Aereo Briefs: Aereo’s Compelling Defense of Aereo

Posted By on Mar 28, 2014 | 4 comments

Aereo’s response brief was filed on Wednesday, and having now had time to review it, I can say it layers a compelling defense of the Second Circuit’s holding in Aereo, on top of Cablevision’s compelling defense of the Second Circuit holding in Cablevision.  A few minor points I would contest (and do, below) notwithstanding, like Cablevision’s brief, Aereo’s argument is profoundly convincing in its detail, and completely disassembles the mere hand-waving arguments, and criticisms of the Second Circuit holding, made by the broadcasters and their amici.

Let’s take a look at what they have to say.  Again, we start be recalling the transmit clause of the 1976 Copyright Act:

To perform or display a work ‘‘publicly’’ means—

  1. to perform or display it at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered; or
  2. to transmit or otherwise communicate a performance or display of the work to a place specified by clause (1) or to the public, by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times.

Aereo starts out by posing the question presented to the Court in its own construction, rather than that previously published by the Court, explicitly presenting the Aereo system as a remote equipment rental:

Question Presented: Whether Aereo “perform[s] . . . publicly,” under § 101 and § 106 of the Copyright Act, 17 U.S.C. §§ 101, 106, by supplying remote equipment that allows a consumer to tune an individual, remotely located antenna to a publicly accessible, over-the-air broadcast television signal, use a remote digital video recorder to make a personal recording from that signal, and then watch that recording.

In their introduction, they take aim directly at one of the petitioners’ (and lower court judge’s) hand-waving criticisms, and make the point we have stated repeatedly, that it is the role of Congress, not the courts, to fix any perceived defects in how the law operates (citations omitted in all excerpts):

At base, petitioners object that Aereo is a sort of Rube Goldberg device – a clever way to take advantage of existing laws. But designing technologies to comply with the copyright laws is precisely what companies should do. If petitioners believe a technology that operates within existing laws to allow individual consumers to watch television shows petitioners have offered for free is causing them economic harm, they are entitled to ask Congress to change those laws. But this Court should not rewrite the Copyright Act in an effort to protect petitioners from lawful and logical advancements in technology or from the economic consequences of their transmitting works for free over the public airwaves.

Referring to the Court’s decision in the Teleprompter case that, in part, precipitated Congress’s adoption of the transmit clause, Aereo points out that:

[The Supreme Court] noted that any distortion in the market for copyrighted works … “must be left to Congress.”

Aereo then draws a distinction between retransmission fees and copyright fees, making a point that the broadcasters and their supporters have ignored:

Petitioners receive approximately 90 percent of their revenues from sales of broadcast time to advertisers. […] Petitioners derive most of their remaining revenues from “retransmission fees” required, not by the Copyright Act, but by a cable-specific competition statute, the Cable Television Consumer Protection and Competition Act of 1992 (“Cable Act”).   The Cable Act allows broadcasters either to require cable companies to retransmit their broadcast programming (“must-carry”) or to prohibit them from doing so (“retransmission consent”).  In large markets, broadcasters generally invoke the second option and use the right to withhold their signals to extract “retransmission fees.”  Cable companies must pay those fees regardless of whether the broadcasters’ signals are retransmitted from local or distant markets, and regardless of whether they carry copyrighted content.

In the Cable Act, Congress noted that cable systems “appropriate[ly]” retransmitted local broadcasters’ signals “without . . . any copyright liability,” but that “a competitive imbalance between the 2 industries” had resulted from cable systems’ new practice of “compet[ing] with local broadcasters for programming, audience, and advertising.”  To restore “competitive []balance,” Congress gave broadcasters the right to withhold their signals from cable providers, but not a general property right in those signals.  Congress also noted that it had been “careful to distinguish” broadcasters’ interest in their signals “and the interests of copyright holders in the programming contained on the signal.”  It emphasized that “[t]he principles that underlie the compulsory copyright license of section 111 . . . are undisturbed by this legislation,” and that the Act was not “intended to affect Federal copyright law.”

In other words, the broadcasters, and their supporters, have conflated retransmission consent and copyright.  Even cable companies (and other MVPDs) aren’t obligated to pay copyright fees to retransmit local broadcast signals, and the retransmission consent law has no bearing on questions of copyright.

Respecting home recording, Aereo observes that, in the Sony Betamax case:

This Court held that Sony was not liable for contributory infringement because there was no direct infringement: consumers’ creation of recordings was a noninfringing “fair use,” as it “merely enable[d] a viewer to see . . . a work which he had been invited to witness in its entirety free of charge.”  The Court noted that, “to the extent time-shifting expands public access to freely broadcast television programs, it yields societal benefits.”

Aereo then proceeds to recite a summary of the Aereo system, and in doing so makes the statement:

A consumer using Aereo’s DVR – or any other DVR – cannot watch content simultaneously with the over-the-air broadcast.

We note this because the statement is not correct in its entirety.  While the statement is true of Aereo’s DVR, and many other DVRs (most notably, Tivo DVRs) always display “live” television from a recording made on disk, some DVRs (notably, the Cisco/Scientific-Atlanta Explorer 8300) actually do display live television directly, not from disk, unless the user has actually invoked a trick mode such as pause or rewind, requiring use of the recording on disk.  Cablevision’s tutorial video on RS-DVR illustrates this.  (Of course, the fact that some DVR implementations actually behave differently from Aereo is irrelevant to the case.)

In what is clearly part of a response to a specious argument in the Solicitor’s General’s brief, Aereo also notes the lack of distinction between its system, and those of other cloud providers:

…like all cloud-based platforms, Aereo allows some of the same physical equipment to be used independently by multiple consumers, which decreases waste and cost.  For instance, although an Aereo antenna can never be used by multiple consumers at the same time, a single antenna can be independently operated by different consumers at different times.

Summarizing the district court case below, Aereo notes the limited scope of the broadcasters’ challenge:

Petitioners brought suit against Aereo and sought a preliminary injunction on the sole ground that Aereo directly infringed their right to “perform . . . publicly” the copyrighted content they broadcast for public reception.  They declined to assert, as a basis for that injunction, any claim that Aereo violated their right “to reproduce . . . in copies” the programming, or any contributory or vicarious theory of infringement.

and summarizes the holding:

The district court denied petitioners’ motion, relying on the Copyright Act’s text, its legislative history, and [Cablevision] […] [and] found that Aereo’s equipment fell “within the core of what Cablevision held lawful” based on three facts: (1) each time a user records a program, a unique copy is saved to DVR storage accessible only to that user; (2) each transmission is made from such a copy; and (3) each transmission from a “unique copy is made solely to the subscriber who requested it; no other subscriber is capable of accessing that copy and no transmissions are made from that copy except to the subscriber who requested it.”

The district court rejected petitioners’ argument that it should ignore whether a consumer’s playback of her copy is a performance “to the public” and instead “look back . . . to the point at which Aereo’s antennas obtain the broadcast content.”  It noted that Cablevision had rejected the same argument, finding a “dividing line” between the “transmissions made by the content providers” and the transmissions made by consumers using Cablevision’s equipment.  It concluded that the individual antennas were not necessary to its finding of non-infringement; however, because “each antenna functions independently,” Aereo had a “stronger case” than Cablevision given that “each copy . . . is created from a separate stream of data.”

After determining that Aereo’s equipment was not used to transmit “to the public,” the district court declined to address whether Aereo could be held directly liable for infringement notwithstanding that “it is the user, rather than Aereo, that controls the operation of Aereo’s system and ‘makes’ the performances at issue.” The court’s factual findings, however, establish that Aereo merely “allows users to access free, over-the-air broadcast television through antennas and hard disks located at Aereo’s facilities.” […]  Aereo “effectively rents to its users remote equipment comparable to what these users could install at home.”

Regarding the Second Circuit’s affirmation, Aereo notes:

The court also rejected petitioners’ attempt to criticize Aereo for choosing a business model that complied with copyright law, noting that Aereo was not “alone in designing its system around Cablevision, as many cloud computing services . . . have done the same.”

Aereo then summarizes its argument, which amounts to:

The transmissions emanating from Aereo’s systems are private, because the performances they embody are of individual recordings, each accessible only to the individual who made the recording:

Aereo does not publicly perform copyrighted works. The Transmit Clause defines “[to] perform . . . publicly,” in pertinent part, as “to transmit . . . to the public” such that “members of the public” are “capable of receiving the performance.”  For two independent reasons, Aereo’s technology enables completely lawful private performances, not infringing public performances.

First […] [u]nder the [Transmit] Clause’s plain text, as the government concedes, “the transmission of a performance is itself a performance.”  And a transmission is a public performance only if it is available “to the public.”  Aereo’s equipment facilitates only “one-to-one” transmissions: individual transmissions from individual recordings created from separate streams of data, made possible by the ubiquitous nature of over-the-air broadcasting.  Those transmissions do not constitute “public” performances. Each one is available to no one but the consumer who used Aereo’s equipment to create a personal recording of the broadcast program she selected and to play that recording over the Internet. There is no statutory basis for petitioners’ request that multiple private performances be “aggregated” into a public performance.

Second, even if one accepts petitioners’ view that the “performance” referenced in the Transmit Clause is not the transmission itself, but the performance embodied in the transmission, their claim still fails.  When an Aereo user plays her personal recording of a broadcast work and views its images and sounds over the Internet, the “performance” she transmits and receives is that playback – not the broadcaster’s prior performance. The Copyright Act makes clear that playing a recording is a performance separate from the one from which the recording is made – a position that the government consistently (and correctly) has embraced in its treatment of performances from downloaded digital copies.

That distinction is further supported by § 111, which distinguishes between retransmitting the “performance . . . embodied in a [broadcaster’s] transmission” – as when a cable system simply passes on the broadcaster’s signal – and transmitting “the program” (work) from a recording – as when a cable system transmits the broadcast work from “a videotape.” (emphasis added). Because Aereo’s technology cannot be used to transmit content other than from a user’s personal recording, it does not transmit the performance embodied in petitioners’ broadcasts.

The recordings are functionally essential, and not merely gratuitous:

Petitioners repeatedly ask the Court to disregard these “technical details,” and assert that the user-created and user-controlled copies around which Aereo’s system is built are “gratuitous” – even though they are functionally indispensable. Instead, they argue the Court should treat users’ playing of copies as a mere “device or process” for transmitting petitioners’ performances. The government reaches even further, asserting that transmissions from Aereo’s equipment “contain” all “underlying performance[s].” Both positions, however, would lead to untenable results. They would require, for instance, treating all downloads as “performances” (a result the government repeatedly has disclaimed).  They also would undermine the § 115 compulsory license for digital distributions of sound recordings, because one who distributed a copy under a statutory license to do so would nonetheless be guilty of “performing” the work by distributing it.

It is the end users, and not Aereo who actually transmit and perform:

This Court should affirm for the additional reason that Aereo’s users – not Aereo – create, play, and transmit their recordings of broadcast content and therefore “perform” within the meaning of the Copyright Act. It is well settled that, to impose direct liability under the Copyright Act, the alleged infringer must engage in affirmative (“volitional”) action that renders the copyrighted work capable of being perceived. […] Because the undisputed facts found below establish that nothing goes into or comes out of Aereo’s equipment except in response to a user’s commands, Aereo cannot be directly liable for infringement.

The government acknowledges that the “identity” of the person who “directs that a performance occur” is “relevant” to the scope of direct liability and that “ownership of the physical equipment” does not always determine “who performs a copyrighted work.” But it errs in contending that the “integrated” nature of Aereo’s equipment transforms Aereo into a direct infringer. That position is inconsistent with the government’s acknowledgement – here and elsewhere – that systems technologically indistinguishable from Aereo’s do not directly infringe, and it would permit strict liability to be imposed on cloud computing companies that fail to monitor perfectly their users’ actions.

Copyright policy dictates that any ambiguity should be resolved against infringement:

Considerations of copyright policy strongly support affirmance. First, any ambiguity in the statute must be resolved against liability. The Constitution delegates to Congress the power to balance the rights of authors and society’s interest in the free flow of ideas, and accordingly this Court has been “reluctan[t]” “to expand the protections afforded by the copyright without explicit legislative guidance.”

That reluctance is especially appropriate here, because petitioners’ position would limit consumers’ access to local over-the-air broadcasts. It also would expose a wide variety of cloud computing businesses to strict, and potentially ruinous, liability. Petitioners refuse to acknowledge this issue, asserting only that “[t]here is an obvious difference” between Aereo and other cloud-based providers. The government, to its credit, acknowledges the problem, but its proposed solution – to treat “a consumer’s streaming of her own lawfully acquired copy [as] a private performance,” (emphasis added) – is unsustainable.  As this case comes to the Court, petitioners have not pursued – much less proved – any claim that the personal recordings made by Aereo’s users are unlawful, and the government has acknowledged that they are presumptively lawful under fair-use principles.  Moreover, the government offers no statutory basis for its position that public-performance liability should turn on whether the copy from which the performance is made was “lawfully acquired.”

And it would be inconsistent with the Copyright Act to suggest that any copyright royalties are due for the in-market retransmissions enabled by Aereo:

Finally, nothing in the Copyright Act suggests that Congress would have wanted petitioners to be able to extract copyright royalties here. Because petitioners’ free, over-the-air broadcasts are supposed to be accessible to the entire public, they are not entitled to royalties when a consumer uses an antenna and DVR to access the content carried by their signals. And, under the Copyright Act, no one – even cable and satellite companies – must pay copyright royalties to retransmit a broadcaster’s signal within the broadcaster’s market. Congress codified that principle in the 1976 Act, and has repeatedly affirmed it, relying each time on the fact that in-market retransmissions “do[] not injure the copyright owner.”

Without ever acknowledging the difference, petitioners repeatedly refer, not to copyright royalties, but to the “retransmission fees” some cable systems pay under the Cable Act. Those fees are not a creature of copyright law and are not paid to copyright holders – except insofar as certain broadcasters, like petitioners, happen to wear two hats. Congress was “careful to distinguish” copyright royalties from retransmission
fees, and warned that the Cable Act should not be construed “to affect Federal copyright law.”  Petitioners’ primary reliance on retransmission fees to justify their copyright analysis shows just how far afield they are from any result Congress would have intended.

For those interested in Aereo’s detailed arguments, we move on.

Arguing that the transmissions from its equipment are not public performances:

Although a “performance” occurs when a consumer uses Aereo’s technology, that performance is “private” and therefore lawful; petitioners’ contrary arguments have no merit. […]

The statute provides that a transmission is a public performance if it is “to the public” – that is, if “members of the public [are] capable of receiving the performance.” Because “to transmit” is one way “to perform,” the “performance” that the public must be capable of receiving is the transmission itself.

That reading is consistent with the Act’s careful distinction between private and public performance, because it requires a copyright holder to show that the accused infringer – not someone else – made the transmission available to the public. Precisely because “perform” is broadly defined, Congress chose language focusing on the public nature of the challenged transmission itself, not some other performance – whether a prior performance by a broadcaster or a later performance by the viewer.  That reading is further supported by the Transmit Clause’s distinction between transmissions to a public place – i.e., “a place specified by clause (1)” – and transmissions “to the public.” Under petitioners’ reading, the cross-reference to Clause (1) in Clause (2) is superfluous, because every transmission to a public place is also a transmission “to the public.”

The Second Circuit’s construction correctly imposes liability only on those who perform publicly. A theater company’s performance of “Rent” in a locked and empty theater would not be a public performance, but, if it were broadcast to the public live, the transmission would be a public performance. If a transmission encoding the images and sounds were further transmitted by Defendant A to Defendant B, that would be a private performance; if Defendant B retransmitted the sounds and images to the public, that transmission would be a public performance. In each case, the audience capable of receiving a particular transmission is what determines whether the transmission is a “public performance.”

As both courts below correctly found, Aereo’s equipment enables only private performances, because each transmission is available only to a specific user. An individual antenna receives a broadcast signal only when activated and tuned by the user; the antenna picks up a “separate stream of data;” and the consumer records that data stream to private electronic storage. When the user decides to watch the program, she transmits those data only to herself; she cannot download the program or transmit it to anyone else.

A public performance does not occur simply because many of Aereo’s users record and watch the same program. As the Second Circuit correctly observed, nothing in the Transmit Clause authorizes the aggregation of “private transmissions . . . not capable of being received by the public.” Moreover, it is not surprising that thousands of “strangers” may use Aereo’s antennas and DVRs to watch the same broadcast program without any transmission to the public. Broadcasters transmit their programming to the public using a signal that can be received by anyone with appropriate equipment. Aereo’s users simply use an individual antenna and DVR to make and play a recording of that over-the-air programming. The equipment’s remote location does not alter the individual character of each transmission. If Aereo rented, installed, and maintained thousands of separate roof-top antennas and in-home DVRs, it would have the same copyright status.

Aereo then reiterates Cablevision’s argument that the potential audience of the transmission is the key factor in determining the public or private status of a transmission.

Next, Aereo moves on to demonstrate that the performances embodied in the  transmissions from its system are not the same performances embodied in the original broadcasts that were recorded:

The transmission made by an Aereo user is generated from her individual recording of broadcast programming, not the broadcast itself. The “performance” embodied in the transmission is thus the playing of that individual recording. That performance is never transmitted “to the public,” because it can be transmitted only to the user who created the copy and initiated the playback.

The playing of a copy is a performance distinct from the performance from which the copy was made. […]

This definition [of “to perform”] makes clear that each new act of showing a work is a separate performance, because each makes the work’s images and sounds perceptible. That is true even where multiple performances are derived from the same copy of a work. For example, if two individuals each bought a DVD of a copyrighted movie and each played back her personal copy, each would “perform” the copyrighted work. If only one person purchased the DVD, watched it, and then lent it to a friend to watch, there would still be two separate acts of showing, and thus two distinct performances. A broadcaster could perform a movie by showing its images and sounds to the audience by means of a transmission; an individual could record the movie and play it the next day, thereby separately performing the work.

Those principles do not change simply because the recording is made with a DVR. Using current DVR technology, a separate performance of a movie broadcast on television can begin before the broadcast is finished, because the DVR can be used to play back earlier portions of the recording while continuing to record later portions. In other circumstances as well, an individual who obtains a copy of digital content can perform the work shortly after receiving it. For example, a consumer who downloads a song often may begin to play the copy being downloaded even before the download is complete. Nevertheless, because the performance is rendered by playing the downloaded copy, the purchaser is performing and the seller is not.

When a consumer plays a personal recording using Aereo’s DVR and transmits it to her device, the “performance” transmitted is the playback, not the broadcaster’s prior performance of the program. […] the difference between the user’s playback and the broadcaster’s performance may not be apparent when the user simply plays her recording without interruption as it is being made. The difference becomes obvious, however, the moment the user hits “pause” (or “rewind”): the user controls the images and sounds she receives – it is her act of showing that she views through a transmission from Aereo’s equipment to her device. Even where she chooses to play the recording without employing those capabilities, her act of pressing “Play” causes the work’s images to be shown and renders its sounds audible.  Because the user is the only person “capable of receiving” a transmission of her playback, there is no public performance.

Moreover, because the playing of a recording is itself a performance, the two steps of (1) making a recording from a first performance, and (2) transmitting a playback of that recording cannot be treated as a “device or process” for “retransmitting” the first performance. The Transmit Clause makes clear that a single performance is embodied in a transmission, by using the indefinite article “a” in the first part of the Clause and the definite article “the” in the second part. The definition of “perform” confirms that reading. A “performance” is not a sequence of images and sounds – that is the definition of an “audiovisual work,” – but rather the transitory act of showing them.

Any other interpretation leads to absurd results. For instance, if a distributor makes multiple copies of a DVD from a master copy, then sells them by mail to consumers, in some sense it “communicate[s]” the contents of the performance from which the master copy is made. But the distribution of the DVDs merely makes it possible for the recipients to perform the work themselves – it is not a “device or process” by which the distributor publicly performs the work. A contrary interpretation also would undermine the statute’s “first sale” provision, which entitles “the owner of a particular copy” to sell it “without the authority of the copyright owner.”

The incongruity of the government’s reading is particularly pronounced when copies of copyrighted content are distributed through transmissions – i.e., downloads. The government consistently has taken the position that distribution through downloads is not a performance. As it has explained, when a song is downloaded, the purchaser obtains a fixed copy of the song and then performs the copy. The digital music vendor does not perform the song by transmitting the data embodied in the consumer’s copy. On petitioners’ theory here, however, the vendor’s transmission could be treated as a “device or process” for communicating the performance from which the copy is made – as their own amici acknowledge.

For similar reasons, treating the creation and playback of an Aereo user’s fixed copy as a “process” for transmitting an underlying performance would undercut the compulsory license for digital distribution of sound recordings in § 115(c)(3). That provision grants any person a compulsory license – under § 106(1) and § 106(3) only – to distribute music files (“phonorecords”) “to the public” through downloads. As the government argued in ASCAP, if a download could be treated as a “device or process” for transmitting the performance from which the file is made, music vendors would need to negotiate separate performance licenses under § 106(4) – which would destroy the utility of the compulsory license provisions. Congress could not have intended that result.

Aereo then argues that Section 111 itself reinforces the distinction between retransmission of a broadcast performance, and transmission from a copy of a broadcast:

The distinction between retransmission of a broadcaster’s performance and transmission of a performance from an individual copy of the broadcast is strongly reinforced by § 111, which draws that very distinction. Section 111 establishes the rules to govern “secondary transmissions” of “primary transmissions” – such as television broadcasts. […] The section generally defines “secondary transmission” as the “simultaneous[]” retransmission of broadcast signals. And it indicates that, when a broadcast signal is simply passed through by a cable system to its subscribers, what is contained in the secondary transmission is the “performance . . . embodied in [the] primary transmission.”

Section 111(e), however, also includes a limited category of secondary transmissions that are “nonsimultaneous” because they are derived from the playback of a “videotape” […]. The statute refers to the content transmitted through such a “nonsimultaneous” secondary transmission not as the transmission “of a performance . . . embodied in [the] primary transmission,” but as “the copyrighted program, episode, or motion picture videotape.”  The statute uses that different formulation precisely because the playback of a videotape is not the same performance as the one embodied in the primary transmission – it is a new and different performance.  Because Aereo’s equipment does not – ever – transmit broadcast content other than from an individual user’s reproduction, it never transmits the performance embodied in the broadcast.

Having established that the transmissions from Aereo’s system are private performances of individual user recordings, Aereo proceeds to skewer several arguments made by the broadcasters’ amici.

Making the same observation we did that the Solicitor General drew a false distinction between Cablevision’s RS-DVR and Aereo, Aereo notes:

[T]he government acknowledges that the playback of a copy is not a public performance in the case of a remote-storage DVR (like the one in Cablevision). In the respects germane to the government’s test, however, Aereo’s technology works the same way as Cablevision’s. Indeed, the same expert who testified for Cablevision in that case testified below that the only pertinent difference between the systems was the manner in which Cablevision’s content was “split and copied to make . . . multiple subscriber recordings.” The government offers no evidence of a material distinction between Cablevision’s RS-DVR and Aereo’s.

And also similar to our own observations, they refute the parade of horribles alleged by Menell and Nimmer:

The distinction between performance from a copy and pure retransmission reflects the practical reality that § 106(1) also gives the copyright owner the right to prevent unlawful copying. Aereo’s technology permits consumers only to make personal copies of local broadcast television – a quintessential fair use under [Sony].

By contrast, if petitioners had a legitimate challenge to the use of Aereo’s system to copy their copyrighted works, they would not need to rely on their (unavailing) public-performance theory at all. This case, however, does not involve the use of an Aereo-like system to access HBO programming, or the substitution of new commercials for those included in the broadcasts. Such hypotheticals present copyright reproduction right issues very different from the actual technology at issue in this case.

(Though we would observe that the hypothetical regarding commercial substitution really doesn’t implicate the reproduction right.  It is nonetheless the case that any such problem in that area would be completely independent of any decision in Aereo.)

Aereo then refutes the notion that upholding the Second Circuit’s decision could enable unlicensed video-on-demand:

A ruling in Aereo’s favor would not allow video-on-demand (“VOD”) companies like Hulu and Netflix to provide copyrighted content without paying royalties. The Transmit Clause requires consideration of whether the public – any broader audience than “a normal circle of a family and its social acquaintances” – is “capable of receiving” a performance. The only person capable of receiving a performance from a personal recording housed in Aereo’s DVR is the user who created the recording. A VOD system that uses a master copy, by contrast, “transmit[s] . . . to the public,” because anyone may elect to receive a performance (the playback of the master copy).  And a VOD system cannot avoid liability by making individual copies for viewers without implicating the copyright owner’s reproduction right.

Having completed its argument that the transmissions in its system comprise only private performances, Aereo moves on argue that, in addition, it cannot be held directly liable, because it is end users, not Aereo, that perform:

Because Aereo’s role is to make antennas and DVRs available for others’ use, its position is comparable to that of other defendants that provide equipment or software allegedly used to engage in infringing conduct.  Such conduct can support liability under the Copyright Act, if at all, only for contributory infringement.

In Sony, this Court addressed whether a VTR manufacturer could be held liable for contributory infringement for distributing the machines knowing that consumers would use them in a manner alleged to infringe the respondents’ copyrights. The Court described this question as one of the scope of “liability for parties . . . who have not themselves engaged in the infringing activity.” (emphasis added). Similarly, in Grokster, the Court held that one who “intentionally induc[es] or encourag[es] direct infringement” by “distribut[ing] a device with the object of promoting its use to infringe copyright” is contributorily liable for “the resulting acts of infringement by third parties.”

The focus on the scope of contributory liability in these cases makes clear that strict liability is reserved for the actor who directly engages in conduct prohibited by § 106. The cases also illustrate that “the doctrine of contributory liability stands ready to provide adequate protection to copyrighted works” in cases involving intentional facilitation.

Relying on the statutory text and this Court’s precedents, federal courts have rejected attempts to impose direct liability on those who merely provide equipment used by others in an allegedly infringing manner. These lower court cases persuasively reject the argument that direct liability can be premised on “ownership, operation, or maintenance” of equipment used for an infringing activity.

Lower court cases likewise support the sound principle that direct liability is inappropriate where a defendant programs equipment to respond “automatically” to a user command that results in alleged infringement. These courts have emphasized that this limitation “is especially important” in light of the expansive liability that might otherwise result from networked communications and storage systems.

Post-Sony amendments to the copyright law confirm that these judicial interpretations are consistent with Congress’s intent. For instance, in the Digital Millennium Copyright Act, Congress enacted a series of safe harbors that codified, in the context of Internet service providers, the “leading and most thoughtful judicial decision” on the distinction “between direct infringement and secondary liability” – the Netcom case, which was interpreted to “rule[] out [liability] for passive, automatic acts engaged in through a technological process initiated by another.”

After noting that the Solicitor General’s brief concedes that Aereo cannot be held directly liable if users control the allegedly infringing transmissions, Aereo observes:

The government seeks to distinguish this case on the ground that Aereo “operates an integrated system, substantially dependent on physical equipment that is used in common by [its] subscribers.” But the government does not and cannot justify this distinction by reference to the statute or case law, because it cites neither. Nor is the distinction supported by logic or facts: from the perspective of the user – the person who “both select[s] the programs to be copied and press[es] the button triggering the actual recording,”– Aereo’s equipment is indistinguishable from the RS-DVR in Cablevision. Under the hood, the only difference is that Cablevision’s system split a common stream of data for its subscribers without their prior request; Aereo’s equipment does not do that, because the only data a user may record come from an antenna individually assigned to and actively controlled by that user. Aereo’s addition of a remote antenna cannot make a principled difference.

[…] Indeed, the government’s position permits imposition of strict liability for infringement, not only on all cloud computing businesses, but also on traditional businesses, like copy shops, that long have been regarded as immune from direct liability when they merely provide “shared equipment” for use by others – a problem the government previously has acknowledged. […]

The government’s position appears colored by its incorrect assumption that all uses of Aereo’s equipment are infringing. But that is obviously untrue, given that Aereo’s equipment also can be used to access non-copyrighted broadcast material. Moreover, the status of rights in a copy has no logical bearing on the identification of the actor responsible for transmitting it.

Aereo follows with a dismissal of the analogy between its system and a cable system, by reciting the many differences between the two.

Finally, Aereo moves on to explain why considerations of copyright policy support affirmation of the Second Circuit holding.  First, Aereo argues that any statutory ambiguity should be resolved against liability:

Any ambiguity about applying the 1976 Act to Aereo’s 21st-century technology should be resolved against infringement. […] When applying the Copyright Act to “new technology,” this Court has been “reluctan[t]” “to expand the protections afforded by the copyright without explicit legislative guidance.”  (“When technological change has rendered its literal terms ambiguous, the Copyright Act must be construed in light of [its] basic purpose” – to promote “the general benefits derived by the public from the labors of authors.”)

Sony . . . recognizes that the copyright laws are not intended to discourage or to control the emergence of new technologies, including (perhaps especially) those that help disseminate information and ideas more broadly or more efficiently.” That concern could hardly be more strongly implicated than in this case, given the stakes for cloud computing technologies. […] Cloud technologies generate “enormous efficiencies through economies of scale, allowing users to benefit from reduced cost and increased reliability,” and “provide[] substantial data portability, permitting a user access to his or her data via any device with an Internet connection.”  Cloud technologies also are widespread and quickly growing; annual spending has surpassed $50 billion, delivering savings to U.S. businesses projected to reach $625 billion over the next five years.

Petitioners’ argument that the relevant “performance” for purposes of the Transmit Clause is the original broadcast, rather than the consumer’s performance from her personal copy, would pervasively threaten the use of cloud technologies to store and access copyrighted content. On petitioners’ view, whenever two users of a cloud-based “virtual locker” service – such as Google Drive – separately play a song stored on the provider’s servers, the provider is publicly performing by transmitting the same “underlying” performance to multiple members of the public. As amici have explained, were petitioners’ argument accepted, it would gravely threaten cloud computing. Petitioners, however, hardly acknowledge, much less address, this concern.

The government argues that “reversal of the decision below need not call into doubt the general legality of cloud technologies” because “a consumer’s streaming of her own lawfully acquired copy to herself would effect a private performance.” (emphasis added). Similarly, it asserts that the RS-DVR service at issue in Cablevision was not infringing because there “the cable company already possessed [a] license[] to transmit copyrighted television programs to its subscribers.”  Under Sony, it reasons, consumers have a fair-use right to make a personal copy of televised content for timeshifted viewing, and “[t]here is no evident reason to reach a different result . . . merely because the relevant personal copy is created and stored remotely in digital form.”

Properly understood, the government’s reasoning compels dismissal of petitioners’ claim. The recordings made by Aereo’s users are equally lawful under fair-use principles – a fact petitioners effectively conceded by adverting to Sony in explaining why they did not seek an injunction on reproduction grounds. […] As this case comes to the Court, there is simply no basis for the government’s assertion that the recordings made by Aereo’s users are unlawful.

Moreover, the government’s position is internally inconsistent. In the government’s view, a public performance occurs “when either the allegedly infringing transmission itself or some underlying performance is transmitted to the public.” It never explains why the performances enabled by cloud storage services are “private” under this reading. And it offers no statutory basis for its position that liability for infringement of the public-performance right – the determination whether a performance is public or private – turns on whether the copy from which the performance is made was “lawfully acquired.”  “The nature of the transmission does not turn on the allocation of rights in the work being transmitted.”

The government’s proffered solution also is unworkable. By its logic, if a consumer uploads an unlawfully obtained copy of a movie to a remote computer and then streams it to herself, the company that provides the storage is liable for a public performance. To avoid strict liability based on its customers’ actions, the company would have to monitor all of the content stored on its system to make sure it was “licensed” or otherwise “authorized.” No industry could operate under such an obligation.

On this last point, however, I would note that DMCA’s safe harbor provisions, as currently constructed, would seem to relieve cloud providers of any obligation to affirmatively validate the license status of user content.  Of course, Congress has been reviewing the DMCA safe harbor provisions, and copyright holders are arguing for significant revisions that would potentially change that.

Aereo also argues that there’s nothing in the Copyright Act to suggest that Congress would want the broadcasters to be able to extract royalties in this situation.  This comes back to the distinction between retransmission consent fees and copyright royalties.

Petitioners’ argument contravenes copyright policy for the additional reason that Congress has determined copyright holders should not be able to demand copyright royalties for consumers’ viewing of local broadcast programming. Petitioners imply that cable and satellite providers must pay copyright royalties to retransmit local broadcasts, but that is not true. In fact, the Copyright Act grants broadcasters no royalties even when a third party retransmits local broadcast programming to its subscribers.

Broadcasters make programming available over the airwaves for “free” by selling broadcast time to advertisers.  The more consumers who view a broadcast program, the more valuable the advertising time.

Because broadcasters are directly compensated (and copyright holders indirectly compensated) by advertisers, a third party that simply provides technology that allows consumers to access content they could receive over the air is not required to compensate copyright owners. That is true even for third parties that (unlike Aereo) actually retransmit petitioners’ broadcasts “to the public.” In the case of cable systems, § 111(d) sets forth a compulsory licensing scheme for copyrighted content whereby cable systems pay no royalties for local content they retransmit within the service area of the broadcaster. The same approach is reflected in § 122(a), which creates a royalty-free “statutory license” for satellite carriers that retransmit a broadcaster’s signals within its local market. Petitioners’ claim that Congress “mandated that the providers of [retransmission] services compensate copyright holders for the statutory privilege of exploiting their public-performance rights,” is simply incorrect.

Copyright law is designed to reward creators only to the extent necessary “to induce [them to] release to the public . . . the products of [their] creative genius.”  There is no plausible claim that stretching the Copyright Act to force consumers to pay twice to watch the same over-the-air broadcast programming would encourage the creation of new works. When a copyright holder has authorized a particular use of a work in return for an acceptable reward, the secondary function of the law has been satisfied. Accordingly, this Court has rejected efforts by a statutory monopolist to extract a second round of compensation for the public’s enjoyment of a use once authorized, by finding that the use is “no longer within the monopoly.”

Finally, Aereo challenges the assertion that its system threatens the regime of retransmission consent:

Petitioners protest that, “[a]lthough they have agreed to make [their] content available to the public over the air for free, they can afford to do so only if they retain the ability to recoup their substantial investments by, among other things, generating critical revenue when that content is retransmitted to the public.” But the retransmission fees to which petitioners refer have nothing to do with copyright law; they are mandated by the separate regulatory regime established in the Cable Act and administered by the FCC.

Under that regime, a broadcaster can require a cable system to pay retransmission fees any time it “retransmit[s] the [broadcaster’s] signal.”  Liability for retransmission fees depends on the cable system’s status, not the way it delivers content to subscribers. Accordingly, the claim that a ruling by this Court in Aereo’s favor might allow cable companies to bargain for lower retransmission fees or avoid paying them altogether by “devising their own Aereo-like workarounds,” has no merit. They would still be cable systems and therefore still liable for retransmission fees.

This seems a dubious claim.  Aereo has just convincingly argued that it is the end-user, not Aereo, who transmits for the purposes of the Copyright Act.  While I am not sufficiently familiar with the definitions and relevant provisions of the Cable Act to respond with certainty, it seems likely the same conclusion would apply.  It would certainly seem surprising if status as a cable operator somehow foreclosed the operator from being treated like any other company if it were to rent equipment to users for private reception and retransmission of broadcast signals.

On the other hand, as I’ve noted elsewhere, it’s quite unlikely that any cable operator would adopt Aereo-like delivery any time soon, simply because to do such at the scale and reliability a cable operator would require, would be economically prohibitive.

Perhaps that accounts for untempered bullishness by at least one broadcaster:

Petitioners’ public statements, moreover, contradict the dire predictions in their brief. Leslie Moonves, the CEO of petitioner CBS, announced in February 2014 that the network had almost doubled its predictions for retransmission fees in the next few years, and specifically told investors that an affirmance of the Second Circuit’s ruling here would have no effect on that forecast: “[W]e are not going to be financially handicapped at all.” (emphases added). That representation belies petitioners’ hyperbolic warnings about threats to “the very existence of broadcast television as we know it.”

For our summary analysis of the merits in the Aereo case, see Why Aereo Will Win, and Win Easily (at the Supreme Court).  Or for complete coverage of Aereo, see our Understanding Aereo page.