Justices Express Concern Over a Sweeping Aereo Ruling

Aereo Supreme Court
Sebastien Thibault for Variety

WASHINGTON — With no less than the future of free, over-the-air TV at stake, Supreme Court justices expressed concerns about issuing a ruling against Aereo that would have the unintended consequences of impacting another technology, that of cloud computing.

Some of the justices on Tuesday suggested that they faced a challenge in defining just what Aereo is, as the lines blur between privately used consumer technologies and publicly available content services.

At issue is whether the startup is merely an equipment manufacturer renting out its remote equipment to subscribers to capture station signals, or whether it is a service that is transmitting copyright-protected content.

Justice Stephen Breyer said if they were to side with broadcasters in their definition of a public performance, “then the problem is in the words that do that… are we somehow catching other things that really will change life and shouldn’t, such as the cloud?”

But the justices also expressed some misgivings about whether the company was merely an end run to avoid legal requirements faced by cable firms when they transmit broadcast signals.

Stations argue that its system of copying live signals and then transmitting them to subscribers via thousands of dime-sized antennas constitute a public performance and therefore fall within the bounds of the Copyright Act.

Chief Justice John Roberts seemed to make light of Aereo’s design, telling its attorney David Frederick there’s “no technological reason for you to have 10,000 dime-sized antennas other than to get around copyright laws.”

“I’m not saying it’s outcome determinative or necessarily bad, I’m just saying your technology model is based on circumventing legal prohibitions you don’t want to comply with, which is fine,” Roberts said to Frederick. “I mean, lawyers do that.”

Roberts’ comment provoked laughter in the courtroom.

From oral arguments, it was hard to read exactly which direction the high court was moving; the Supreme Court is notoriously unpredictable in copyright cases.

But the case undoubtedly touched a nerve in the entertainment industry, as an array of broadcast executives, copyright lawyers and tech advocates crowded the chambers. Fox’s Peter Rice and 21st Century Fox’s James Murdoch attended, as did, on the opposing side, Barry Diller, a chief investor in Aereo, along with the startup company’s CEO and founder, Chet Kanojia.

The latter declined to comment after the oral arguments, telling reporters, “I would rather just win the case.”

Diller has said that it is doubtful that Aereo would continue if justices were to rule against it.

When Breyer said he was “nervous” about taking the broadcasters’ line of reasoning, citing the impact on new technology like cloud computing, Paul Clement, representing lead plaintiff ABC, said “not all cloud computing is created equal.”

He said there was a difference between a service set up for the public and one that is meant for private use, using the analogy of a car dealership that is meant to sell autos to the public, while a valet service is merely to take cars legally owned and store them temporarily.

By the same token, some cloud computing companies are merely for storage of content, while others are meant to stream legally licensed movies and TV shows.

He said that the type of broadcast service that Aereo provides is “right there is the statute,” restricted by the Copyright Act of 1976 that defines public performances as transmissions via “any device or process.”

Michael Risch, professor at Villanova University School of Law, said that Breyer’s focus on cloud computing was a “signal that Aereo is in trouble. He’s essentially saying, ‘You’re going to lose, but how do you lose without me destroying the economy.’ “

Breyer also raised the prospect of sending the case back to the lower courts to make the determination of whether Aereo is essentially a cable service. That would allow Aereo to obtain a compulsory license to carry broadcast signals, but also subject it to paying copyright royalties and presumably fees to broadcasters for the retransmissions.

Justice Ruth Bader Ginsberg even noted that Aereo was the only “player” not paying royalties for broadcast content while multichannel video providers were.

“Why are they not a cable company?” asked Justice Sonia Sotomayor. “It seems to fit” the description.

Neither Clement nor Frederick agreed.

Aereo argues that it is merely supplying the antenna equipment and letting individuals direct what they watch and when.

“The person who sells an antenna at a local Radio Shack doesn’t pay copyright royalties either,” Frederick said.

Plenty of time during the oral arguments was paid to the future of technology, and why Aereo was any different from a host of in-home devices that have disrupted entertainment in the past, like the VCR and the DVR.

Frederick defended Aereo as the next evolution in such home entertainment technology, and disputed that the company’s thousands of antennas were merely set up as a copyright gimmick.

“You can’t do multiple channels over the Internet anyway,” he said. “You can only do a single video stream at a time. So whether you have a big antenna or whether you have lots of little antennas, you still have to compress the signal.”

He added, “The point of copyright laws shouldn’t turn on the number of antennas.”

The focus on the number of antennas could be a sign that the justices are aware of a potential narrow route for a decision, Risch said, which would be to rule that Aereo’s multiple antennas really are the same as having a single communal antenna. The latter technology was deemed as falling under the definition of a public performance by the 1976 Copyright Act.

Going into the hearing, many in the broadcast industry had been optimistic about their prospects. The Supreme Court didn’t have to take the case now, but did so after they petitioned the justices when the 2nd Circuit Court of Appeals and a district court refused to grant an injunction to shut Aereo down. Moreover, the U.S. solicitor general filed a brief favoring the broadcast side, and one of the deputies, Malcolm Stewart, argued before the justices on Tuesday.

The case is by far the most significant entertainment industry copyright litigation to reach the high court in a decade. In 2004, the justices decided 9-0 that file-sharing site Grokster bore responsibility for the piracy of its users because it promoted its technology as a way to pirate content. Two decades before that, the Supreme Court ruled that Sony was within legal bounds with the Betamax, as consumers’ use of its video recorders was for private “time-shifting” of TV content in the home.

Like the Grokster and Sony Betamax cases, the justices’ decision in Aereo could have a huge impact on TV. Networks had argued that Aereo undermined their ability to collect an ever-more lucrative stream of revenue that cable, telco and satellite providers pay to transmit their signals, and some top executives have even suggested that were the startup to win, they would abandon the broadcast business and go to a pay platform.

Aereo, meanwhile, argued that the net result of a loss would be to stifle innovation, particularly when it comes to cloud computing. The latter, Aereo argued, flourished after the 2nd Circuit Court of Appeals ruling in 2008 that upheld Cablevision’s remote DVR. Kanojia has contended that his purpose was not to upend the broadcast business but to lure consumers craving an alternative to pricey cable and satellite TV packages.

Nevertheless, not everyone agrees that the dire scenarios predicted on each side will play out as planned.

In a report sent out over the weekend, Bernstein Research argued that a copycat service could very well launch with its technology tweaked. But they also suggested that a victory for broadcasters may also be a missed opportunity, as Aereo was a way to present broadcast TV to a next generation of viewers who are shunning pricey cable subscriptions.