Today the Supreme Court of the United States issued a ruling in the legal tussle between streaming TV service Aereo and major network broadcasters.
SCOTUS ruled that the decision of the second circuit, which upheld that Aereo was within the bounds of the Copyright Act, shall be reversed. It was a 6-3 decision, with Justices Antonin Scalia, Clarence Thomas, and Samuel Alito dissenting.
Aereo has stated publicly before that if this opinion came down, the startup was through. Considering that Aereo has received almost $100 million in funding over the past few years, that’s a pretty big loss for the startup.
According to SCOTUSblog’s report on the ruling, given by Supreme Court Justice Stephen Breyer, “the essence of the Aereo ruling is that Aereo is equivalent to a cable company, not merely an equipment provider.”
The idea is that Aereo’s one technological difference from other cable companies is that Aereo technology remains inert unless the user tunes it, as opposed to constantly streaming. But to the court, this single technological differentiation isn’t enough to call Aereo’s service private performance instead of public.
This particular case centers around the Transmit Clause, specifically whether or not Aereo’s service is a public or private performance. This is the strongest argument that broadcasters have had against the service, and has offered the greatest chance of shutting down the startup before it grows out of control.
The Issue At Hand
So what happened?
Aereo is a service built up of two products: one is a remote mini-antenna that is stored in one of Aereo’s server farms and rented by users, and the second is a DVR/cloud storage service to hold recorded shows. Aereo transcodes all of this content for use over the Internet, meaning that Aereo users can receive around 30 channels (with plenty of DVR space) in near live format for around $12 a month on any device. To be clear, the service never actually offers real live television, but users can record and transcode instantly to watch in nearly real time.
You can see why network broadcasters, who send their own signals for free but make a good portion of their revenue from cable package deals, might be threatened.
With this case, the broadcasters have argued that Aereo’s service constitutes a public performance. A public performance vs. a private performance is the difference between charging tickets to show a taping of a Lady Gaga performance, and singing a Lady Gaga song in the shower.
Since users view Aereo’s content live, many of them viewing it at the same time, the broadcasters believe that Aereo’s signal should be considered “public.”
Aereo, meanwhile, argues that each user is getting their own individual work of the content, which is streamed to them based on the users’ own commands. Technically, Aereo doesn’t “stream” anything to users. Users rent antennas — instead of buying one and setting it up on top of the TV — and control it themselves.
In 2007, Cablevision won a major case that set an important precedent in Aereo’s story. The Cablevision precedent essentially allows for cloud DVR storage, but has larger implications for the entire cloud storage industry.
The ruling said that a piece of video content watched live or recorded, whether stored in a box under the TV or in the cloud, still belongs to that individual user and is not considered a public performance. That’s because, like Aereo, Cablevision wasn’t sending each of its subscribers the same exact copy of a TV show at the same time, but rather each user was tuning and recording this content individually, with their own distinct (though almost identical) version.
Because of this precedent, it’s legal, for example, for 20,000 people to legally download a song from iTunes, upload it to Google Drive, and pull a single copy down from the cloud whenever they like. Aereo was built with this precedent in mind, and the broadcasters not only seek to defeat Aereo but to overturn Cablevision along with it. After all, that’s pretty much the only way for them to be successful.
In their briefing to the Supreme Court, the broadcasters argued that the streams recorded by Aereo’s users should be viewed on the aggregate, rather than individually counted. Nothing in the Transmit Clause or Copyright Act suggests that this is how we should measure public vs. private. In fact, if we did measure it this way, cloud storage companies would be pretty screwed.
However, Scalia did say that this ruling should not threaten other technology providers.
Meanwhile, broadcasters’ stocks are trading higher on the news.
A Little History
Aereo has been in legal hot water with broadcasters for more than a year. The first dispute originated in New York, where a big group of broadcasters sought a preliminary injunction against Aereo for what they believed to be copyright infringement under the Transmit Clause portion of the Copyright Act. They were denied, and some of the same broadcasters moved on to target Aereo on other markets.
In Boston, the company was hit with a similar lawsuit from Hearst Corporation and local broadcasters. Again, the Boston judge ruled in favor of Aereo, denying the preliminary injunction in that market. And then most recently, a Utah judge went against the grain by granting a preliminary injunction against Aereo service in Salt Lake City.
With lawsuits churning in multiple markets, Aereo’s most efficient method of defending against these broadcasters was to actually climb deeper in to the crevice. The company motioned for the Supreme Court to hear the case, which would theoretically put this particular matter to rest, though it would fail to stop broadcasters from trying other strategic moves in court altogether.
On April 22, the Supreme Court of the United States heard the case, and much of the summer has been spent waiting for a decision.
The Broadcaster Battle Explained