After losing its case before the Supreme Court, Aereo has undertaken to recast itself as a cable system for the purposes of the Copyright Act, in order to take advantage of the 17 USC 111(d) statutory license for cable systems to retransmit broadcast television stations, as we previously opined that Aereo was likely to end up doing, win or lose. If anybody still wonders why Aereo might have done such even if they won, consider that Aereo’s initial submission to the Copyright Office invoking the statutory license included payment for fees totaling $5,310.74, for all of 2012 and 2013. Quite simply, even if Aereo had won its case, it would still be far cheaper to proceed under a statutory license, than to continue to build and operate the individualized reception infrastructure that Aereo had adopted.
The possibility of converting to a cable system was raised by FilmOn X in its amicus brief in the Aereo case, where it made the very straightforward case that if Aereo’s transmissions were deemed public performances, then Aereo qualified as a “cable system” by the Copyright Act definition in 17 USC 111(f)3:
Cable system.— A “cable system” is a facility, located in any State, territory, trust territory, or possession of the United States, that in whole or in part receives signals transmitted or programs broadcast by one or more television broadcast stations licensed by the Federal Communications Commission, and makes secondary transmissions of such signals or programs by wires, cables, microwave, or other communications channels to subscribing members of the public who pay for such service. For purposes of determining the royalty fee under subsection (d)(1), two or more cable systems in contiguous communities under common ownership or control or operating from one headend shall be considered as one system.
Multiple justices (in the Aereo majority) seemed to acknowledge the obvious correctness of this argument during oral argument. Justice Sotomayor was very specific about this, actually beginning oral argument by reading section 111(f)3 aloud:
JUSTICE SOTOMAYOR: Why aren’t they cable companies?
JUSTICE SOTOMAYOR: I’m looking at the — everybody’s been arguing this case as if for sure they’re not. But I look at the definition of a cable company, and it seems to fit. A facility located in any State. They’ve got a — whatever they have — a warehouse or a building in Brooklyn, the — that receives signal transmissions or programs broadcast by television broadcast stations. They’re taking the signals off of the –
JUSTICE SOTOMAYOR: I’m sorry, they are. Makes secondary transmissions by wires, cables, or other communication channels. It seems to me that a little antenna with a dime fits that definition. To subscribing members of the public who pay for such service. I mean, I read it and I say, why aren’t they a cable company?
As we have noted previously, however, this approach had been tried before, by Ivi (and FilmOn X), unsuccessfully.
Why was the approach unsuccessful, previously? Well, the answer to that begins with the fact we noted previously that the Copyright Office has historically imposed an extra-statutory requirement that “cable systems” must additionally be regulated as cable systems by the FCC. (As can plainly be seen from the definition above, of course, this additional requirement has no basis in the statutory definition.) And despite the fact that many media outlets have reported it as if it were an unexpected setback, it comes as no surprise at all that the Copyright Office responded this week to Aereo’s filing by indicating that it does not believe that Aereo qualifies for the statutory license.
The answer continues with how the Second Circuit read the section 111(f)3 definition, and in particular, its interpretation of the term “facility.” While FilmOn X argued, and Justice Sotomayor seemed to agree during oral argument, that Aereo’s data center/headend facility in Brooklyn was precisely such a facility, the Second Circuit seemed to find more ambiguity in the case of Ivi (citations omitted from all excerpts):
Based on the statutory text alone, it is simply not clear whether a service that retransmits television programming live and over the Internet constitutes a cable system under § 111. That is, it is unclear whether such a service (1) is or utilizes a “facility” (2) that receives and retransmits signals (3) through wires, cables, microwave, or other communication channels.
Among other things, it is certainly unclear whether the Internet itself is a facility, as it is neither a physical nor a tangible entity; rather, it is “a global network of millions of interconnected computers.” When content is viewed over the Internet, the viewing computer typically receives information from several different servers. Additionally, the growth of “cloud-based systems,” or virtual platforms where content resides remotely on a distant server, further highlights the uncertainty as to whether an Internet retransmission service is or utilizes a facility that receives and retransmits television signals.
This would make it seem that the Second Circuit interpreted “facility” to refer particularly to the communications channels used for secondary transmission. However, a footnote observes:
ivi argues that it “plainly has a ‘facility’ as required” by § 111. ivi explains that the Internet is not “the only equipment at issue here.” Rather, “the primary transmissions are received by physical encoder hardware, located in a state, then retransmitted from a headend also located in a state.” ivi, however, has not identified the location or nature of its facility.
which suggests that the court actually focused on the internet as the potential qualifying facility because the record was lacking what the court considered to be sufficient evidence respecting any other potential qualifying facility.
Given the perceived ambiguity as to whether the internet qualified as a facility for the purposes of 111(f)3, the court looked to the legislative history and the administrative interpretation used by the Copyright Office. Although the Eleventh Circuit had previously held a satellite carrier to constitute a cable system, the Second Circuit deemed it significant that Congress had subsequently created a separate statutory license for satellite carriers. And the court observed that the Copyright Office has historically interpreted the scope of the section 111 definition and license narrowly, and in particular, that:
“[T]he Office retains the position that a provider of broadcast signals be an inherently localized transmission media of limited availability to qualify as a cable system.”
To reach this conclusion, the Copyright Office has explained that § 111(f) refers to “headends” and “contiguous communities,” which are inapplicable to nationwide retransmission service. The Copyright Office also noted that § 111 defines a “‘distant signal equivalent’ with reference to television stations ‘within whose local service area the cable system is located.'” Because satellite carriers provide nationwide retransmission service and because they are not located in their local service area, the Copyright Office concluded that satellite carriers were not cable systems under § 111. Under this interpretation, Internet retransmission services cannot constitute cable systems under § 111 because they provide nationwide — and arguably global — services.
Accordingly, the Second Circuit concluded that the district court had not abused its discretion (the standard for review in the case of a motion for preliminary injunction) in concluding that Ivi was likely not to qualify as a “cable system.”
Even dismissing any indications the Supreme Court may have given respecting Aereo’s qualifications as a “cable system” under the Copyright Act, the facts considered by the Second Circuit inherently cut differently for Aereo. The locations and nature of Aereo’s facilities have been clearly identified, and each of those facilities operate locally, not on a nationwide basis.
Regardless, given the potential for a court—and particularly a court in the Second Circuit—to focus on the communications channels as the facility, and given the Copyright Office focus on “inherently localized transmission media,” if Aereo (or any other provider) is going to proceed to litigate this issue, it ought to take a simple step to drive the evaluation down the correct path, and eliminate these issues as variables.
What step is that?
Aereo should cut a deal with at least one cable operator (even a tiny cable operator, if that’s all it can achieve) to peer directly (i.e., to directly connect their facility to the cable operator’s facilities, rather than connecting indirectly via an amorphous internet cloud). If they are unable to do that, they should arrange to peer directly with a CDN provider or Tier 1 ISP who peers directly with cable providers, and to interconnect with them in a fashion such that there is a clearly identifiable private circuit between Aereo’s facility and the cable operator.
Doing this would eliminate any ambiguity as to the nature and location of their “facility” (at least respecting a subset of subscribers), and the transmission media they use would be “inherently localized.” In fact, the transmission model would be indistinguishable from that used by recognized cable systems, such as AT&T U-verse, and all major cable operators who now deliver channels via in-home, IP-streaming to devices such as tablets, smartphones, game consoles, etc.
The fact that Aereo wouldn’t own the entire transmission path is irrelevant. It’s not unheard of for traditional operators to lease facilities (e.g., optical fiber), and more significantly, in crafting section 111, Congress clearly anticipated that operators might leverage third-party carriers, as 111(a)3 explicitly exempted such third-party carriers from liability for the transmissions they carried for others. (And this same fact actually supports the broader argument that even ordinary internet-based transmission doesn’t disqualify an operator from status as a “cable system,” for the purposes of section 111.)
Accordingly, and particularly with some care to bound the facts of the case effectively, Aereo—or any other interested party—ought to be able to overcome the extra-statutory limitations that courts and the Copyright Office have used in the past to refuse to recognize internet-based operators as cable systems under section 111.