On April 1, 2013, a divided three-judge panel of the United States Court of Appeals affirmed a July 2012 district court decision that denied a motion filed by a group of broadcasters seeking a preliminary injunction against Barry Diller’s “Aereo” streaming video/remote DVR service. The decision, which surprised a number of observers who had predicted that the appellate court would reverse the district court, has short and long term implications for both content owners and content distributors.

Background. As described in our July 12, 2012 Client Advisory, Aereo is a self-described “technology platform” that transmits broadcast television programs over the Internet. Aereo uses an array of mini-antennas to receive free over-the-air broadcast transmissions and then processes those signals and transmits them to paying subscribers who can choose to watch the programming on a “near-live” basis (i.e., with a several second delay) or to “record” the programming in its entirety for later viewing. A separate mini-antenna is assigned to each subscriber on a “dynamic basis” (i.e., once a subscriber logs off, the antenna that he or she was using becomes available for use by another subscriber; when the subscriber logs back on, a new antenna is assigned on a random basis).

The broadcast networks brought an infringement action against Aereo under the Copyright Act, claiming that the retransmission of their copyrighted television programs violated their statutory right to license the “public performance” of those programs. The district court rejected the broadcasters’ argument, relying heavily on the Second Circuit’s 2008 decision in the Cablevision remote storage-DVR case, which held that the transmission of a unique copy of a broadcast program to the person on whose behalf that copy had been made was a “private” performance, not a “public performance” and thus did not create copyright liability.

On appeal, the broadcasters argued that Aereo was legally and factually distinguishable from Cablevision. A number of observers noted that during oral argument the panel seemed somewhat skeptical of Aereo’s claim that the Cablevision decision required the court to find in Aereo’s favor. It was noted in particular that one of the three judges hearing the case, Judge Chin, had been the trial judge whose decision finding that offering a remote storage-DVR service infringed copyright was overturned by the Second Circuit in the Cablevision case.

Decision. While observers were correct in anticipating that Judge Chin would reject Aereo’s reliance on the Cablevision precedent, the other two judges on the panel concluded Aereo’s service "is not materially distinguishable" from Cablevision’s remote storage-DVR system. The majority found that Aereo essentially was providing subscribers with the functionality of three lawful devices: a standard TV antenna for receiving over-the-air broadcast programming, a remote storage DVR for recording and playing back the broadcast programming, and a Slingbox-like device for accessing the recorded programming on Internet-connected devices. Because the plaintiffs had chosen not to pursue a claim that Aereo infringed their “reproduction rights” under the Copyright Act, the Second Circuit analysis focused exclusively on the question of whether Aereo infringes the broadcaster’s public performance right with respect to their copyrighted programming.

In particular, the majority’s analysis centered on the statutory definitions and legislative history of three terms: “perform,” “publicly,” and “transmit.” In enacting the Copyright Act in 1976, Congress had sought through these terms to reverse earlier court decisions finding that cable systems did not “perform” television programming when they retransmitted broadcast signals to subscribers. The plaintiffs, relying on Congress’ intent to treat the retransmission of broadcast signals by cable systems as “public performances” for which licenses are required, argued that Aereo’s retransmissions were public performances because a transmission of a work is made to the public whether or not the potential recipients are in different places or may receive the transmission at different times.

The majority, however, rejected this line of argument, analogizing Aereo’s service to the use of a rooftop antenna on someone’s home: “It is beyond dispute that the transmission of a broadcast TV program received by an individual's rooftop antenna to the TV in his living room is private.” The majority further reasoned that the television broadcasters had “…presented no reason why the result should be any different when that rooftop antenna is rented from Aereo and its signals transmitted over the Internet.” More importantly, the court found that Aereo’s transmissions were legally indistinguishable from the transmissions analyzed and found to be “private performances” in the Cablevision case. The court stated that in determining whether a performance was public or private, the key issue is not who is capable of receiving transmissions of a particular work using the service, but rather “who precisely is ‘capable of receiving’ a particular transmission of a performance.” In other words, what matters is the potential audience of a particular transmission. And because the potential audience for a transmission by Aereo was the individual subscriber on whose behalf the copy of the work being transmitted was created, Aereo’s transmissions were “private” performances.

The court reached this result even as it acknowledged that “unanticipated technological developments have created tension between Congress’s view that retransmissions of network programs by cable television systems should be deemed public performances and its intent that some transmissions be classified as private.” Citing its duty to follow the Cablevision precedent, the court concluded that Aereo’s targeted single subscriber transmissions were (in contrast to the one-to-many public performances made by cable systems) were private performances for which a license was not needed.

As noted above, the third member of the appellate panel, Judge Chin, dissented from the majority’s ruling, arguing that the court should have found that Aereo’s system infringed on the broadcasters’ public performance rights. Judge Chin stressed the fact that, unlike Cablevision, which had obtained performance rights licenses to make real-time transmissions of the programs that were copied and subsequently viewed through its remote storage DVR service, Aereo was operating on a completely unlicensed basis. Judge Chin also emphasized that the remote storage DVR at issue in Cablevision provided a supplemental service to the licensed real-time transmission service, while Aereo service was designed primarily to stream live television through the Internet and that Aereo had created an inefficient time-delayed technology for making those transmissions simply in order to avoid copyright liability. Although Judge Chin did not go so far as to call for the Cablevision decision itself to be overruled, he cited with approval a recent decision from the Central District of California rejecting the reasoning of the Cablevision case and holding that an Aereo copycat service was engaging in infringing public performances.

Implications. In the short term, the Second Circuit’s decision affirming that Aereo does not infringe the public performance rights in the programming that transmits to its subscribers is a significant loss for the broadcasters. Aereo has already announced plans to expand its service (which currently operates only in the New York City area) to a number of additional markets around the country. In addition, other copycat providers may emerge, including some traditional cable systems. The broadcasters have several options: continue to trial in the Aereo case and appeal again if they lose again, bring lawsuits in each market where Aereo or an Aereo-like service is launched and hope for a more favorable result and/or an eventual split in the circuits that might lead to Supreme Court review, seek rehearing by the entire Second Circuit, or seek a legislative fix. All of these approaches have pros and cons and the broadcasters may pursue more than one strategy simultaneously. Although it is likely to take several years, the issues raised by the Aereo case, including the validity of the Cablevision precedent itself, seem destined for resolution either by the Supreme Court or Congress. In the meantime, the Second Circuit’s ruling may encourage experimentation by cloud and streaming services, as well as by more traditional video distribution services, with technological models that arguably do not involve “public” performances. (For example, the majority opinion in the Aereo case contains a cryptic footnote suggesting that “because Aereo’s system uses both user associated antennas and user associated copies, we need not decide whether a system with only one of these attributes would be publicly performing copyrighted works”). It also raises the stakes for the resolution of the question, currently pending at the FCC, as to whether Internet-based video services are “multichannel video programming distributors” required by the Communications Act to obtain “retransmission consent” from broadcast stations.