WNET v. Aereo: Split Appellate Panel Rules That “Remote-Storage DVR” Decision Insulates Provider of Internet Streaming from Liability


n April 1, 2013, the U.S. Court of Appeals for the Second Circuit handed down a 2-1 decision affirming a lower court’s ruling that a broadcast television retransmission system was unlikely to be liable for copyright infringement due to the Second Circuit’s holding in Cartoon Network LP, LLLP v. CSC Holdings, Inc., 536 F.3d 121 (2d Cir. 2008) (commonly referred to as the Cablevision decision). WNET v. Aereo, Inc., Nos. 12-2786-cv & 12-2807-cv (2d Cir. Apr. 1, 2013). The Aereo ruling deals a blow to the standard cable licensing model and may have impacts beyond television distribution alone. While a similar case pending in the Ninth Circuit will provide a better understanding of how the legal landscape surrounding retransmission of television content may change, and while the case involved a preliminary injunction rather than findings on a full record, it is important to understand the underpinnings and messages from the Aereo decision. As the Aereo court itself noted, technology companies are paying attention to these cases – and developing accordingly.

How Aereo Works

With one exception, which was not challenged on appeal, the functionality of Aereo was undisputed. The Aereo system, at the time of the court’s decision, was composed of a series of large antenna boards located at a facility in Brooklyn, New York. Affixed to each board were approximately 80 dime-sized antennas which capture broadcast television signals. When a subscriber selected a particular program to watch or record, Aereo’s antenna server would assign one of the antennas and a transcoder to that user, and tune the antenna to the broadcast channel selected. After the data was received, it would be buffered and sent to another server, where a copy of the program is saved to a large hard drive in a directory reserved for that user.

If the user selected the “watch” feature, the system would automatically stream programming near-live (in particular, with a six- to ten-second delay) from the copy being made in the user’s directory. If a user selected “record,” a complete copy would be made for the user to watch later. Under either method, only the subscriber who made the copy could access that copy.

The majority analogized the functionality of Aereo to a combination of three prior technologies: “a standard TV antenna, a DVR, and a Slingbox-like device.” As explained below, the dissent viewed the technology through a very different lens.

The Court’s Analysis

The question for the court on appeal was whether Aereo’s service infringed the broadcasters’ right of public performance under Section 106(4) of the Copyright Act. The answer to the question turned on what is known as the “Transmit Clause” of the Act’s definition of “[t]o perform . . . a work ‘publicly’”; in this case, whether Aereo transmits a performance of the work to the public, by means of any device or process, regardless of whether the members of the public capable of receiving the performance received it in the same place or in separate places, and at the same time or different times.

The court began its analysis by pointing to the context in which the Transmit Clause came about over thirty years ago: “to respond to changes in technology, most notably, cable television.” This included addressing two Supreme Court decisions that had held that a cable television system that received broadcast television signals via antenna and retransmitted them to its subscribers did not “perform” the copyrighted works. The Transmit Clause was designed to clarify that nearly any method by which signals are picked up and conveyed is a “performance,” thus abrogating the Supreme Court cases. In the process, Congress also created a compulsory license for cable systems that retransmitted broadcast signals (see Section 111).

As the court’s analysis recognized, that something is a “performance” answers only part of the question: it must be a public performance. This was the focus of the court’s ruling less than five years previously in Cablevision, a case that the court believed involved “a similar factual context.” In the Cablevision case, the technology at issue was a system known as the “Remote Storage Digital Video Recorder,” or “RS-DVR,” which was made available to Cablevision subscribers. To the subscriber, the RS-DVR appeared to operate the same way as a standard DVR, only without the set-top box in the home. From the perspective of the cable company, the RS-DVR operated by splitting the live cable stream into two, routing the second stream through a series of buffers, and placing copies in stored space assigned to a subscriber if the subscriber requested that a program be copied. The subscriber could then play back the copied program from her assigned storage space at Cablevision’s facility. In reversing the district court’s grant of an injunction against Cablevision, the Second Circuit found that (a) because subscribers made copies as the transmission sent from the head-end to the cable company’s subscribers passed through the RS-DVR system, and (b) because each of these copies could be played back to only the subscriber that requested that the specific copy be made, the playback performances were private, not public.

According to the Aereo court, the Cablevision ruling established four guideposts that would determine the outcome of the appeal: (1) the Transmit Clause requires courts to consider the potential audience of the individual transmission; in particular, whether that potential audience is the public or just one subscriber; (2) in determining whether a performance is public, “private transmissions” of “the same underlying work or original performance of the work” should not be aggregated; (3) an exception to guidepost #2 exists when private transmissions are generated from the same copy of the work; and (4) “any factor that limits the potential audience of a transmission is relevant” to the Transmit Clause analysis. (While the scope of the “transmission” involved in the foregoing analysis is not entirely clear, the court appeared to define the “entire chain of transmission” at issue in the Aereo case as the transmission “from the time a signal is first received by Aereo to the time it generates an image the Aereo user sees.”)

Applying these four guideposts, the court found the Aereo system analogous to Cablevision’s: when a user elects to watch or record a program, Aereo’s system creates a unique copy of that program on a portion of a hard drive assigned only to that Aereo user, and when a user chooses to watch the program, the transmission sent from Aereo and received by that user is generated from that same unique copy, which is inaccessible to other Aereo users. The court took particular care to point to the impact of Cablevision as having set a limit on the ways that legislative history of the Transmit Clause can be interpreted when applied to future technological developments. Finding the Cablevision ruling as precedent for the Second Circuit’s rulings since 2008 and not to be disturbed unless overruled by an en banc panel of the court or by the Supreme Court, the court also noted that Cablevision set a precedent for the chosen architecture of “many cloud computing services, such as internet music lockers . . . .”

Judge Chin’s Dissent

In a strong dissent, Judge Chin (who happened to be the judge in the Cablevision case at the district court level) vigorously disagreed with the majority’s holding. Calling Aereo’s platform of thousands of individual dime-sized antennas “a sham,” the judge described the system as “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.” To Judge Chin, the making of 50,000 copies of the Super Bowl to be retransmitted near-live to 50,000 subscribers did not affect his overall view that “Aereo is doing precisely what cable companies, satellite television companies, and authorized Internet streaming companies do – they capture over-the-air broadcasts and retransmit them to customers – except that those entities are doing it pursuant to statutory or negotiated licenses, for a fee.”

The dissent’s view requires looking at the system as a whole, rather than looking at the specific transmissions made from several individual copies. Under Judge Chin’s interpretation of the Transmit Clause, these individual copies were simply intervening “device[s] or process[es]” between the start of the transmission and its receipt by the subscriber. According to the dissent, Cablevision was distinguishable functionally: the RS-DVR was a supplemental service allowing playback of shows for subscribers that had access to previously licensed original “live” transmissions, whereas the core of Aereo’s business is to stream broadcasts over the Internet in real-time. Judge Chin opined that the ruling was also distinguishable legally: Cablevision involved a series of rulings on copying in addition to the question of public performance, and according to Judge Chin, the holding that the copies were “made” by the subscriber was critical to the court’s decision to view the transmissions at issue starting from the “single unique copy” the subscriber made.

Judge Chin also took aim directly at the notion that other technology companies have followed the Cablevision ruling, suggesting that if they have done so, it was not without risk. He pointed to the government’s interpretation of the Cablevision decision, in conjunction with the United States’ opposition to a grant of certiorari by the Supreme Court, that the “Second Circuit’s analysis of the public-performance issue should not be understood to reach . . . other circumstances beyond those presented.” The dissent also noted that Aereo’s business plans reflected concerns about the strength of Cablevision in forums outside of the Second Circuit. Yet, in concluding, the dissent sounded an ominous warning about the potential impacts of the ruling: “[t]oday’s decision does not merely deny the broadcasters a licensing fee for Aereo’s activity; it provides a blueprint for others to avoid the Copyright Act’s licensing regime altogether.”

What’s Next?

The next chapter is unclear. A similar case, with an opposite outcome, is working its way through the Ninth Circuit; if that court affirms, the Supreme Court may step in to resolve the circuit split. In the interim, at least two broadcast channels have floated the idea of moving to a pay-only system. As the legal process continues, we will keep you updated on developments.

The above was originally hosted on copyrightalliance.org. Thanks to the Copyright Alliance for graciously allowing us to share the post here.

Filed in: Copyright, Digital Media, IP/Internet Transactions, Legal Blog

April 10, 2013