Broadcasters Hail Aereo Victory, Others Call It ‘Massive Setback’

That broadcasters won their case against streaming TV service Aereo in the Supreme Court Wednesday in a 6-3 decision (http://1.usa.gov/1lbK8Si) makes it very difficult for Aereo to continue operating, several broadcast and copyright attorneys told us. Justice Stephen Breyer wrote the majority opinion, ruling that despite Aereo’s unique technology, the company’s end product was little different than that of a cable company, and should be subject to laws intended to impose copyright restrictions on cable companies. Oral argument was in April (CED April 23 p1).

Aereo didn’t respond to interview requests about its future plans, but CEO Chet Kanojia said in a statement the company planned to continue fighting. That battle could come in Congress, suggested Fletcher Heald copyright attorney Kevin Goldberg. Scalia’s dissent said the loophole in copyright law exploited by Aereo was a matter for Congress to close.

The decision “is a massive setback for the American consumer,” and “sends a chilling message to the technology industry, said Kanojia on the company’s blog (http://bit.ly/1amiJZg). “We've said all along that we worked diligently to create a technology that complies with the law, but today’s decision clearly states that how the technology works does not matter.” Accessing “free-to-air broadcast television” using an antenna is “an essential part of our country’s fabric,” and is “still meaningful” for more than 60 million Americans, Kanojia said. “When new technology enables consumers to use a smarter, easier to use antenna, consumers and the marketplace win. Free-to-air broadcast television should not be available only to those who can afford to pay for the cable or satellite bundle.” Though disappointed with the decision, “our work is not done,” he said. “We will continue to fight for our consumers and fight to create innovative technologies that have a meaningful and positive impact on our world.”

Why would a viewer care “whether images and sounds are delivered to his screen via a large multi-subscriber antenna or one small dedicated antenna?” asked Breyer. Justices Samuel Alito and Clarence Thomas joined Justice Antonin Scalia’s dissent, which disputed Breyer’s opinion while agreeing that Aereo’s system shouldn’t be permitted. Though Aereo had warned that a decision against its technology could have repercussions for cloud computing, the language of Breyer’s opinion makes that unlikely, said copyright attorney Jonathan Band, who filed a neutral brief in the case on behalf of the Center for Democracy and Technology: “The court took pains to insulate the cloud."

Since the high court decision is on the matter of a preliminary injunction rather than the merits of the whole case, the decision means Aereo’s case will be remanded to the 2nd U.S. Circuit Court of Appeals. It’s not likely to continue, numerous attorneys unconnected with the case told us. Instead, it’s likely that broadcasters will again pursue the injunction against Aereo, along with a request for summary judgment, or else Aereo will make a deal with broadcasters and the case will be withdrawn, said Pillsbury Winthrop attorney John Hane. With Breyer’s opinion as precedent, injunctions and motions against Aereo are seen as very likely to be granted, and there are pending proceedings against Aereo in several jurisdictions throughout the U.S., including Utah and Massachusetts. Aereo is unlikely to continue operating with an injunction cutting off its revenue source, said Fletcher Heald appellate attorney Harry Cole.

Aereo was engaging in a public performance of copyrighted material by giving customers access to its system of individual, user controlled antennas and remote DVRs, said Breyer in his opinion. Aereo had argued that customers were privately performing the copyrighted material by choosing to view it, and that it merely rented them equipment to do so, he wrote. In his dissent, Scalia compared Aereo with a copy shop customer with a library card: “Because the shop plays no role in selecting the content, it cannot be held directly liable when a customer makes an infringing copy.”

Breyer argued that the legislative history of the Copyright Act shows that Congress intended for copyright to apply to cable and similar technologies that follow after. Since Aereo’s equipment performs a similar function, it’s bound by the same rules, no matter the specific differences between its technology and cable, he wrote. The dissent’s copy shop argument “makes too much out of too little,” said Breyer.

The high court should “leave to Congress the task of deciding whether the Copyright Act needs an upgrade,” said Scalia. House Judiciary Committee Chairman Bob Goodlatte, R-Va., said Aereo highlighted the need for a reexamination of the Copyright Act, in a released statement Wednesday.

The court’s “limited holding” won’t have the effect of discouraging new technology or impede cloud computing, said Breyer’s opinion. The ruling “does not extend to those who act as own ers or possessors” of content, and the court’s decision doesn’t affect remote storage of content, the opinion said. “It will be pretty easy for any cloud providers to distinguish themselves,” from Aereo-type services, Band said. Aereo CEO Chet Kanojia disagreed, saying in a release that the court’s decision would have a “chilling effect” on technology companies.

Any company working on a video product based on using content without permission should probably be concerned that the decision would apply to them, said Dorsey & Whitney copyright attorney Bruce Ewing. “If it looks like cable TV, it’s not going to withstand scrutiny.”

Though the decision is unlikely to change the way broadcasters do business, it’s likely to “embolden” them to protect their content, said Fletcher Heald’s Goldberg. Though some broadcast industry officials said broadcasters could make a deal with or purchase Aereo, Needham & Co. analyst Laura Martin said it was unlikely, in an email to investors, because it would encourage investment in future Aereo-like disruptors. “Today’s decision sends an unmistakeable message that businesses built on the theft of copyrighted material will not be tolerated,” said NAB in a release.

Reaction was swift from CEA, which fought hard to support Aereo in its legal battle. CEA is disappointed the decision went against “innovator Aereo,” but hailed the ruling for at least including specific references to fair use from the Supreme Court’s Sony Betamax decision “as a safety valve for new services and technologies,” said President Gary Shapiro in a statement (http://bit.ly/1ryMUq6). CEA has “concerns” that the court encouraged “commercial actors” that fear technology’s impact to seek Copyright Act remedies from Congress, Shapiro said. “Laws should be clear and favor innovation. Innovators should not have to get ambiguous laws changed to give consumers new products and services.”

The decision raises issues about the future of broadcasting, Shapiro said. “Given that consumers are increasingly choosing to view content ‘anytime/anywhere’ on smartphones and tablets,” and only 6 percent of Americans rely exclusively on over-the-air TV, “we question how much longer broadcasters can claim to justify their use of public spectrum when they oppose innovative services like Aereo which expand their viewing audience,” he said.

Public Knowledge CEO Gene Kimmelman blasted the decision as a defeat for consumer choice. Aereo “has provided an innovative service that brings consumers more choices, more control over their programming, and lower prices,” Kimmelman said in a statement (http://bit.ly/1lPURWS). “We're concerned that the court’s misreading of the law leaves consumers beholden to dominant entertainment and cable companies that constantly raise prices and gouge consumers.” The decision, which endangers a “competitive choice for consumers,” makes it all the more important that the Justice Department and FCC “guard against anti-competitive consolidation,” such as in Comcast’s plan to buy Time Warner Cable, he said.

"It’s premature to make any comments on the Aereo decision” now, said Dish Network CEO Joe Clayton in an email. “I want to study the judges’ decision in detail before I do.” His company has successfully fended off several federal court injunctions sought by broadcasters seeking to bar Dish’s AutoHop commercial-skipping feature on copyright infringement grounds.

Copyright interests understandably hailed the ruling. The Copyright Alliance welcomed the decision, said CEO Sandra Aistars in a statement (http://bit.ly/1iGxekj). The case “confirms that regardless of the device or process used to communicate a work to the public, the authors of that work deserve to be compensated,” she said. “The Court’s decision widely ensures that the creators of works are appropriately compensated when their work is commercialized by others,” she said. “The broadcasters’ victory over Aereo stands for a simple, undeniable proposition -- no one has the right to make millions off of someone else’s creative property without paying fair market value for the underlying work,” said Ted Kalo, musicFIRST Coalition executive director. Broadcast Music Inc. is “gratified” by the court’s “recognition” that there “should be no free rides on the backs of creators and content owners,” said CEO Michael O'Neill. He said the decision “will contribute to securing the future of customized and individualized content delivery,” and “honors the rights of intellectual property owners to be compensated for their work without stifling the creativity and innovation online services provide."

Caught in the middle of the legal squabble were Aereo subscribers, many of whom complained Wednesday about being left in the dark about the fate of the company and their service in wake of its Supreme Court defeat. Aereo posted the statement from CEO Kanojia on its Facebook page giving the company’s widely distributed response, but didn’t explain to subscribers what the decision meant for them. Aereo had been active in marketing the service in recent weeks, emailing trial members on how they could make the most of a subscription, but there were no emails by early afternoon Wednesday detailing what would happen with subscribers’ recorded content or how long they'd be able to continue recording and accessing TV shows. We were able to do both as of early afternoon Wednesday, immediately following the decision.

On Aereo’s Facebook page, numerous subscribers asked about the fate of their service, but their questions had not been answered by mid-afternoon. One angry customer said, “You guys throw something out there and provide absolutely no amplifying information to your customers specifically from the company,” noting he could get the canned response from any news site. “Explain the impact to your customers.” Among the questions subscribers posed: “I guess no more access without an agreement with local stations. While you work on that, how long will we be able to access our DVR programming?” and “Can the current service at least stay up until the end of the World Cup?” Other comments: “I cannot see why it is ok for me to record from my home antenna to TiVo with only the TiVo fee if Aereo service is not ok,” “Who is going to invest in emerging technologies with these guidelines?” and “I was so looking forward to cutting my cable/satellite. I'm very disappointed that SCOTUS ruled against consumers. This is just wrong.”

Most respondents urged Aereo to keep fighting, while others suggested alternative business models. One asked, “How about you ’sell’ the antennas for a flat cost” and provide the service as a “non-profit free service” supported by advertising? “I hope the business model changes, but the service can live on somehow,” the subscriber said. Another suggestion from a concerned subscriber: “Is there any chance you can sell a home version of your services where each person has their own antenna unit at their house and you can access DVR and programming over Wi-Fi?” The Aereo Facebook page had 32,918 “likes” as of Wednesday afternoon.