Don’t Ditch Cable For Internet TV… Yet.

A Look At The Supreme Court’s Decision In Aereo III, Why Internet TV Is Not Eligible For A Compulsory License Under The Copyright Act, And Why It’s Time To Re-evaluate If It Should Be.

On June 25, 2014, the Supreme Court issued its ruling in American Broadcasting Cos., Inc. v. Aereo, Inc., 134 S. Ct. 2498 (2014) (“Aereo III”) – a two-year long dispute concerning the legality of Internet retransmissions of free over-the-air televised broadcast content to streaming subscribers. The case had gained much notoriety as several amici (including the NFL, MLB, the Department of Justice, and several entertainment and media organizations) submitted briefs to the Court to voice their opinions. In a 6-3 decision, the Court held that Aereo’s activities violate the exclusive right of copyright owners to “perform the copyrighted work publicly.” Id. at 2499-2500, quoting 17 U.S.C. Section 106(4).

But Aereo isn’t going away quietly. It now asserts that, if it does “perform,” it does so as a “cable system” and, therefore, is eligible to make secondary transmissions of the copyrighted works pursuant to Section 111 of the Copyright Act (the “cable compulsory license”). If true, Aereo would be able to continue its operations after submitting the statutorily established license fees. If not, Aereo will need to individually negotiate license agreements with rights’ holders, as no compulsory license exists for Internet retransmissions.

Is Aereo likely to prevail on this argument? Probably not; but it may be time for Congress and the Copyright Office to revisit the merits of a compulsory license for Internet retransmissions. Before addressing those issues, it is worthwhile to review how Aereo’s technology works and the particulars of the Court’s determination in Aereo III.

Aereo offers subscribers broadcast television programming (virtually as it is broadcast) over the Internet, for a monthly fee. To do so, Aereo uses servers, transcoders, and thousands of dime-sized antennas housed in its central warehouse. A subscriber selects a show to watch from Aereo’s website, which lists available local programming. Then, one of Aereo’s servers selects an individual antenna and dedicates it to that subscriber for the duration of the program. Aereo’s servers will tune the antenna to the subscriber’s desired over-the-air broadcast, transcode that signal, and transmit the data over the Internet. Aereo’s servers save the data in a subscriber-specific folder (the subscriber’s “personal” copy) and begin streaming once several seconds of programming are saved. The data streamed to each subscriber is only from each subscriber’s “personal” copy. Aereo III, 134 S. Ct. at 2503.

The question for the Supreme Court was whether Aereo’s transmissions, which consisted of individual transmissions of a unique “performance,” did not constitute a “public performance” of copyrighted works under the Act. Or, instead, was simply “a Rube Goldberg-like contrivance, over-engineered in an attempt to avoid the reach of the Copyright Act and to take advantage of a perceived loophole in the law.” WNET v. Aereo, Inc., 712 F.3d 676, 697 (2d Cir. 2013) (Chin, dissenting).

In the Court’s eyes, the case essentially came down to whether Aereo’s operations were more closely analogous to a cable system or, instead, a copy shop. If it were the former, then Aereo’s operations would run afoul of the Copyright Act because it would be directly infringing the exclusive rights of copyright owners. If the latter, then Aereo’s subscribers, not Aereo, would be the direct infringers and Aereo would not be directly liable. (Ed. Note: For an interesting dissection of Justice Scalia’s dissent and the copy shop argument, check out Devlin Hartline’s blog post).

The majority opinion, penned by Justice Breyer, held that Aereo publicly performs copyrighted works in violation of the “Transmit Clause.” The Court noted that, while the Transmit Clause did not clearly indicate whether an entity that merely supplies equipment performs or transmits themselves, the legislative history behind the provisions made clear that Aereo does “perform” as contemplated by the Act. Aereo III, 134 S. Ct. at 2504.

The Transmit Clause defines publicly perform:

To transmit or otherwise communicate a performance or display of the work . . . to the public, by means of any device or process, whether the members of the public capable or receiving the performance or display receive it in the same place or in separate places and at the same time or at different times.

17 U.S.C. Section 101. But, as the Court indicated, the legislative history behind the provision greatly illuminates its scope and meaning.

“One of Congress’ primary purposes in amending the Copyright Act of 1976 was to overturn th[e Supreme] Court’s determination that community antenna television (CATV) systems (the precursors to modern cable systems) fell outside the Act’s scope.” Id. In Fortnightly Corp. v. United Artists Television, Inc., 392 U.S. 390 (1968), and Teleprompter Corp. v. Columbia Broadcasting System, Inc., 415 U.S. 394 (1974), the Supreme Court had held that CATV systems did not violate copyright owners’ exclusive right to “perform” or “transmit.” In the Court’s view, CATV providers merely “enhanced the viewer’s capacity to receive the broadcaster’s signals,” Fortnightly, 392 U.S. at 399, even though it recognized CATV providers had some discretion over what to transmit and viewers could not likely afford the enhancing equipment themselves. Teleprompter, 415 U.S. at 408-410.

In response, Congress introduced language in the 1976 Act to overturn the Fortnightly and Teleprompter decisions and erase the distinction between a broadcaster and viewer with respect to the right “to perform.” H.R. Rep. No. 94-1476, pp.88-89 (1976). See also S. Rep. No. 94-473, p. 60 (1975) (“Under the definitions of ‘perform,’ ‘display,’ ‘publicly,’ and ‘transmit’ in Section 101 . . . a cable system is performing when it retransmits the broadcast to its subscribers[.]”).

While Aereo portrayed itself as merely furnishing its subscribers with equipment that emulated the operation of a home antenna or DVR device, the Court found that Aereo’s activities were those Congress sought to target by enacting the Transmit Clause. Aereo III, 134 S. Ct. at 2506 (“Aereo’s activities are substantially similar to those of the CATV companies that Congress amended the Act to reach.”). “The [Transmit] Clause makes clear that an entity that acts like a CATV [or modern cable] system itself performs, even when it simply enhances viewers’ ability to receive broadcast television signals.” Id. “Given Aereo’s overwhelming likeness to the cable companies targeted by the 1976 amendments,” Aereo did infringe others’ copyrights when it retransmitted broadcast content. Id. at 2507.

Consistent with its findings, the Court reversed the Second Circuit’s ruling and remanded the case. To avoid having its services enjoined, Aereo has now attempted to tender statutory license fees to the Copyright Office to obtain a compulsory license to the copyrighted works as a “cable service” under Section 111 of the Copyright Act. However, the Copyright Office informed Aereo that, while it would provisionally accept the license fees Aereo tendered, it would not process its license request because:

In the view of the Copyright Office, internet retransmissions of broadcast television fall outside the scope of the Section 111 license. Significantly, in WPIX, Inc. v. ivi, Inc., 691 F. 3d 275 (2d Cir. 2012), the Second Circuit deferred to and agreed with the Office’s interpretation of Section 111. As explained in that case, Section 111 is meant to encompass “localized retransmission services” that are “regulated as cable systems by the FCC.” We do not see anything in the Supreme Court’s recent decision in American Broadcasting Cos. v. Aereo, Inc., 134 S. Ct. 2498 (2014), that would alter this conclusion.

Letter of Jacqueline C. Charlesworth, General Counsel and Associate Register of Copyrights, to Mr. Matthew Calabro of Aereo, Inc. (July 16, 2014). (Internal citations omitted). Now, Aereo is again before the Second Circuit, seeking to persuade the court that it is a “cable system” under the Copyright Act.

In support of its claim, Aereo advances two arguments. First, pursuant to Aereo III (and various comments from the Justices), Aereo is a cable system eligible for a Section 111 compulsory license. Aereo, Inc.’s Opposition to Plaintiffs’ Memorandum in Support of Preliminary Injunction (“Aereo’s Opposition”) at 1. Second, prior precedent (namely, the Second Circuit’s decision in WPIX, Inc. v. ivi, Inc. [“ivi”] and the Copyright Office’s position on Internet retransmissions) is inapplicable as Aereo only engages in localized retransmission services. Id. at 15. Aereo, however, is unlikely to prevail on these arguments.

First, Aereo III did not address whether Aereo was a cable system eligible for a compulsory license under Section 111. The only questions before the Court were (1) are Aereo’s transmissions “performances” of copyrighted works and, if so, (2) whether that performance(s) is “to the public.” Aereo III, 134 S. Ct. at 2500-2503. In fact, the opinion itself only cites to Section 111 three times, in a paragraph detailing Congress’ response to Fortnightly and Teleprompter. Id. at 2506.

Furthermore, the Court’s opinion makes clear that the Transmit Clause be read expansively, as an entity that “acts like a CATV system itself performs.” Id. That reading is supported by the clear language of the clause, which states that a transmission may be accomplished “by any device or process” – not only by a cable system. 17 U.S.C. Section 101. By comparison, Section 111(f)(3) defines a “cable system” as:

A facility, located in any State, territory, trust territory, or possession of the United States, that in whole or in part receives signals transmitted or programs broadcast by one or more television broadcast stations licensed by the Federal Communications Commission, and makes secondary transmissions of such signals or programs by wires, cables, microwave, or other communications channels to subscribing members of the public who pay for such service.

Although an argument could be made that “or other communications channels” also be read expansively, the remainder of the provision is itself narrowly constructed. Moreover, the legislative history surrounding Congress’ creation of a satellite compulsory license, discussed infra, supports a narrow interpretation of “or other communications channels.” Otherwise, the phrase could even include a retransmission made by two cans and a string. (Ed. Note: I thought the broadcasters made this argument in their request for an injunction, but I could not locate or source the “two cans and a string” analogy. Please let me know if you know who originally asserted this position.). The Court took great care to describe how Aereo’s transmissions emulated a cable system, but avoided stating Aereo is a cable system.

In addition, Aereo’s reliance on statements made by Justices Sotomayor and Breyer is misplaced. In its opposition, Aereo quotes Justice Sotomayor stating, “We say they’re a c[]able company, they get the compulsory license.” Aereo’s Opposition at p. 7, quoting S. Ct. Tr. at 5:2-5:4. However, Aereo provides no context for the quote – Justice Sotomayor was actually posing a question to counsel about whether Aereo should be eligible for the cable compulsory license. In addition, while Justice Breyer expressed an interest in the question, he ultimately remarks that it might be a question best left to be addressed on remand. S. Ct. Tr. at 6:25. The opinion itself makes no determination as to Aereo’s status as a cable system under the Act. It is clear that the Court, at most, thought this question may warrant further review, not that Aereo is a cable system eligible for a compulsory license under Section 111.

Second, given the limited scope of the Court’s ruling, the Second Circuit is bound by res judicata to find that Aereo is not eligible for the cable compulsory license, as ivi remains good law. In ivi, the Second Circuit addressed whether a service that streamed copyrighted television programming live and over the Internet constituted a cable system under Section 111 of the Act. ivi, 691 F. 3d at 279. Based on the statutory text alone, it was not clear whether ivi utilized a “facility” or received and retransmitted signals as required to be a cable system under Section 111(f)(3). Id. at 280. Because the text was unclear, the Second Circuit turned to the legislative history for the provision and found:

Congress enacted Section 111 to enable cable systems to continue providing greater geographical access to television programming while offering some protection to broadcasters to incentivize the continued creation of broadcasting television programming. . . . In 1991, the Eleventh Circuit held that a satellite carrier was a cable system covered by Section 111’s compulsory licensing scheme. In 1998, rather than incorporate satellite technology as a communications channel under Section 111, Congress responded to the Eleventh Circuit’s decision by codifying a separate statutory license for satellite carriers under Section 119 of the Copyright Act. . . . Finally, in 1994, Congress expressly included “microwave” as an acceptable communications channel for retransmissions. Congress has not codified a statutory provision for Internet retransmissions, nor has it included the “Internet” as an acceptable communication channel under Section 111.

Id. at 281-82. (Internal citations omitted). “[I]f Congress had intended to extend Section 111’s compulsory license to internet retransmissions, it would have done so expressly – either through the language of Section 111 as it did for microwave transmissions or by codifying a separate statutory provision as it did for satellite carriers.” Id. at 282.

The Second Circuit also gave significant deference to the Copyright Office’s opinion on the question. “The Copyright Office has consistently concluded that Internet retransmission services are not cable systems and do not qualify for Section 111 compulsory licenses.” Id. at 283; see also 57 Fed. Reg. 3284, 3292 (Jan. 29, 1992) (“. . . the [Section 111] compulsory license applies only to retransmission services regulated as cable systems by the FCC.”). According to the Copyright Office, “the [S]ection 111 license does not and should not apply to Internet retransmissions.” Copyright Broadcast Programming on the Internet: Hearing Before the Subcomm. on Courts and Intellectual Property of the Comm. on the Judiciary, 106th Cong. 25-26 (2000) (statement of Marybeth Peters, The Register of Copyrights) (quoting Letter of Marybeth Peters, Register of Copyrights, to the Honorable Howard Coble (Nov. 10, 1999)). Although Aereo asserts that, unlike ivi, it only utilizes localized transmissions like a regulated cable system, the Copyright Office’s recent response to Aereo’s attempt to secure a compulsory license demonstrates the Office’s position has not significantly changed.

In my opinion, Aereo should not be considered a cable system pursuant to Section 111. Congress enacted a complex licensing regime that clearly differentiates between content transmission services. Compare 17 U.S.C. Section 111 with Section 119. Allowing Internet retransmissions to be eligible under Section 111 would effectively disregard the delicate balancing act Congress engaged in when establishing the appropriate license amount and requirements – wholly ignoring the technological capabilities and limitations of cable systems as compared to Internet retransmission services. In fact, Congress’ legislative response to the Eleventh Circuit’s determination that satellite services qualify for a Section 111 compulsory license should dissuade courts from construing a cable system too broadly. Accordingly, if Aereo wants to retransmit televised broadcast content, it must negotiate a license to do so with the contents’ owners.

Given changes in the media industry and advances in technology, it may be time for Congress and the Copyright Office to revisit the question of whether there should be a separate compulsory license for Internet retransmissions of televised broadcast content.

“The Copyright Office has long been a critic of compulsory licensing for broadcast transmissions” because a compulsory license derogates a copyright owner’s exclusive right to perform and “prevents the marketplace from deciding the fair value of copyright works through government-set price controls.” Copyright Broadcast Programming on the Internet: Hearing Before the Subcomm. on Courts and Intellectual Property of the Comm. on the Judiciary, 106th Cong. 26 (2000) (statement of Marybeth Peters, The Register of Copyrights). Despite those objections, Congress enacted a cable compulsory license in 1976 because it “believed that the transaction costs associated with a cable operator and copyright owners bargaining licenses to all television broadcast programs retransmitted . . . were too high.” Id. at 22. In 1988, Congress created a compulsory license for satellite carriers because “the satellite business was a fledgling industry without market power [and Congress] believed [it] unlikely that satellite carriers could negotiate retransmission licenses with broadcast programming copyright owners.” Id. at 23.

As discussed earlier, there is no compulsory license for Internet retransmissions. Although opposed to compulsory licenses in general, the Copyright Office has considered a compulsory license for Internet retransmissions to be especially ill-advised as (1) cable and satellite have to build delivery platforms, while the Internet retransmission services do not; (2) copyright owners can readily and inexpensively utilize the Internet themselves to make their content available if they so desire; (3) the Internet contains a risk of digital theft and mass dissemination that is not present in cable and satellite services; and (4) it is unclear how retransmissions relayed over the Internet could be limited to their local markets. Id. at 28-31. While the Copyright Office recently reiterated its adherence to those views, the technological landscape has changed drastically since those concerns were first raised.

First, while cable and satellite carriers do need to build and maintain delivery platforms, both industries are now economically stable. The Copyright Office no longer considers a compulsory license economically necessary to ensure the viability of either industry and has openly petitioned Congress to terminate cable’s compulsory license. Id. at 27. However, Congress continues to extend the cable compulsory license and, in order to preserve competitive parity, the satellite license. Id. at 28. (Ed. Note: On June 10, 2014, Senator Patrick Leahy introduced the Satellite Television Access Reauthorization Act of 2014 to extend the current statutory license for satellite carriers until December 31, 2019. Track the bill here.).

The continued existence of a cable and satellite compulsory license may be the most compelling reason for reconsidering an Internet compulsory license. Cable and satellite services offer bundled Internet and television services, which may put them at a competitive advantage compared to any potential Internet retransmission services. While Google has touted its plans to offer high-speed Wi-Fi networks in cities and towns (which may eventually undermine any competitive advantage conferred by bundling services), it is not currently available. But, more importantly, Internet retransmission start-ups likely face a significant uphill battle in negotiating individual licenses at fair rates, especially considering that Comcast (a cable service) has acquired a majority stake in NBC Universal – not an ideal scenario to ensure arms-length bargaining.

With respect to the resources cable and satellite services devote to developing delivery platforms, Congress could fashion an Internet compulsory license to factor in those economic considerations. For example, in addition to a content licensing fee, Congress could require Internet retransmission services to pay a separate premium to be contributed to the Universal Service Fund. Those contributions could be used to develop networks that promote the availability of high-speed services for consumers in rural or high-cost areas – essentially addressing Congress’ initial goal for a cable compulsory license: spreading the availability of local content to under-served consumers. Id.

Second, although there remains a risk of digital theft, technology and encryption measures have progressed significantly since the Copyright Office first expressed its concerns. In 1998, Congress enacted the Digital Millennium Copyright Act (“DMCA”). Section 1201 of the DMCA imposes penalties for individuals that circumvent technological measures that are created to prevent unauthorized access or copying of works. 17 U.S.C Section 1201. Although it would have been difficult to gauge the effectiveness of this provision in 2000, there has been ample opportunity to now evaluate both the effectiveness of technological protection measures and whether the provision acts as a significant deterrent to infringement.

Furthermore, Congress’ success in creating a digital performance right for sound recordings and licensing regime may actually cut against the Copyright Office’s earlier concerns of digital theft. On March 17, 2014, the Copyright Office issued a Notice of Inquiry to study the effectiveness of music licensing under the Copyright Act. Many commenters have credited the statutory license for digital sound recordings with fostering the growth of digital radio and benefiting music creators. See Comments of Screen Actors Guild – American Federation of Television and Radio Artists and American Federation of Musicians of the United States and Canada at 4 (“the Section 114 statutory license [for digital sound recordings] has been the predicate for the development of a healthy and thriving business ecosystem that has delivered the enormous value to large and small recording companies and to the Artists who create the sound recordings.”). In addition, copyright owners have lauded the creation and success of SoundExchange, the licensing entity to oversee and distribute licensing fees, as efficient and successful. Comments of the Recording Industry Association of American at 42-43. Perhaps Congress could model an Internet licensing entity on SoundExchange.

On the other hand, if many televised broadcasters have and continue to place their content on the Internet (or license the content at market price), then there may not be a need for a third-party packager. See Copyright Broadcast Programming on the Internet: Hearing Before the Subcomm. on Courts and Intellectual Property of the Comm. on the Judiciary, supra, 106th Cong. at 29 (citing Hearings Before the Subcomm. on Telecommunications, Trade & Consumer Protection of the House Commerce Committee, 106th Cong. (2000) (statement of Paul Karpowicz). Congress should consider the amount and diversity of broadcast content made available on the Internet, the ease of accessibility and timeliness of the content, and whether independent license negotiations reflect a willing buyer/willing seller price point.

Third, the Copyright Office’s “principal concern” about whether “Internet retransmissions of broadcast signals [could] be controlled geographically” is now technologically addressable. Id. at 30. In its report to Congress, the Copyright Office criticized iCraveTV for its feeble attempt to limit retransmission of Buffalo television stations to Canada by requiring users to enter a Canadian telephone number and certify their presence in Canada. Id. However, web services and mobile devices now regularly utilize location-based authentication techniques, such as IP verification and user geolocation. The Copyright Office should consider soliciting comments on whether these technologies could be utilized to geographically control the availability of Internet retransmissions.

None of this is to say that Congress should necessary create a compulsory license for Internet retransmissions, but it may time to once again solicit comments on the issue. In the meantime, if Aereo plans to continue its operations, it should be prepared to negotiate licenses with copyright owners. (Ed. Note: Aereo has made additional arguments to prevent an injunction of its operations, such as its use as a time-shifting device and eligibility for the DMCA safe harbor, but this post does not evaluate those arguments). I certainly will be keeping my eye on what happens, so be sure to “tune in.”

Follow me on Twitter: @copyistculture

* Again, a special thanks goes out to Robert T. Law, Esq. and Devlin Hartline of Law Theories.



Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s