Aereo in Context

Posted By on Apr 22, 2014 | 9 comments


Today, the Supreme Court will hear oral arguments in ABC v. Aereo.  Naturally, there’s a been a blitz of coverage, and spin, ahead of that, with both sides promoting their key talking points.

I first wrote about the Aereo case back in January, shortly after the Supreme Court granted certiorari, looking to provide readers with sufficient context to understand the issues.  Personally, I had been aware of Aereo from early on, because of the Aereo system’s relationship to Cablevision’s RS-DVR, which (as I have often disclaimed) I had been involved with while working at Cablevision.

Since January, my own understanding of the legal issues has grown considerably—a product of having the opportunity to read briefs from both sides, to read analyses from others, and to spend a few months debating some ardent supporters of the broadcasters.  Ultimately, my conclusions as to the how the case should conclude didn’t change, but my confidence that Aereo’s system does not infringe was bolstered to the point where I concluded it was unlikely that either a factual misunderstanding of technical details, or simple politics, could divert the Supreme Court from reaching the correct conclusion.

As we go into oral arguments, however, I think there remain a few key points that are worth putting into context, to help observers understand the philosophical arguments being made in this case (as opposed to the detailed legal arguments, which we have discussed elsewhere).

Understanding Copyright Fees vs. Retransmission Fees

The essence of the philosophical or policy argument made by the broadcasters is that what Aereo does goes against copyright principles and is wrong because Aereo doesn’t pay retransmission fees that cable, satellite and telco operators pay.

The broadcasters unquestionably know that retransmission fees are not copyright fees, but carefully (and quite intentionally) phrase their argument as if they were, because it doesn’t help their case to state the truth: that cable, satellite and telco operators don’t pay copyright fees to retransmit local stations.

Some reporters have ended up incorrectly characterizing this issue and its history in their coverage.

So let’s review the actual facts.

Congress Overturned the Supreme Court…Sort-Of

In the 1968 case of Fortnightly v. United Artists, and the 1974 case of Teleprompter v. Columbia Broadcasting, the Supreme Court held that just as individual viewers did not perform copyrighted works by receiving television broadcasts on their televisions, cable operators did not perform those same works by retransmitting them.

In 1976, Congress rewrote the Copyright Act (completing a process that had begun a decade earlier, before both Fortnightly and Teleprompter), overturning those two Supreme Court precedents in a few limited senses.  The 1976 Copyright Act defined both actions by individual viewers, such as receiving with a television, and retransmission by cable operators to be “performances” within the meaning of copyright.  However, Congress granted copyright holders an exclusive right only to public performances, so that individuals who performed by watching television (or by singing in the shower, for that matter) do not infringe copyright.

For cable operators, Congress created a royalty-free compulsory statutory license to retransmit local broadcast stations, within their local market.  They also created a (low) royalty-bearing compulsory license for retransmission of broadcast stations outside of their local market.

So while Congress certainly did overturn Fortnightly and Teleprompter by bringing performances by both viewers and cable operators within the purview of copyright law, when it came to practical changes affecting the rights of copyright holders, Congress only overturned the results of Fortnightly and Teleprompter with respect to distant signal importation, or retransmitting broadcast stations outside of their local market (and then only with low, statutory royalty).

Furthermore, it’s important to understand that the copyright royalties paid for distant signal importation go to a fund to pay rightsholders that own copyrighted programs that get retransmitted via distant signal importation, not to the broadcasters, themselves (except to the degree that the broadcasters also create copyrighted programs).

The policy Congress adopted by these changes held that a copyright holder who licenses a work for local broadcast has already been paid for the performance of that work in the local market, and is not entitled to any additional compensation, merely because a cable company retransmits the work, within the same local market.

On the other hand, when a cable operator imports a work for retransmission in a different market, the copyright holder has not been compensated for the performance of the work in that additional market, and is therefore entitled to additional compensation.

The broadcasters, themselves, receive no additional compensation for merely broadcasting, in either case.

Retransmission Consent

The retransmission fees that cable operators pay directly to broadcasters, on the other hand, are not copyright fees at all, and have nothing to do with copyright law.

In 1992, Congress amended the 1934 Communications Act with the 1992 Cable Act.  Among the changes enacted, Congress introduced the retransmission consent regime. Under the Act, local broadcast stations can either elect cable carriage under must carry rules, or they can elect retransmission consent.

Cable operators are typically required to retransmit the signals of local broadcasters who elect must carry status; however, those broadcasters may not dictate any terms of that carriage, and receive no retransmission fees for such.  If a broadcaster elects retransmission consent status, on the other hand, cable operators may not retransmit the station’s signal without negotiating a carriage agreement, which may or may not include retransmission fees.  (For nearly two decades, most major broadcasters elected retransmission consent, but did not actually demand retransmission fees, instead negotiating other terms, such as carriage of affiliated cable channels.)

It’s important to understand that retransmission consent is completely separate from copyright law.  If a station elects retransmission consent status, a cable operator can only carry the station’s signal by negotiating retransmission terms (potentially including retransmission fees) regardless of the compulsory statutory license created by the 1976 Copyright Act, and in fact, regardless of whether the station’s broadcasts are even covered by copyright.  (For example, if the station were to broadcast an old movie no longer protected by copyright, the cable operator couldn’t even retransmit that.)

Rather, Congress adopted the retransmission consent regime because it was concerned about the market power of cable operators (at a time before cable had any competition from DBS satellite or telco operators), and the degree to which cable operators were increasingly competing with local broadcasters, via cable-only channels.  (Convinced by broadcaster arguments) Congress was concerned that cable operators might bootstrap their own channels that competed with local stations from the profits gained by carriage of those local stations.  They reasoned that such concerns could be mitigated by empowering local stations to negotiate the terms of their carriage.

The suggestion that retransmission fees are actually some form of copyright royalty, or were otherwise intended by Congress to have a copyright-related purpose, is simply false.

Technology-Neutral Intentions

The broadcasters and their amici have made the point, again and again, that Congress specifically sought to make the 1976 Copyright Act technology neutral via the “any device or process” language of the Copyright Act’s transmit clause, so that it would apply to public transmissions regardless of future technological changes.

In fact, nobody disputes that this is the case.

What is disputed is the broadcasters’ assertion that the Copyright Act’s technology-neutral language should effectively be interpreted to automatically classify any technological advancement in transmission as an advancement in public transmission (and never an advancement in private transmission), without regard to how the system actually functions.  While technology neutral language pervades the Copyright Act, the broadcasters would have us believe that such technology neutrality is intended to inure solely to the benefit of copyright holders, never to the benefit of consumers.

Furthermore, the broadcasters would have us believe that the transmit clause, which Congress intentionally made not only technology neutral but also application neutral demands a special interpretation specifically for the case of broadcast television retransmission.  (The transmit clause makes no mention, whatsoever, of television, broadcast television, or retransmission.  This stands in stark contrast to other provisions of the Copyright Act—in fact, an entire chapter—that do pertain specifically to broadcast television retransmission.)

Re-litigating Sony

Content providers warn of dire consequences if the Court does not intervene:

…if petitioners are permitted to continue their activities without compensating respondents and others similarly situated, public access to television programming, far from increasing, will actually diminish. For, without some mechanism to compensate copyright owners for the unlimited taking and unsupervised use of their creative property, the economic incentive to risk enormous sums to produce high-quality television programming will be substantially undermined. This in turn will result in the production of cheaper, lower-quality television programs and a refusal to license popular, top-quality theatrical motion pictures for exhibition and “free” viewing on commercially sponsored television….

This excerpt (save for the reference to “petitioners”) could easily have come from the broadcasters’ brief in Aereo.  But in fact, it came from Universal Studios’ brief in the Sony v. Universal City Studios Betamax case. Every accusation of ill intent and imminent harm directed at Aereo in 2014 was previously directed at Sony, with equal vigor, back in 1984.

This case is properly understood as a re-litigation of the Sony case.

Despite the fact that content providers ultimately profited handsomely from the adoption of VCRs, they’ve, nonetheless, never agreed with the Sony ruling.  Rich Greenfield (no relation) recently reported that senior executives in the broadcast industry apparently believe there is a case to be made to reverse Sony and hold modern DVRs infringing (registration required), and in any case, the broadcasters (and other content providers) quite clearly view the modern transition in the technology deployment model as a chance to revisit Sony.

In the thirty years since Sony, the technology deployment model has shifted from predominantly outright equipment sales (e.g., a consumer buys a VCR outright), to one where technology is partly delivered on a services basis (e.g., a consumer purchases a DVR coupled with ancillary recurring services, such as a guide data feed and software updates) or wholly delivered on a services basis (e.g., a consumer rents a DVR along with its ancillary services). And more recently, the technology model has been shifting from in-home equipment (e.g., a consumer purchase a disk for storage) to cloud-hosted equipment (e.g., a consumer rents storage in the cloud).

Aereo is properly understood in the context of that much broader transition.  As technologies generally have transitioned from a delivery model of in-home equipment sales to a cloud-hosted infrastructure-as-a-service delivery model, Aereo represents the natural technological evolution of the antennas and VCRs of 1984.

Technology Neutrality Revisited

When broadcasters and their supporters argue that Aereo infringes copyright, they are actually arguing that the Copyright Act is not technology neutral at all—that the Copyright Act cares about the details of the technologies when they are used by consumers to exercise their rights to enjoy copyrighted works.

Since the outset of modern technologies, it has never been an infringement of copyright to sell technology, at a profit, to enable users to legally enjoy copyrighted content.  It was never illegal to sell phonographs.  It was never illegal to sell televisions, and the Sony case thirty years ago made clear that it wasn’t illegal to sell VCRs, either.

Nor has the law ever treated the rental of equipment any differently.  Precedent has explicitly held that using a rented photocopier—even when rented by the page—enjoys the same legal status as using an owned photocopier.  That the owner of the copy shop makes a profit on such is irrelevant.  And for a decade now, tens of millions of Americans have rented DVRs from their for-profit cable, satellite and telco providers, without any suggestion that the fact that they were rented, for a profit, rendered the copies made illegal.

Rental was a different technology delivery paradigm, but it was still just delivery of technology, not content, and made no difference under the technology-neutral Copyright Act.

The transition of the technology delivery paradigm to the cloud should have been just another technology advancement to which the Copyright Act is neutral.  But when Cablevision announced plans to implement a cloud-based DVR service, the broadcasters (and their cable-only brethren) decided it shouldn’t be.  Rather, they argued, placing the rented equipment in the cloud rendered it infringing.  No longer did the service represent the delivery of technology.  Rather, locating the equipment in the cloud transformed the service to one that delivered content.

The broadcasters lost that case five years ago, of course.  And they would have us believe that they’ve gotten over it. The broadcasters and most of their amici also tell us that when Google or Amazon or Dropbox rent storage in the cloud to an individual, they have no problem accepting that the individual streaming media back from that storage is a private performance, by that individual.  (Music publishers and the recording industry, on the other hand, submitted an amici brief arguing that this, too, was an infringing public performance.)

The broadcasters tell us that Aereo is different, however.  Aereo, is not like a mere copy machine, they say, but rather like “a copy machine that came pre-loaded with unlicensed materials.”

Of course, this analogy ignores the fact that, as part of the legal obligations they accepted in exchange for receiving free broadcast spectrum, and because they profit primarily from advertising, the broadcasters choose to make their signals freely available for viewers to legally receive, and Aereo’s system merely enables users to access the very signals that those broadcasters voluntarily make available.

So a more apt analogy might be to say that Aereo is like a copy machine connected to a website on which the rightsholders, themselves, post materials that they have chosen to make available for consumers to freely copy.

In context, what the broadcasters (and their other content provider brethren) want is properly understood as something very simple: thirty years after Sony, they are trying to use the transition of technologies to the cloud as a pretext to revisit and overturn the Sony Court’s confirmation that content providers are not entitled to control the technologies that consumers use to enjoy copyrighted works, and that profiting from a technology that enables consumers to enjoy content that they are entitled to enjoy does not infringe copyright.

It’s obvious why content providers would want this—they will always want more control, and more opportunities for profit.

Nobody else should be fooled into thinking that they are entitled to it.

For complete coverage of Aereo, see our Understanding Aereo page.
  • northforkinvestor

    read your dialogue with manne and radia and discovered your blog. if you read transcript (i have not) I’d be interested in a follow up from you on the blog. as an aereo user I think they created a private not public recording and viewing product that does not re-create at all the retransmitted viewing experience. not sure court was buying that.

    • J. S. Greenfield

      Yes, I have read the transcript, and am working on an annotated review of the Justice’s comments. I hope to complete that today, but we shall see how it goes. Check back in later….

      • northforkinvestor

        i just finished it. (slow day in the market). this is not my area of expertise but i got the sense there is a good chance they might hold their nose and let aereo pass as a private use a la cablevision as the minimally damaging solution to the cloud given a very difficult case. In any case I’m going to look for some limited risks to play that outcome in the broadcaster option markets.

        if you haven’t read it already Alison Frankel is very seasoned on this stuff. http://blogs.reuters.com/alison-frankel/

        see i went first. looking forward to your thinking.

        • J. S. Greenfield

          Still working…only about half way through (and at about 4000 words, including the Justices remarks, still a long way to go).

          Thanks for the pointer to the blog post. Alison wrote one of the best summaries I saw in the press, a few months back. I’m less fond of her summary of the oral arguments in that post, in terms of the level of understanding people are likely to obtain from it.

          • northforkinvestor

            agree. alison a little weak here. but general press reporting far worse. a well known business commentator said with a great deal of certainty that Roberts was very likely to write the first draft opinion and Aereo was doomed. I didn’t read that his mind is made up at all.

          • J. S. Greenfield

            Ok, Posted now. Longform. Not for the faint of heart. 😉

          • J. S. Greenfield

            Btw, I slightly revised my evaluation. In reflecting, I think Roberts probably leans toward the broadcasters. But I do think he could end up ultimately voting for Aereo.

          • northforkinvestor

            awesome work J. S. agree with your annotations. thanks for your efforts and fwiw I’ve referred several interested parties to your site.

  • IslandBased

    I live in a rural area where over the air reception is extremely limited. I use a roku box and Aereo is one of the subscriptions, and provides “local programming” that I would only get as an add on to cable or dish service. Aereo is far from a perfect solution, especially if you try to watch programming at its scheduled time, but it fills a niche for consumers like myself.

  • Pingback: Aereo decision coming soon()