ALM Properties, Inc.
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Can the television industry use litigation to avoid the fate of the music industry? While the big record labels were ultimately able to vanquish digital competitors like Napster in court, they never fully recovered their previous market share. The major networks' business model has been challenged recently by new television services from Aereo Inc. and Dish Network LLC, and the broadcasters too have headed to court.
An early court ruling in the networks' case against Aereo, however, has demonstrated the difficulties of a legal strategy. On July 11, U.S. District Judge Alison Nathan in Manhattan rejected the broadcasters' motion for a temporary injunction that would have shut down Aereo. Backed by billionaire Barry Diller, Aereo is a service that streams broadcast channels over the Internet, using thousands of dime-sized antennas mounted in arrays on the tenth floor of a Brooklyn building to pick up over-the-air television signals. Aereo customers, who pay a monthly fee of $12, are assigned an individual antenna. They can then use the service to view TV programs on their computer, tablet, or other mobile device with a buffering delay of seven seconds, or they can keep a recording for later viewing.
The broadcasters filed their suits against Aereo on March 1, just two weeks after its beta launch. They argued that the service was illegal because Aereo wasn't paying fees to the broadcasters to rebroadcast their programs. In their complaints, the plaintiffs added that Aereo's antenna scheme amounted to "technical gimmickry." Jenner & Block partner Steven Fabrizio filed one suit on behalf of one group of broadcasters that includes the Fox network; Bruce Keller of Debevoise & Plimpton filed another suit on behalf of the ABC, CBS, and NBC networks.
Using the CBS crime drama NCIS as a hypothetical, Fabrizio says that Netflix Inc. can offer the show for download or sale within 24 hours after it airs, because Netflix has already paid a fee to CBS. "Netflix pays a lot of money for the 24-hour window," Fabrizio says. "Aereo usurps the economic opportunity that belongs to copyright owners."
In denying the broadcasters' requests for a temporary injunction, Judge Nathan based her decision largely on the function of Aereo's antennas. She ruled that although Aereo will likely cause irreparable harm to broadcasters, its technology functions like a remote DVR and its antennas work individually, meaning that the transmission of broadcasts to an Aereo customer is a private performance and not a public one. Crucially, Nathan found that Aereo abides by copyright law under precedent set in Cartoon Network v. CSC Holdings Inc. ( also known as the Cablevision case) .
John Englander of Goodwin Procter, who is representing Aereo in the case, is pleased with Nathan's ruling. "Aereo's technology simply allows consumers to do what they're entitled to do under the lawnamely, receive over-the-air TV broadcasts, record them, and play their recordings back to themselves on devices of their choosing," Englander says.
In a statement, the broadcasters represented by Jenner called the ruling "a loss for the entire creative community" that essentially okayed the retransmission of copyrighted material without compensation. They added that they expect to prevail on appeal.
A second threat to the broadcasters' business model comes not from a start-up, but from one of their well-established allies: Dish. The satellite TV provider's newest video-on-demand offering, Prime Time Anytime, allows subscribers to record the entire prime time broadcast schedule for the four major networks for up to eight days. But Prime Time Anytime also has a feature called AutoHop that allows subscribers to record programming free of commercials.
Dish tried to get ahead of the networks on May 24 by filing a motion for a declaratory judgement that AutoHop doesn't infringe the networks' copyrights. In the motion, Dish said that its subscribers "may fairly choose for themselves the content that they do and do not want to watch, and have paid for the right to do so." The court denied the motion, deeming it an improper anticipatory filing. Dish is represented by Orrick, Herrington & Sutcliffe partner E. Joshua Rosenkranz, who declined to comment.
Just a few minutes after Dish's filing, the company was sued in Los Angeles federal district courtby Fox in one suit, and by NBC and CBS in another. The networks claim that that AutoHop breaches copyright law and retransmission agreements. In its complaint, Fox said that the Dish feature, "if not enjoined, will ultimately destroy the advertising-supported ecosystem that provides consumers with the choice to enjoy free over-the-air, varied, high-quality prime time broadcast programming."
For the Dish suit, Fox again turned to Jenner & Block, with partner Richard Stone as lead attorney and Fabrizio in a consultant role. NBC and CBS tapped Robert Rotstein at Mitchell Silberberg & Knupp. Fabrizio sees the case as a no-brainer: "Anyone who ever learned right from wrong would say that Dish is wrong in this case. By having no commercials, they're cannibalizing the whole industry."
The networks that hired Fabrizio are eager to tap his prior experience in successfully defending the music and movie industries against new competitors. As an in-house attorney for the Recording Industry Association of America, Fabrizio helped shutter Napster, a music-sharing website. He also worked on landmark cases against Groskster Ltd., which went under after a U.S. Supreme Court ruling that the file-sharing site could be sued for copyright infringement, and Kazaa, a peer-to-peer service that eventually paid a $115 million copyright infringement settlement. In 2003 Fabrizio joined Jenner, where he heads the firm's media, content, and entertainment practice.
"Record companies didn't have time to get in front of Napster with new business models," Fabrizio explains. "The first email I received about Napster [in 1999] told me that the peer-to-peer music-sharing site had 244 computers connected to it," he says. A year after that email exchange, the RIAA won a preliminary injunction against Napsterbut by then, the service had 40 million users. "No one saw it coming," according to Fabrizio.
The television industry has the benefit of having watched the music industry's run-in with Napster, Fabrizio continues, so it's "experimenting, brokering licensing deals, and putting product online to meet customers' need for online access to shows and movies." But he adds that broadcasters are also at a disadvantage because of what happened in the music industry. "One of the most damaging things about Napster's piracy is that it changed consumers' expectations," says Fabrizio. "The assumption now is that all this [content] should be free."