US Supreme Court Aereo Ruling Threatens New Risks For Online Firms

Internet start-up Aereo suffered a major defeat today, when the US Supreme Court ruled that the company was guilty of copyright infringement. But Aereo may not be the only loser. The ruling could jeopardise a wide variety of other online businesses, many experts warned.

The key issue in American Broadcasting Cos. v. Aereo, Inc. [pdf] was whether Aereo had publicly performed copyrighted broadcasts when it retransmitted these broadcasts to its customers. The company asserted there was no public performance because its service simply enabled consumers to individually receive and watch television broadcasts, as each consumer is entitled to do. Aereo simply gave this broadcast reception a new, high-tech twist.

When a customer wanted to watch a TV broadcast, he would contact Aereo online and indicate which programme he desired to watch. Aereo then assigned the customer an individual, dime-sized antenna that received the broadcast. The received broadcast was then recorded on Aereo’s servers, in a hard drive sector dedicated only to that customer. Once a few seconds of the programme were recorded, the customer could direct Aereo to stream the recording to him over the internet, allowing him to watch the show on a tablet, smartphone or other internet-enabled device. As a result, he could watch broadcast TV with only a few seconds delay – and at much less cost than a barebones cable TV subscription.

There were other differences between Aereo and cable companies. Whereas Aereo carefully set up its service so that no content was shared among its customers, a cable company uses just one antenna to receive broadcast signals and retransmits the same copy of broadcast content to all its customers. And on cable there is no appreciable time lag between the original broadcast and the retransmission.

But the Supreme Court found these differences between cable and Aereo were unimportant. The Court held, 6-3, that Aereo’s actions were “substantially similar” to that of cable companies. That was decisive because Congress in 1976 amended the Copyright Act to define cable companies’ retransmissions of broadcasts as public performances. So, the court ruled, Aereo’s retransmissions were also public performances – and they were not authorised by thebroadcasts’ copyright owners.

Collateral Damage

The Supreme Court attempted to limit the ramifications of its decision. The court spoke of a rule that applied only to businesses that are substantially similar to cable TV companies, and it declared “we do not believe our limited holding today” will “impose copyright liability on other technologies” such as cloud computing or remote DVRs.

Unfortunately, “the opinion’s language is so malleable it could cover a lot of things,” said Prof. Eric Goldman of Santa Clara University School of Law.

For instance, “this throws into question all the cases saying that image search engines do not infringe copyright,” said Prof. Jessica Litman of University of Michigan Law School. “I don’t think courts will find infringement, but the Supreme Court didn’t tell us why the rule they articulated [in Aereo] doesn’t apply to those search engines.”

The ruling also creates confusion about the legality of many other online activities, including cloud computing, remote DVRs and web pages that contain embedded videos from sites like YouTube. Even if the courts wind up upholding the legality of these activities, today’s ruling will impose substantial new costs on online businesses.

“I am reminded of Metro-Goldwyn-Mayer Studios v. Grokster, in which the Supreme Court adopted a very pragmatic approach. The Supreme Court crafted what it thought was a very narrow rule to solve a problem without any collateral damage. The court tried to do the same thing here. But Grokster’s subsequent history isn’t that great,” warned Goldman. “Very few companies have been found liable under Grokster [which created liability for inducing copyright infringement], but the issue of induced infringement is raised and litigated in every case of accused online infringement. So online companies have to litigate more and pay more in legal fees. As a result, it is more expensive for them to do business. I wonder if this decision [Aereo] will have the same effect: more expensive litigation with no different outcomes.”

The outcome, however, could be far more dire. Depending on how the courts interpret Aereo, “DVR as a service could go away, embedded videos could go away, and cloud computing could be imperiled,” Goldman said.

Some copyright experts, like Litman, take an optimistic view. “It will be messy for a while,” she said, as the courts try to make sense of Aereo’s reasoning. “But everything in the world may work out just fine.”

Other experts are less sanguine. “Will this opinion chill innovation?” asked Goldman. “Is it the beginning of the end for many online services? That will depend on how the courts interpret this opinion – and that could take years to discover.”