Supreme Court’s Aereo Decision Clouds the Future

The Supreme Court has rendered various decisions that serve as rules of the road for the treatment of copyrighted works amid technological innovation.  Universal v. Sony (1984) established the legality of “time shifting” video for personal viewing as well as the “substantial noninfringing uses” standard for new technologies that involve digital media.  MGM v. Grokster (2005) took the concept of “inducing infringement” from patent law and applied it to copyright, so that services that directly and explicitly benefit from users’ infringement could be held liable.  UMG v. Veoh (2011) taught that network service operators have no duty to proactively police their services for users’ infringements.  These rulings are reasonably clear signposts that technologists can follow when contemplating new products and services.

Unfortunately, Justice Stephen Breyer’s ruling last week in ABC v. Aereo won’t be joining that list.  He ruled against Aereo in a 6-3 majority that united the Court’s liberals and moderates.  Justice Antonin Scalia’s forceful dissent described the problems that this decision will create for services in the future.

Several weeks ago, at the Copyright Clearance Center’s OnCopyright conference in NYC, Rick Cotton — former General Counsel of NBC Universal — predicted that the Supreme Court would come down against Aereo in a narrow decision that would avoid impact on other technologies.  He got it right in terms of what Justice Breyer may have hoped to accomplish, but not in terms of what’s likely to happen in the future.

Instead of establishing principles that future technology designers can rely on, the Court simply took a law that was enacted almost 40 years ago to apply to an old technology, determined that Aereo resembles that old technology, and concluded that therefore the law should apply to it.  The old technology in question is Community Access Television (CATV) — transmissions of broadcast television over cable to reach households that couldn’t receive the broadcasts over the air.

Justice Breyer observed that Congress made changes in the copyright law, with the Copyright Act of 1976, in order to stop CATV providers from being able to “free ride” on broadcast TV signals; he found that that Aereo was similarly free-riding and therefore ought to be subject to the same law.

Just in terms of functionality, the decision makes little sense: CATV was created to enable broadcast television to reach new audiences, while Aereo (nominally, at least) enabled an existing audience for broadcast TV to watch it on other devices and in other locations.  In that respect, Aereo is more like the “cloud sync” services for music like DoubleTwist and MP3Tunes that popped up in the late 2000s, which automatically copied users’ MP3 music files and playlists across all of their devices.  More on that analogy later.

More broadly, the Court’s decision is unlikely to be helpful in guiding future technologies; all it offers is a “does it look like cable TV?” test based on fact-specific interpretations of the public performance right in copyright law.  Justice Breyer claimed that his opinion should not necessarily have implications for cloud computing and other new technologies, but that doesn’t make it so.

As Justice Scalia remarked in his dissent, “The Court vows that its ruling will not affect cloud-storage providers and cable television systems … , but it cannot deliver on that promise given the imprecision of its result-driven rule.”  Justice Scalia felt that Aereo exploited a loophole in the copyright law but that it should be up to Congress instead of the Supreme Court to close it.

In fact, Justice Scalia agreed with the Court’s opinion that Aereo probably violates copyright law.  But he stated that the decision the Court was called upon to make — regarding Aereo’s direct infringement liability and whether the TV networks’ request for a preliminary injunction should be upheld — wasn’t an appropriate vehicle for determining Aereo’s copyright liability, and that the Court should have left well enough alone.  Instead, Justice Scalia offered that Aereo should be more properly held accountable based on secondary liability — just as the Court did in Grokster — and that a lower court could well reach such a finding later in the case after the preliminary injunction issue had been settled.

Secondary liability means that a service doesn’t infringe copyrights itself but somehow enables end users to do so.  Of course there have been many cases where copyright owners have sued tech companies on the basis of secondary liability and forced them to go out of business (e.g., Napster, LimeWire), but there have been many others where lawsuits (or threats of lawsuits) have resulted in mutually beneficial license agreements between copyright owners and the technology companies.

And that brings us back to “cloud sync” services for music.  DoubleTwist was built by Jon Lech Johansen, who had become notorious for hacking the encryption system for DVDs in the late 1990s. MP3Tunes was developed by Michael Robertson, who was equally notorious for his original MP3.com service.  Cloud sync services enabled users to make copies of their music files without permission and didn’t share revenue (e.g., from advertising or premium subscriptions) with copyright owners. DoubleTwist, MP3Tunes, and a handful of similar services became moderately popular.  In addition to their functionality, what MP3Tunes and DoubleTwist had in common was that they were developed by people who had first built blatantly illegal technology and then sought ways to push the legal envelope more gently.

Later on, Amazon, Apple, and Google followed the same latter path.  They built cloud sync capabilities into their music services (thereby rendering small third-party services like DoubleTwist largely irrelevant).  Amazon and Google launched their cloud sync capabilities without taking any licenses from record companies; record companies complained; confidential discussions ensued; and now everyone’s happy, including the consumers who use these handy services.  (Apple took a license for its iTunes Match feature at the outset.)

The question for Aereo is whether it’s able to have such discussions with TV networks; the answer is clearly no.  The company never entertained the possibility that it would have to (“there is no Plan B“), and its principal investor, video mogul Barry Diller, isn’t going to pump more money into the company to pay for licenses.

Of course, TV networks are cheering the result of the Supreme Court’s decision in Aereo. But it doesn’t help them in the long run if the rules of the road for future technologies are made cloudier instead of clearer.  And Aereo would eventually have been doomed anyway if Justice Scalia had a majority.

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