Aereo Internet service vs. TV broadcasters: US Supreme Court to decide

The US Supreme Court takes up a major case this week that could dramatically change how Americans watch television.

The case involves a New York-based company that charges $8 a month to allow subscribers to watch broadcast television programs on their computer, tablet, or smart phone via the Internet.

The company, Aereo, Inc., can keep its subscription price low in part because it pays nothing – zero – to the major broadcast companies for access to their programming.

The broadcast companies aren’t happy about it. They sued Aereo, claiming the little firm is stealing their copyright-protected programming and re-transmitting it to Aereo subscribers.

Lawyers for Aereo dispute the theft charge. They insist that the company is under no legal obligation to pay for network programming because that programming is offered free-of-charge to the public over public airwaves.

On Tuesday, the issue arrives for oral argument at the Supreme Court, where the justices will examine whether Aereo is violating terms of the federal Copyright Act or merely facilitating better antenna reception of freely-available broadcast signals for Aereo subscribers.

There is more at stake than just the financial future of Aereo. The company’s innovative cloud computing technology and business model pose a direct threat to the broadcast companies’ growing power to charge hefty fees to cable operators and other re-transmission services for access to network programs and sports events.

Those fees are eventually passed on to television viewers.

On the other side, analysts warn that if Aereo wins, it would jeopardize enforcement of copyright protections in the digital age, undermining the value of creative endeavors throughout the US economy.

“Aereo has built a business out of retransmitting broadcast television to members of the public without seeking authorization from or paying compensation to copyright holders,” Washington Appellate Lawyer Paul Clement says in his brief on behalf of ABC, CBS, NBC, FOX, and other major broadcast companies seeking to force Aereo to pay up.

Mr. Clement says Aereo’s methods are barred under the Copyright Act, a law that prohibits transmitting a copyright-protected performance to the public without first obtaining permission.

“It is settled law that third parties must pay for the rights to transmit performances of copyrighted works to the public,” Clement wrote.

Lawyers for Aereo respond that the company is not infringing a copyright because it is not “performing” any protected work. The company merely provides a conduit for subscribers to view or record publicly-available broadcasts, they say.

They cite a 1984 Supreme Court decision, Sony v. Universal Studios, holding that television viewers are entitled to make copies of copyright-protected programming on a video recording device. A personal copy of a program offered free-of-charge over public airwaves does not violate the broadcast company’s copyright, the court ruled.

The same principle applies in the Aereo case, they say.

“When an Aereo user plays her personal recording of a broadcast work and views its images and sounds over the Internet, the ‘performance’ she transmits and receives is that playback – not the broadcaster’s prior performance,” Washington Appellate Lawyer David Frederick says in his brief.

“Because Aereo’s technology cannot be used to transmit content other than from a user’s personal recording, it does not transmit the performance embodied in petitioners’ broadcasts,” he writes.

“Nothing goes into or comes out of Aereo’s equipment except in response to a user’s commands,” he says.

To understand the case and its implications it is first necessary to understand how the television industry started. The pioneering broadcast companies were granted monopolistic use of a portion of the limited spectrum of public airwaves to transmit their programming to the American public.

Broadcast companies provided their signals free to the public; the only “price” for viewers was having to endure a constant stream of advertisements hawking everything from toothpaste to cars. Because television attracted a large, captive audience, advertisers paid substantial amounts to the broadcast companies.

For the American public, all that was necessary to view the programming was a working television with an antenna, either up on the roof or through V-shaped metallic “rabbit ears” attached to the top of the set.

Eventually, cable and satellite technology began to offer the promise of better reception and universal coverage across the nation. But unlike the original free broadcast business model, cable and satellite television companies charged viewers a subscription fee. They also paid a re-transmission fee to the broadcast companies for permission to offer the broadcast programs on the cable network system.

As technology further evolved, viewers were able to watch television programs on their computers and other devices via the Internet. Like the cable companies, those businesses also pay re-transmission fees to the broadcast companies.

Enter Aereo. Rather than pay fees to the broadcasters, Aereo sought to exploit the original arrangement between the broadcast companies and members of the public.

Individual viewers were entitled to free access to broadcast programs. All they needed was an antenna and a television.

Aereo uses cloud-computing technology to allow customers to select a program and record it for later viewing or to watch it almost immediately.

Rather than relying on old-fashioned rabbit ears antennas and televisions, Aereo provides subscribers access to an array of high tech antennas connected to the equivalent of cloud-based DVRs.

Aereo does not seek to capture any of the broadcast companies’ programs. The decision of what to watch is left to each individual subscriber. Once a would-be viewer decides on a program, she is assigned a unique antenna that facilitates the recording of that program.

This innovation is central to Aereo’s legal argument at the high court.

Since broadcast companies transmit their programming to the public free-of-charge, all Aereo is doing is providing individual consumers with access to a better antenna and the capability of watching the free broadcast programs on devices other than a television set, company lawyers say.

In essence, Aereo provides a fancy version of a rented antenna and a rented DVR.

The broadcasters don’t see it that way. To them it is about protecting copyrighted programming.

“The broadcast television industry has invested billions of dollars producing, assembling, and distributing entertainment and news programming in reliance on this legal regime,” Clement writes in his brief. “Yet, Aereo has built an entire business around exploiting that copyrighted content – and has done so without obtaining permission from copyright owners or paying anyone a penny.”

Clement adds: “If Aereo prevails, nothing will stop other services that currently pay for the rights to retransmit broadcast television from devising their own Aereo-like workarounds to achieve the same result.”

The National Football League and Major League Baseball filed a friend of the court brief warning of a “judicially created loophole” that would allow services like Aereo to avoid copyright restrictions on broadcasts of pro football and baseball games.

“For nearly forty years, it has been settled law that commercial services must obtain copyright licenses to retransmit broadcast signals,” the NFL and MLB brief says.

The Obama administration is siding with the broadcasters. Even though individual viewing decisions are made by Aereo customers, the overall mechanism for collecting and transmitting the selected programs was set up by Aereo, government lawyers say.

A brief filed by the US Solicitor General’s Office acknowledges that the service is like a DVR in a home. But in a 1976 amendment to the Copyright Act, Congress barred re-transmissions of copyright-protected material to the public without prior authorization, the brief says.

The transmissions are made available to any member of the public willing to pay Aereo’s fee, government lawyers say. That makes it a transmission to the public, they add.

A friend of the court brief filed by students and professors at Southwestern Law School in Los Angeles argues that the Aereo innovation “is a healthy free-market response to a dysfunctional and anticompetitive television distribution system.”

The broadcast companies first gained their access to the public airwaves with a promise to serve the public by providing advertiser-supported programming that would be offered free to the public.

As long as the broadcast companies continue to use the public airwaves, they must uphold their end of the bargain by supporting the wide accessibility of broadcast television, Michael Epstein, a law professor at Southwestern Law School, says in his brief.

He says the Aereo system enhances broadcast company profits by broadening access to a group of viewers who otherwise wouldn’t be watching. These viewers can be tracked by the Nielsen ratings service and factored into the broadcasters’ advertising rates.

Such extra ratings points come to the broadcasters without any additional costs to them. Aereo has already shouldered those costs.

 “Technology such as Aereo’s is a healthy, free-market response to an increasingly dysfunctional television distribution system that overcharges consumers, denies them meaningful choices, and reaps anticompetitive gains for television programmers,” Professor Epstein writes.

“Dissatisfied with their dual government-granted monopolies in the broadcast spectrum and copyrighted programming, [the broadcast companies] invoke a strained interpretation of copyright law to further their stranglehold on television distribution,” he says.

The case is American Broadcasting Companies v. Aereo (13-461).