Four Unanswered Questions From Aereo’s Supreme Court Loss (Forbes Cross-Post)

The Supreme Court ruled that Aereo infringed broadcasters’ copyrights by transmitting, in near-real-time, the stream of over-the-air television broadcasts, even when it did so at viewers’ direction. Adopting a pragmatic and functional assessment of Aereo’s activities, the majority held that Aereo was too similar to cable systems, which copyright law regulates heavily. It’s pretty clear this opinion means the end of Aereo and its competitors as they are currently architected, so I’m going to focus this post on four of the many questions left open by the ambiguous statements and dubious assumptions in the majority’s opinion.

1) Who took the legally significant action? It’s one of the most fundamental, yet unresolved, questions of Internet law: if online content is infringing, who bears legal responsibility? Is it the uploader, the downloader, one or more intermediaries helping move the content from uploader to downloader, all of the above, none of the above, or some subset of these parties? This “whodunit” question online has vexed courts for more than 20 years, and this ruling will likely exacerbate the confusion.

aereo_logoAereo argued that it was a technology provider, and users configured the system to specify their desires. Under this argument, Aereo didn’t take any legally significant actions; its users did. The court rejects Aereo’s argument, saying that Aereo took legally significant actions of transmitting the broadcast signal–apparently in addition to its users, who also took legally significant actions.

With respect to watching broadcasted content, viewers probably don’t infringe for a variety of reasons (including the users’ performance isn’t “public” or the users are protected by fair use). But in other cases, “downloader” liability may not be so favorable. Furthermore, in other circumstances, intermediaries who think they are just user-driven technology providers might now find that their actions are legally significant. Indeed, the implications of the “whodunit” question ripple throughout Internet Law. This is why so many people are asking what this opinion means for cloud services–a question that doesn’t lend itself to broad generalities. Instead, we have to carefully analyze individual cloud services, such as…

2) Is DVR-as-a-service legal? A seminal Internet copyright law ruling involved DVR-as-a-service (Cartoon Network v. CSC, a 2008 ruling from the 2nd Circuit). The court there held that the DVR service provider Cablevision wasn’t liable because its DVR users took all of the legally significant actions. The Aereo ruling expressly sidesteps whether its reasoning applies to DVR-as-a-service. Furthermore, much of the court’s ruling depends on Aereo’s real-time/near-real-time streaming of broadcasts, which is factually distinguishable from time-delayed DVR services.

Still, because the court said Aereo took the legally significant actions, it’s possible this ruling overturned the 2008 Second Circuit ruling, exposing DVR service operators to new liability. The opinion further reinforces the riskiness of DVR-as-a-service when it says the simultaneous delivery of content to multiple viewers is an infringement, even if the system stores and delivers a personal copy for each viewer (the court later implies that even simultaneous delivery isn’t required to violate the law).

UPDATE: Cablevision contacted me to say they think this opinion “protects” their DVR service. Their press statement says: “We are gratified that the Court’s decision adopted a sensible middle ground, holding that unlicensed retransmission services like Aereo violate the copyright law, while protecting consumer-friendly, cloud-based technologies, such as RS-DVR.” I don’t read the opinion as charitably as they do.

3) Is in-line streaming legal? In 2012, in Flava Works v. Gunter, the Seventh Circuit issued a garbled ruling that a website embedding videos hosted at third party websites didn’t take any legally significant actions–and neither did the individual viewers of those videos. So if an embedded video infringed, neither the embedding site nor the viewer were liable. (In that situation, the uploader and the video host still could be liable).

The Aereo opinion clouds the legitimacy of embedding and viewing videos hosted at third party websites. The Aereo opinion can be distinguished by the fact Aereo’s equipment captures and relays the broadcast stream, whereas a website embedding a third party hosted video doesn’t actually process the video stream at all.

However, to the end user, it looks like the embedding site is the video’s source, and that could make a difference. The Aereo court says:

why should any of these technological differences matter? They concern the behind-the-scenes way in which Aereo delivers television programming to its viewers’ screens. They do not render Aereo’s commercial objective any different from that of cable companies. Nor do they significantly alter the viewing experience of Aereo’s subscribers. Why would a subscriber who wishes to watch a television show care much whether images and sounds are delivered to his screen via a large multisubscriber antenna or one small dedicated antenna, whether they arrive instantaneously or after a few seconds’ delay, or whether they are transmitted directly or after a personalcopy is made?

If we apply Aereo’s functional equivalence approach, that could create problems for in-line streaming.

(For the same reason, this opinion could cast a shadow on in-line linking of images and photos, which in 2007 the Ninth Circuit held was not an infringing display so long as the in-line linking site didn’t actually host the images).

4) Will this opinion chill innovation?

The Aereo majority clearly felt it couldn’t ignore how Aereo threatened to upend an industry worth many billions of dollars based on the equivalent of a technological parlor trick. The court’s opinion sought to resolve that problem without creating new problems elsewhere.

Realpolitik opinions by the Supreme Court are unavoidable, but do they work as planned? We have some evidence from a similar realpolitik opinion involving online copyright, the nearly decade-old Supreme Court opinion in MGM v. Grokster. In that case, the defendants distributed software that enabled peer-to-peer file sharing, enabling a large quantum of infringing activity by users online. In a realpolitik opinion, the court struck down the defendants’ practices as “inducing” infringement. Since that ruling, we’ve had a small number of cases where courts have found online inducement, and almost none of those cases found inducement without finding some other legal violation. As a result, the Grokster opinion seemingly accomplished its goals: it kicked the source of major online infringement out of the marketplace, but didn’t expose other players to new legal liability.

That’s the good-news story of Grokster. Unfortunately, there’s a bad-news side to the story: we now see inducement alleged in virtually every case involving online intermediaries, even though it’s highly unlikely to succeed. The result is that all parties (plaintiffs, defendants and the court system) face higher adjudication costs to reach the same outcome. Those adjudication costs can absolutely chill innovation, as we saw when copyright owners kicked YouTube-competitor Veoh out of the marketplace even though the federal appellate court ultimately concluded that Veoh hadn’t infringed at all.

A more dystopian possibility is that the Supreme Court’s murky “whodunit” discussion will give copyright owners new pet theories to test in litigation against poorly capitalized start-ups. It could take years to sort through those theories, meaning we may not be able to gauge the effect of this opinion for quite some time, and numerous start-ups will go under in the process due to oppressive legal bills.

An even worse dystopian possibility is that this opinion will chill innovators who want to rely on legislative text to develop innovative technological workarounds. One way of reading this opinion is that it’s not OK to replicate the functions of existing incumbents without complying with the same regulatory obligations, even if the newcomer’s technological implementation differs. But so many of our most cherished technological tools made exactly that kind of end-run on incumbents. If this opinion discourages that kind of innovation, we as a society will be poorer.

Case citation: American Broadcasting Cos. v. Aereo, Inc., 2014 WL 2864485 (U.S. Supreme Court June 25, 2014)