On July 11, 2012, the U.S. District Court for the Southern District of New York denied the request of broadcasters and content owners to issue a preliminary injunction requiring Aereo to immediately stop providing its subscribers with access to copyrighted content over the Internet.1 A preliminary injunction is an “extraordinary” remedy, requiring the moving party to present both a strong case under the applicable law and compelling equitable arguments. In this case, the primary grounds upon which the Judge issued her decision was her determination that the plaintiffs’ legal arguments are likely to fall short.
In a 52-page decision, Judge Nathan found that the Second Circuit’s 2008 Cablevision decision2 provided controlling authority, which indicated that the plaintiffs are unlikely to succeed on the merits of their copyright infringement claim. A critical legal issue presented by both the Cablevision and Aereo cases involve interpreting the “public performance” clause of the Copyright Act in the context of new technologies that facilitate delivery of television programming to consumers who increasingly want to watch TV whenever, wherever, and however they choose.
The decision, headed for appeal to the Second Circuit, provides considerable insight into one judge’s understanding of Cablevision’s “public performance” holding. Our takeaway is that Judge Nathan’s opinion puts a marker down as to how to interpret that earlier holding, which itself interprets one of the more challenging sections of the Copyright Act in the online environment. Moreover, in Cablevision, the Second Circuit reversed a thoughtful district court opinion by Judge Chin (who was since elevated to the Second Circuit) that concluded that the Cablevision remote server (RS) DVR use did constitute a public performance.3 So it is fair to say that the standard for infringement is an evolving one, although Judge Nathan went beyond saying that she was bound to an appellate judgment of which she was dubious. Her opinion seconds and expands on the Second Circuit’s discussion of the law.
The Aereo decision has large public policy and market consequences. Some cable operators may view the technology deployed by Aereo as a way around increasingly combative retransmission consent negotiations. Unlike a cable operator’s carriage of broadcast signals (which requires the consent of the broadcaster, unless the broadcaster elects “must carry”), Aereo does not seek permission to use the broadcaster’s signal. Conversely, online video distributors may see Aereo-like systems as a way for some customers to bypass cable and DBS by providing a DVR-enabled version of popular broadcaster programming, which can be augmented by other online content from over-the-top providers.
Background on the Aereo technology
As with Cablevision, the facts related to how programs are transmitted and received are key to the infringement arguments made in the Aereo case. The court devoted a substantial portion of the decision to a detailed discussion of Judge Nathan's understanding of how the Aereo system works, both from a technological and end-user perspective. As the court described, an Aereo customer logs onto her account on the Aereo website to select a program to watch as it is performed over-the-air or to record one that will be aired later. If the program is currently airing, a user can either “watch” or “record” the show. If “watch” is selected, Aereo transmits a webpage to the user in which the program starts after a short delay, roughly at the same time as the current broadcast. While viewing, the user can pause and rewind, allowing the viewer to watch the program after it has ended its over-the-air broadcast. If the user presses “record” after the show starts, Aereo retains the copy the user has been watching, and she can watch it later. A user can also start with the “record” button to record a show that is airing later or one being currently aired. Like the “watch” feature, the viewer in the “record” mode can watch a playback of the recording as it is being made.
At Aereo, when “watch” is clicked, the web browser sends a request to the Application Server which sends a request to Aereo’s Antenna Server. The Antenna Server allocates resources to that user, including a dime-sized antenna. The majority of Aereo users are randomly assigned an antenna each time they use the Aereo system, but no two users use the antenna at the same time. Each antenna separately receives the incoming broadcast signal, rather than functioning with the other antennas.
Once an antenna is selected, the Antenna Server sends a “tune” request to obtain the desired channel’s programming. A request is also sent to a Streaming Server to create a directory specifically assigned to the user to store output from the antenna. The antenna output is processed into data by a transcoder and sent to the Streaming Server which saves it on a hard disk to file in the previously created directory. Once saved, the file is read into a RAM memory buffer that sends the data to the user over the Internet once a sufficient amount of data has accumulated. Additional data received from the antenna are saved to the hard disk, then read into the RAM memory buffer, and then transmitted to the user. The hard disk keeps all the data until the show is over. The data in the RAM memory buffer contains only a small packet of data that is continuously replaced as the data moves to the user.
The main difference between the "watch" and "record" functions is that the file saved to the hard disk is tagged as permanent while the data saved during the “watch” function is not automatically retained unless the user clicks "record" while the show is still running on the web browser.
The District Court’s Cablevision analysis under “Likelihood to Succeed on the Merits”
Recall, the Second Circuit held that cable operator Cablevision’s RS-DVR did not infringe the public performance right of the cable networks that were being recorded on the device. Unlike traditional DVRs, which record programs on a hard disk in the home (akin to a VCR), the customer’s dedicated disk resides at the cable system’s headend. This configuration allows Cablevision to deploy less expensive DVR boxes in its customers' homes.
The public performance portion of the decision, while not an afterthought, did not form the crux of the Cablevision decision.4 Moreover, Cablevision only addressed direct liability, so any secondary liability of providing a RS-DVR was left open. The Aereo opinion does not address the server copies that are produced by the system, the main focus of Cablevision.
As to “public performance”, the Second Circuit (as does Judge Nathan) grappled with the difficult “transmit” clause of the definition of public performance in the Copyright Act, which provides:
To perform or display a work “publicly” means . . . 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 of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times.5
To the Aereo court, the touchstone is to inquire who precisely is “capable of receiving” a particular transmission of a performance to determine if the performance is public. This differed from Judge Chin’s approach in the Cablevision trial court. He believed that since the same underlying program was transmitted to different homes, the net result was a “public” performance. For the Second Circuit, the relevant performance was only the transmission to the single subscriber using a single unique copy. It also rejected the view that the initial transmission made by a program network was to the public and should be considered the relevant performance. Instead, the court looked to the downstream transmission to see if it was made to the public at any point.
Still, some language in the appeals court decision is hard to unravel. For instance, the Court stated that under the transmit clause, “a transmission of a performance is itself a performance.”6 This, the Aereo court took to mean that, in determining whether a performance is public, courts “are to look to the transmission being made as the performance at issue, rather than simply to whether the public receives the underlying work.”7 Aereo used this reading to conclude that the transmission in question – from the Aereo server to the individual subscriber – looks more like the RS-DVR situation than, say, cases where a master copy is used again and again to send to different members of the public.
In essence, Aereo held that because the transmission is a “performance,” and that single-copy-based transmission is only going to one subscriber, it is not a public performance – even if many viewers can see the same underlying work through the system. By focusing on a “one copy to one subscriber” pattern, both Aereo and Cablevision gave little emphasis to the statute’s language about members of the public, who might view the same work at different times or different places. That analysis is not relevant because the performance at issue is not the underlying work – viewed by many – but the “hard drive-to-screen” performance viewed by one subscriber.
It appears that the Aereo engineers have designed a system to fall within the one copy per transmission (as opposed to one copy being the source basis of many transmissions) to bring it outside the “public performance” definition. Indeed Aereo seems to have a better case than Cablevision, because Cablevision relied on the single stream from the upstream programmer (e.g., Cartoon Network), whereas Aereo has a separate transmission – via a dedicated antenna – for each customer.
Plaintiffs attempted to limit the holding in Cablevision to “time-shifting” customers, but this argument failed before Judge Nathan. Plaintiffs argued that RS-DVRs are just a more efficient version of time-shifting already provided by the home-based DVR or VCR. Plaintiffs believed this distinction was critical because the RS-DVR performance is always time-shifted, breaking the chain of transmission from the original broadcast. Aereo's watch mode, for example, has nothing to do with time-shifting and so the court would not have to be bound by Cablevision.
The court found no evidence that the time-shifting characteristics of RS-DVRs controlled Cablevision and that the appeals court hardly discussed that aspect of RS-DVRs. To suggest how time–shifting failed to explain the facts in Aereo, the court hypothesized an East Coast viewer who records "60 Minutes," airing at 7 pm EDT. He then starts to view the recording at 10 pm, the same time that the show is broadcast initially in the Pacific Time zone. From one perspective, he has time-shifted. From another, he is part of the audience for the public performance of the concurrent over-the-air version. Other factors relating to injunction
While the Court denied an injunction and concluded “that Aereo’s service is likely lawful,”8 it did not weigh all factors in Aereo’s favor. It did not conclude that Aereo’s service had any public interest benefit that weighed in its favor, over the receipt of broadcast programming over-the-air. Nor did the court find that the plaintiffs had delayed seeking an injunction for too long after learning of Aereo’s plans. The weighting of these factors did not overcome Aereo’s likelihood of succeeding on the merits. However, on appeal, the lack of support on these factors could help the Second Circuit come to a different conclusion, should it clarify Cablevision in a way that is helpful to the plaintiffs.
Will it? Aereo and Cablevision place great weight on the existence of a distinct copy being created by the customer, which is then replayed as the customer chooses. This weighting suggests that performances of the same copy of a work played at the request of one or more members of the public might constitute a public performance. This is not an obvious reading of the definition of the transmit clause and suggests counterexamples that make the distinction somewhat artificial. What if a copy is created by a group house or dorm, and different, unrelated groups watch the program over a week? Why is that use not a public performance but the same program, made available as part of a cable operator’s video on demand service, possibly treated differently? For that matter, why are file downloads, which the court recognizes as having been licensed for public performance – although not necessarily concluding that they should be licensed – not given the same treatment as the copies made under Cablevision's and Aereo’s systems?
It appears to the district court that the designers of Aereo have fashioned their product to fit snugly in the non-public performance requirement of “one copy to one subscriber” test of Cablevision. But, it is not obvious that this criterion should be the key to deciphering the “transmit” clause.
Policy-wise, both decisions can be viewed as technology-sympathetic – allowing new distribution systems to develop without being blocked by copyright, at least as a matter of direct infringement. To that extent, they recall the 1968 and 1974 Supreme Court cases holding that the then-new medium of cable’s carriage of broadcast signals did not amount to copyright infringement.9
But they also can be viewed as peculiar, technology-wise, in staking so much on “one copy to one subscriber.” In a world of digital server technology, why should infringement turn on whether the defendant uses a less efficient, separate copy system than using a common master copy for each customer requesting one? (The same can be said for Aereo’s separate antenna feature.) The Second Circuit may want to reconsider whether the basis it chose to determine public performance is the right one, and appellants may want to press harder the argument that the other language of the transmit clause – i.e., different times, different places still equals transmission of a public performance – is a more persuasive way to read the statute than the Second Circuit’s approach in Cablevision.
The economic impact of the case may also cause a reappraisal of the legal conclusion. Retransmission consent payments from cable and DBS constitute major revenues in television broadcasting and, increasingly, are a source of concern for some distributors who need the “must watch” programming on broadcast networks. If distributors can bypass that system with a one-time technical fix, Aereo could change the economics of television profoundly. This impact was not at issue in Cablevision, which involved potentially incremental revenues for non-broadcast cable networks who were already getting a license fee. Those plaintiffs believed that existing contracts did not cover the RS-DVR copy or replay, and that such use required a license under copyright. Their loss was not a cause for major industry disruption.
One could argue that because Aereo’s retransmitted broadcast programs are free over-the-air, all Aereo is doing is delivering what’s already license-free. But the reality is that 90 percent of viewers get programming from cable or DBS distributors, not over-the-air, and therefore broadcasters today get substantial retransmission consent fees from those viewers. In the real world, Aereo-like delivery of broadcast signals would have major revenue implications. Copyright cases rarely support the seismic revenue shift that Aereo potentially causes.
Given the difficulty of interpreting the transmit clause, the Second Circuit might shift the equitable factors and point out that the public interest weighs heavily in favor of the injunction – indeed broadcasters are licensed “in the public interest”10 under the statute. If the 10 percent of over-the-air viewers are to continue to get free service, the law needs to take into account how other statutes, or their interpretation (as in the “transmit clause” discussion here) can harm them. Protection of the non-cable TV audience was, after all, the basis by which the 5-4 majority in Turner Broadcasting Co. v. FCC11 upheld the constitutionality of the "must-carry-rules" on the cable industry.
Finally, Congress has been considering whether and how to address retransmission consent disputes, which have occasionally led to program blackouts. The Aereo decision could be a catalyst to hasten Congressional action on retransmission consent, which could include a way to address the use that Aereo makes of the signal.12 Or on appeal, the court may determine that such matters are best left to Congress to decide – inasmuch as Congress never had the Aereo situation in mind when it adopted the transmit clause – and look at the several relevant statutes in the broadcast and copyright titles to reconsider the outcome here.