Transmitting hard drive copies to RS-DVR users in response to a “play” request equated to unlicensed public performances.
Though initially awarded summary judgment by the District Court (Denny Chin, Judge), the Plaintiffs ultimately lost the case when the Second Circuit rejected the lower court’s reasoning on all three grounds. Most relevant to Aereo, the appellate court found Cablevision to not be directly liable for any infringing copies. This is because the operation of the RS-DVR is done at the customer’s request. Thus, Cablevision, as the supplier of the RS-DVR, lacked the volitional conduct necessary to establish direct liability. This is similar to the case of the VCR, where it is clear that the operator of the VCR, the person actually pressing the button to make the recording, supplies the necessary element of volition, not the person who manufactures the machine.
A second point of relevance to the Aereo case is that Cablevision was found not to have violated the Copyright Act by engaging in unauthorized public performances through the playback of the RS-DVR copies. The analysis hinged on considering the audience of a given transmission. The plaintiffs and district court reasoned that such a determination should be made on the grounds of the audience of the underlying “original” work. Conversely, the circuit court held that considering the potential audience for the particular “copy” of a work should only make such a determination. Because each RS-DVR playback transmission is made to a single subscriber using a single unique copy produced by that subscriber, such transmissions are not performances “to the public.”
The Cablevision opinion has become integral with respect to establishing copyright liability protection for cloud computing and remote-storage providers. It is thus a pivotal case in Aereo’s battle against the broadcasters. Interestingly enough, familiar players from the Cablevision era have returned for Aereo. Judge Denny Chin, who wrote the reversed district court opinion in Cablevision, is now a Court of Appeals Judge and wrote the dissent in the 2013 Second Circuit Aereo case. Additionally, Aereo hired David Hosp, a copyright attorney who helped Cablevision win its lawsuit.[ii]
Victorious, Aereo Marches Forward
With a victory under their belt, Aereo continued to expand to other U.S. cities. With such expansion, however, more legal battles ensued.
On July 9, 2013, a local TV station WCVB-TV, owned by Hearst Stations, Inc., filed a suit the U.S.D.C. for the District of Massachusetts. Plaintiffs sought a preliminary injunction for similar reasons as ABC and WNET, arguing that Aereo’s service violated their exclusive right to publicly perform, reproduce, distribute, and prepare derivative works based on its copyrighted programming. [See: Hearst Stations, Inc., v. Aereo, Inc., Civil No. 13-11649-NMG]
Yet, Federal Judge Nathaniel M. Gorton ruled that Hearst failed to make a sufficient showing that it was likely to prevail on any of those claims. The court noted that the First Circuit has not yet decided whether technology that allows the transmission of copyrighted material over the Internet constitutes a “public performance.” Looking to statutory text, its legislative history, and case law from other jurisdictions (including the Second Circuit), the court concluded that Aereo’s position was more persuasive.
While the court considered it possible that WCVB’s ability to negotiate retransmission fees would be irreparably harmed by Aereo’s service, any harm would take years to manifest. As such, the potential harm did not overcome the weakness of Hearst’s position on the merits.
Later last year, the legal shoot-out finally crossed the Mississippi. After launching its service in Utah in August of 2013, Aereo was sued yet again. On October 7, Fox Broadcasting Co., owner of KUTV Channel 2 and KSTU Channel 13, filed a copyright infringement lawsuit for violation of their public performance rights. [See, Community Television of Utah et al. v. Aereo, Inc., Civil No. 2:13-cv-00910]
A few weeks later, Nexstar Broadcasting, an ABC-owned affiliate, and a CW TV Network in Salt Lake City, filed a very similar lawsuit. [See: Nexstar Broadcasting v. Aereo, Inc., Civil No. 2:13-cv-00975].
Neither case has been decided.
Aereokiller Furthers the Confusion
Though Aereo has not been knocked off its horse yet, broadcasters have won victories of their own on the West coast and in the nation’s capital against similar services.
California and the Ninth Circuit
Launched by entrepreneur Aklivaiades David in 2012, Aereokiller is a copycat service. Aereokiller streams broadcast networks over the web, and uses similar technology to that of Aereo’s. David used a Web address of Barrydriller.com, which was later dropped at Mr. Diller’s demand.
Despite some intentional copying, there is a major difference between Aereokiller and Aereo: broadcasters have actually been able to shut it down. Broadcast television networks including Fox, NBC, ABC and CBS, moved for a preliminary injunction to enjoin defendants Aereokiller and BarryDriller Content Systems. On November 8, 2012, the California district court granted the injunction. [See: Fox Television Stations, Inc. v. BarryDriller Content Systems, PLC (C.D. Cal., No-12-6291)].
Defendants in this case conceded that they retransmitted Plaintiffs’ copyrighted programming, but argued that, under the Second Circuit’s decision in Cablevision, they did so legally because their transmissions were private, not public. Regardless, Federal Judge George H. Wu for the Central District declined to follow the Second Circuit. Judge Wu reasoned that Cablevision’s focus on the transmission was misplaced because, under the Copyright Act and Ninth Circuit precedent, the concern is with the public performance of the work, irrespective of whether the transmission is publicly performed.
The court also found that Plaintiffs demonstrated irreparable harm. Aereokiller’s service threatens to damage Plaintiffs’ ability to negotiate favorable retransmission consent agreements with cable, satellite, and telecommunications providers. Additionally, the availability of Plaintiffs’ content from other sources also damages their goodwill with their existing licensees. This showing thus balanced out their request for a preliminary injunction.
Plaintiff-broadcasters sought a nationwide injunction. Yet, given that the application of Ninth Circuit law differs from Second Circuit law, the court held that principles of comity prevent a grant on such a large scale. Thus, the injunction is limited in geographic scope to cover the Ninth Circuit only.
Since the district court’s decision, Aereokiller has renamed itself FilmOn X, and has appealed the district court’s ruling to the Ninth Circuit.
Then, in May of 2013, Fox, NBC, ABC, Allbritton Communications and Telemundo filed another copyright infringement suit against FilmOn X in Washington, D.C. Federal Court. This court also sided with the broadcasters, and granted them an injunction against FilmOn X in September 2013.[vi] [See: Fox Television Stations, Inc., et al. v. FilmOn X LLC, et al. (Civil No. 1:13-cv-00758-RMC)]
The Washington, D.C. Court agreed with the reasoning of the California District Court and of Judge Denny Chin’s dissents in the Aereo case. Consequently, the opinion expressly disagrees with the Second Circuit’s decision in Aereo to hold that there is no public performance of a copyrighted work if there is a one-to-one relationship between the copy of the copyrighted work that is the source of the transmission and the recipient of the transmission.
FilmOn X appealed the decision to the D.C. Circuit, but the broadcasters have asked the appellate court to defer its decision on whether to lift the injunction until after the Supreme Court rules on the legality of counterpart Aereo.
Onto the Nation’s Highest Court
The maelstrom of lawsuits across the U.S. is a tactic of warfare. Continuously suing these start-ups in a multitude of regions is one way to stay on the offense, despite several losses. The broadcasters would eventually hope that Aereo and FilmOn would run out of steam and unwind from the mounting pressure, but they have yet to do so. The broadcasters are feeling the heat themselves, because the success of these tiny-antenna services could undermine their entire business model.
Since this tactical maneuver has created a split among the circuits, the Plaintiffs in ABC v. Aereo, from the Second Circuit, petitioned for a writ of certiorari in October of last year. On January 10, 2014, the Supreme Court agreed to hear the appeal filed by the broadcasters.[vii] SCOTUSblog notes that the case probably will be argued in April – the last sitting of the term.
Arguably, this could be the biggest media case in front of the Supreme Court since Sony v. Universal. The Supreme Court will have to reconcile two harshly different theories of copyright law. The consequences of their ruling will depend in part on how broadly they see the legal issues at stake. Regardless of the outcome, the decision will have wide-ranging implications for the future of the cable, satellite, network, and cloud computing industries.