SUPREME COURT SHUTS DOWN AEREO

A few weeks ago, in writing about the Supreme Court’s ruling in Petrella v. MGM, in a post entitled “The Breyer Ascendancy Deferred,” I hazarded a fearless prediction:

I am wagering that Justice Breyer will, despite this setback, be voting with and perhaps writing for the majorities in the two most important IP cases coming down over the next six weeks, American Broadcasting v. Aereo and  Alice Corp. v. CLS Bank.

Even a broken clock is right twice a day. Justice Breyer did indeed vote with the majority in Alice Corp. last week, and now he has written for the six-justice majority in Aereo. Surprisingly to me though, Breyer, the leading intellectual property skeptic on the Supreme Court, has written an opinion that strikes down Aereo’s business model as directly infringing TV broadcasters’ exclusive right of public performance on the basis of what I think is a rather tendentious reading of the Copyright Act.

Justice Breyer describes the Aereo technology this way (I have put the key features in boldface):

Aereo’s system is made up of servers, transcoders, and thousands of dime-sized antennas housed in a central warehouse. It works roughly as follows: First, when a subscriber wants to watch a show that is currently being broadcast, he visits Aereo’s website and selects, from a list of the local programming, the show he wishes to see.

Second, one of Aereo’s servers selects an antenna, which it dedicates to the use of that subscriber (and that subscriber alone) for the duration of the selected show. A server then tunes the antenna to the over-the-air broadcast carrying the show. The antenna begins to receive the broadcast, and an Aereo transcoder translates the signals received into data that can be transmitted over the Internet.

Third, rather than directly send the data to the subscriber, a server saves the data in a subscriber-specific folder on Aereo’s hard drive. In other words, Aereo’s system creates a subscriber-specific copy—that is, a “personal” copy—of the subscriber’s program of choice.

Fourth, once several seconds of programming have been saved, Aereo’s server begins to stream the saved copy of the show to the subscriber over the Internet.

The gist of Breyer’s opinion is that Aereo functions like a cable TV operator, capturing broadcast TV signals and transmitting them to subscribers. Back in the early days of cable, the Supreme Court ruled that such retransmissions were not public performances under copyright law, and did not infringe any exclusive right of the broadcasters. The “Transmit Clause” of the 1976 Copyright Act overruled those decisions, giving rise to the practice of cable operators paying “retransmission fees” to broadcasters. Today this is an enormous and vital source of revenue for broadcast networks and stations. Naturally, they were swift and vehement in challenging Aereo’s attempt to use its “dedicated antenna, private copy” model to avoid coming under a statute that renders cable transmissions “public performances.”

Breyer pays scant attention to the language of the Transmit Clause, which he acknowledges is not clear in this context, and focuses instead on evidence of congressional intent in promulgating it, concluding that if  technology like Aereo’s had been known in 1976, Congress would have drafted language that clearly captured it as well.

There was a time when the Supreme Court would have said, “if this is a loophole in the statute, than it is up to Congress to fix it.” The Court seldom shows such restraint these days. But this may have been a case where it would have been wise to do so. As much advance commentary on the case has noted, Aereo’s technology is similar to many cloud computing applications, and a ruling against Aereo here could put such applications under a legal cloud. This would seem to be situation calling for a legislative, not judicial fix.

Breyer attempts to assuage this concern by limiting the scope of “public performance” to transmissions to persons “who lack any prior relationship to the works”:

when an entity performs to a set of people, whether they constitute “the public” often depends upon their relationship to the underlying work. When, for example, a valet parking attendant returns cars to their drivers, we would not say that the parking service provides cars “to the public.” We would say that it provides the cars to their owners. We would say that a car dealership, on the other hand, does provide cars to the public, for it sells cars to individuals who lack a pre-existing relationship to the cars. Similarly, an entity that transmits a performance to individuals in their capacities as owners or possessors does not perform to “the public,” whereas an entity like Aereo that transmits to large numbers of paying subscribers who lack any prior relationship to the works does so perform.

Even putting aside the vagueness of “prior relationship to the works,” I doubt this distinction is going to prove helpful—the valet may not be providing “cars” to the public, but it is performing a “service” for the public, and that is what Aereo and cloud computing providers would also contend. Justice Breyer must realize he is on shaky ground here; how else to explain his rather lame final point:

We also note that courts often apply a statute’s highly general language in light of the statute’s basic purposes. Finally, the doctrine of “fair use” can help to prevent inappropriate or inequitable applications of the Clause.

I have no doubt that Aereo is, or was, a technological kludge designed to exploit a gap in the Copyright Act, but the fact that it threatened to blow a big hole in broadcasters’ current business model was no reason for the courts to rush in with a fix.

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