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TV Networks Not Likely to Prevail Against Online Service Aereo
New York Law Journal
A group of TV broadcasters yesterday lost their bid to block Internet start-up Aereo from offering subscribers live TV broadcasts when the U.S. Court of Appeals for the Second Circuit ruled that the broadcasters are not likely to prevail in a copyright lawsuit challenging Aereo's service.
A circuit panel ruled 2-1 that Aereo's service merely allowed its subscribers to view "private performances" of broadcasts, like a VCR, and therefore did not violate the Copyright Act of 1976.
Judge Denny Chin (See Profile), in a strongly-worded dissent, called Aereo's business model a "sham."
The ruling in CBS Broadcasting v. AEREO, 12-2807-cv, and WNET v. AEREO, 12-2786-cv, upheld Southern District Judge Alison Nathan's (See Profile) July 2012 decision denying the networks' motion for a preliminary injunction blocking Aereo's service (NYLJ, July 12, 2012).
Aereo works by allowing each subscriber to rent a very small TV antenna, located at a building in Brooklyn. The antenna receives TV broadcasts, and Aereo transmits those broadcasts to viewers over the Internet. Aereo pays no licensing fees to the broadcasters. Though only available in New York City, Aereo has announced plans to expand into other cities, including Boston, Chicago, Philadelphia and Washington, D.C.
The broadcasters, which include Fox, ABC, CBS, NBC and others, sued Aereo, which is backed by Barry Diller, in the Southern District last year seeking an injunction blocking the service.
As R. David Hosp, a partner at Fisch & Richardson who is Aereo's attorney, admitted at oral argument, the only reason for using many small antennas, one for each user, rather than a single large antenna is to avoid violating the Copyright Act.
Aereo's reasoning depends on the Second Circuit's 2008 decision in Cartoon Network v. CSC Holdings, 536 F.3d 121 ("Cablevision"), in which the court ruled Cablevision's DVR service, which allows users to record a TV broadcast for later viewing, did not infringe the Copyright Act. The court ruled that DVR is essentially the same as recording a program at home with a VCR, except the viewer pays Cablevision to make the recording and store it remotely. Because Cablevision made a separate copy of a show for every user, and only that user could view the copy, the Second Circuit ruled that a DVR copy is a "private performance" rather than a "public performance" and therefore does not violate the act.
"The same two features are present in Aereo's system," Droney said in yesterday's ruling. "When an Aereo customer elects to watch or record a program using either the 'Watch' or 'Record' features, Aereo's system creates a unique copy of that program on a portion of a hard drive assigned only to that Aereo user. And when an Aereo user chooses to watch the recorded program, whether (nearly) live or days after the program has aired, the transmission sent by Aereo and received by that user is generated from that unique copy. No other Aereo user can ever receive a transmission from that copy. Thus, just as in Cablevision, the potential audience of each Aereo transmission is the single user who requested that a program be recorded."
Droney said it is irrelevant that Aereo does not pay the TV networks a licensing fee, while Cablevision does, because the court's decision in Cablevision rested on DVR copies' status as private, rather than public performances.
Droney said Aereo's service is equivalent to an individual taping a broadcast with his own antenna.
"It is beyond dispute that the transmission of a broadcast TV program received by an individual's rooftop antenna to the TV in his living room is private, because only that individual can receive the transmission from that antenna, ensuring that the potential audience of that transmission is only one person," he said.
Droney acknowledged that the decision effectively allows Aereo to retransmit broadcasts in the same way cable companies do, without paying the license fees that cable companies must pay, simply by using many small antennas.
However, he said, the "unanticipated technological developments" that have produced this result do not allow the court to "disregard the express language Congress selected" in drafting the Copyright Act.
"Aereo's 'technology platform' is, however, a sham," Chin said. "The system employs thousands of individual dime-sized antennas, but there is no technologically sound reason to use a multitude of tiny individual antennas rather than one central antenna; indeed, the system is a Rube Goldberg-like contrivance, over-engineered in an attempt to avoid the reach of the Copyright Act and to take advantage of a perceived loophole in the law."
Chin said that the fact that Aereo, unlike Cablevision, pays no licensing fee is enough to distinguish the case from Cablevision.
"Aereo is doing precisely what cable companies, satellite television companies, and authorized Internet streaming companies dothey capture over-the-air broadcasts and retransmit them to customersexcept that those entities are doing it legally, pursuant to statutory or negotiated licenses, for a fee," Chin said. "By accepting Aereo's argument that it may do so without authorization and without paying a fee, the majority elevates form over substance."
Aereo CEO Chet Kanojia said in a press release that the circuit decision "again validates that Aereo's technology falls squarely within the law and that's a great thing for consumers who want more choice and flexibility in how, when and where they can watch television."
In a joint statement yesterday, the broadcasters said, "Today's decision is a loss for the entire creative community. The court has ruled that it is OK to steal copyrighted material and retransmit it without compensation. While we are disappointed with this decision, we have and are considering our options to protect our programming. In the meantime, we plan to move forward toward a trial on the merits of the case, and on claims that were not impacted by this appeal. We remain confident that we will ultimately prevail."
The plaintiffs are represented by Paul Smith, a partner at Jenner & Block, and Bruce Keller, a partner at Debevoise & Plimpton. Both declined comment.
Hosp, Aereo's attorney, also declined to comment.
This article originally appeared in the New York Law Journal.