A recent Supreme Court ruling has thwarted efforts of start-up Aereo to bring cheap internet TV to the masses. The Court took to review the Copyright Act of 1976 and concluded that Aereo’s activities are “substantially similar to those of the CATV companies that Congress amended the Act to reach”. It would seem that the fledgling start-up never even had a chance to win this fight. So why is this case important?
Television networks sued Aereo for what it perceived to be copyright infringement. Let’s break this down, shall we? Any work you make – for example a movie or a TV show – you are granted a copyright. Under federal law, this means that no one can “publicly perform” that work unless they pay you for the right to do so. The provision is very broad in the sense that it covers almost every imaginable case: from transmission by any means or device, to any time and in any place.
Aereo’s business model is as follows: you pay a fee. In exchange, you get to stream network television over the internet. This isn’t a large fee because Aereo does not have big costs. The reason for that is that they don’t pay the copyright owners the standard fees. In fact, they don’t pay the networks at all. They are able to do this is by having thousands of small antennas that each receive multiple channels from different cable companies. An Aereo subscriber can select which channel and which program he wants to watch. The system selects the program and saves into a file to be sent over the internet. Simple. Easy. Efficient.
But apparently, not too legal.
Broadcast networks and cable companies went nuts and it’s not hard to see why. Networks spend millions of dollars creating content such as TV shows, movies and other featuers. Cable companies spend even more money buying the rights to air this content. Here is a company bypassing the whole costly procedure by paying for just the regular subscription and redistributing it in parts, on demand to everyone who pays their fees. This didn’t sit well with the network and cable industry seeing that it went against the whole industry’s business model.
On June 25th, the Court declared Aereo illegal by a vote of six to three, finding that its system of assigning one separate antenna for each user fell under the “public performance” proviso and so, was infringing on the copyright of networks. Justice Breyer’s issued opinion saw the “public performance” statute as a vehicle for subjecting to copyright laws entities that function as cable companies. The ruling saw that Aereo differed from a cable company in that it sent out a copy to each individual subscriber versus having one stream for all. The judges decided that this minor technical difference did not differ in intent from what a cable company does, and so it was deemed illegal.
However Justice Scalia, Thomas and Alito had issued a dissenting opinion. They argued that since Aereo functioned akin to a photocopier, allowing subscribers to pick a specific channel and a specific program to copy, the work was not performed “publicly”, so the company could not be held liable for direct infringement, just like a photocopier does not infringe on copyrights because it depends on user input. Although they felt that Aereo’s model was damaging to the network and cable companies, it would be up to Congress to plug this loophole in the law.
Aereo tried to convince the audience that ruling its service illegal would have serious ramifications to other areas of technology, including cloud computing. However the majority explained that the ruling does not pertain to services that allow copyright works to be stored remotely and it would remain for another day to see how copyright laws work with services that aren’t offered by cable companies.
What does this mean? For one, start-ups should avoid business models that are based on a perceived legal loophole, especially when that loophole is contrary to Congress’ intent and case law from other jurisdictions. Even though Aereo has the resources and necessary infrastructure, they may not qualify for a compulsory license, they could negotiate individual licenses with broadcasters on a one-to-one basis.
Evidently, this is a complex case and it remains to be seen if the district court will read the Court’s ruling as narrow as Aereo argues it to be.
Stay tuned and don’t cancel your cable subscription just yet. Things are about to get interesting.
photo credit: flash.pro