Feature

When the Supreme Court Closes a Door, It Opens a Window: Over One Year Later, Aereo May Help Put the Cloud Back on the Court’s Horizon

Craig B. Whitney and Andrew J. Ungberg

©2016. Published in Landslide, Vol. 8, No. 3, January/February 2016, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.

The full impact of Aereo has, not surprisingly, yet to be determined. In June 2014, the Supreme Court ruled in American Broadcasting Cos. v. Aereo, Inc.1 that Aereo’s cloud-based service, which allowed users to stream unlicensed broadcast television programming over the Internet to their computers and mobile devices, was an unauthorized public performance and therefore violated the U.S. Copyright Act. We examined last spring whether Aereo lived up to the hype—and handwringing—from those who feared a sweeping decision might hamper innovation by other cloud-based businesses in the tech industry.2 The more dire predictions have thus far proved unwarranted, but the full extent of the consequences is still being uncovered.

One of those consequences is the revival of the argument that streaming broadcast television programming over the Internet is a “cable service” licensed under § 111 of the Copyright Act.3 Courts in the Second Circuit have thus far maintained, even following Aereo, that such services are not entitled to a § 111 compulsory license, although the issue is once again being considered by the Second Circuit.4 A federal district court in California reached the opposite conclusion—and then immediately certified the issue for appeal to the Ninth Circuit.5 A D.C. district court just ruled against granting a § 111 compulsory license to a cloud-based streaming service (the sealed opinion to be made public in early December) and, as of the date of this article’s publication, the same question was pending before the Northern District of Illinois.6

If the courts cannot agree, the Supreme Court may be called on once again to weigh the potentially competing interests of encouraging technological innovation and protecting copyright owners from infringement. At issue this time would be whether cloud-based, Aereo-esque services should again be treated like traditional cable companies under the Copyright Act—but now for compulsory license purposes rather than infringement. And if the language of § 111 is broad enough to encompass cloud-based retransmission services, the next question may be whether such services are also subject to FCC regulations that would require them to obtain additional consent to retransmit.

Aereo, FilmOn, and § 111 Compulsory Licenses

FilmOn X, like Aereo, is a cloud-based service that allows users to watch live broadcast television over the Internet on their computers and mobile devices. FilmOn’s service allows users to choose from among a list of broadcast television shows using its website or mobile app. The company’s servers then allocate a dedicated mini antenna—as with Aereo, no two viewers share the same antenna at the same time—to receive the broadcast signal, which FilmOn streams to the user. When the customer stops watching, the company’s server automatically ceases streaming and releases the mini antenna to be used by someone else.

In 2012, the major television networks sued FilmOn for copyright infringement in the Central District of California and other jurisdictions under largely the same legal theories as the cases against Aereo.7 The FilmOn cases were stayed pending the Supreme Court’s decision in Aereo. Following that decision, holding that Aereo’s service violated the networks’ public performance right, a judgment against FilmOn was essentially foregone.

Nevertheless, both FilmOn and Aereo sought to seize on the Supreme Court’s reasoning in Aereo—in which it likened Aereo’s service to that of a traditional cable company—to argue that they are entitled to a compulsory license under § 111, just like traditional cable companies.

Section 111 was added to the Copyright Act as part of the 1976 revisions. It created a compulsory copyright licensing scheme through which cable providers are entitled to retransmit over-the-air broadcast signals in return for paying royalties at statutory rates set by Congress.8 Section 111 defined eligible cable systems as those operating a facility . . . that in whole or in part receives signals transmitted or programs broadcast by one or more television broadcast stations licensed by the Federal Communications Commission, and makes secondary transmissions of such signals or programs by wires, cables, microwave, or other communications channels to subscribing members of the public who pay for such service.9

The Second Circuit previously addressed the issue of whether “a service that streams copyrighted television programming live and over the Internet[] constitutes a cable system under § 111 of the Copyright Act” in WPIX, Inc. v. ivi, Inc.10 In ivi, the court decided that Congress “did not intend for § 111’s compulsory license to extend to Internet retransmissions.”11

First, the court stated that it was ambiguous whether Internet retransmission services—and “cloud-based systems” in particular—qualified for a compulsory license under the statute because “[a]mong other things, it is certainly unclear whether the Internet is itself a facility, as it is neither a physical nor a tangible entity.”12 Second, looking at the legislative history, the court concluded that Congress passed § 111 to (1) “incentivize the continued creation of broadcast television programming,” and (2) “address the issue of poor television reception” in communities that could not receive over-the-air signals by permitting the creation of local cable providers as an “extension” of the broadcast network.13 According to the Second Circuit, neither of these objectives is served by Internet retransmissions.14 Third, the court found that the history of incremental legislative amendments to the Copyright Act, each appearing to accommodate some technologies but not others, weighed against reading § 111 broadly to include Internet retransmission services.15 Finally, the court noted that the Copyright Office had consistently refused to grant compulsory licenses to Internet retransmission services because, in the agency’s view, such services did not qualify under § 111.16 Thus, even if Congress’s intent in this area was not clear, the Second Circuit determined that the Copyright Office’s interpretation of the Copyright Act was entitled to deference.17

FilmOn and Aereo have contended, however, that the Aereo decision effectively (albeit tacitly) overruled ivi. The issue was first brought to a head post-Aereo in July 2014. The networks in the previously settled case against FilmOn in the Southern District of New York moved to hold FilmOn in contempt for violating the consent injunction in that case.18 FilmOn argued in response that it was a “cable system” entitled to a § 111 compulsory license.19 The court agreed with the networks, concluding FilmOn was not a “cable system” in accordance with ivi.20

Likewise, Aereo argued in the Southern District of New York that it was entitled to a § 111 statutory license.21 The networks again argued that the law under ivi had not changed in light of the Supreme Court’s Aereo decision.22 The networks further claimed that allowing Aereo to be seen as a cable provider under § 111 would lead to an open door on § 111, allowing even the “proverbial Internet-savvy ‘kid in the dorm room’ [to] qualify for the Section 111 license.”23 The district court found in favor of the networks, stating:

[T]he Supreme Court . . . did not imply, much less hold, that simply because an entity performs publicly in much the same way as a CATV system, it is necessarily a cable system entitled to a § 111 compulsory license. Stated simply, while all cable systems may perform publicly, not all entities that perform publicly are necessarily cable systems, and nothing in the Supreme Court’s opinion indicates otherwise.24

The Central District of California, however, reached a different conclusion—that FilmOn’s service did qualify as a “cable system” within the meaning of § 111.25 The court found no ambiguity in the Copyright Act, writing that the Second Circuit’s ivi decision had ignored that the Copyright Act defined a cable system as a “facility . . . that in whole or in part receives signals transmitted or programs broadcast by one or more television broadcast stations,” and instead mistakenly focused on whether the Internet could be a “facility.”26 The court stated that the Internet is not a “facility” under the statute, nor could it be because the Internet was not “receiving” the broadcasts at issue.27 Rather, the court found that the relevant “facility” was FilmOn’s “antennas, located in particular buildings wholly within particular states,” which then retransmit from the broadcasts “on wires, cables, microwave, or other communication channels.”28 Thus, the district court held that the text of § 111 was unambiguous as applied to FilmOn and, therefore, there was no need to delve into the legislative history.29 “[N]o matter how strong the policy arguments for treating traditional cable services and [FilmOn’s] service differently, [§ 111] simply does not draw the distinction that [the networks] urge.”30

Nevertheless, in recognition of the commercial importance of the decision and the split between the California district court and the Second Circuit, the court certified the decision for immediate appeal to the Ninth Circuit, stayed the remainder of the case, and continued to enjoin FilmOn’s services.31

Conflicting Judicial Approaches to New Technology

The heart of the current split is whether courts should presume new retransmission methods are excluded until Congress says otherwise or, under the language of § 111, allow new technology into the scheme even if they seemed poised to disrupt the current market equilibrium. Nobody can be certain about what will happen to the market either by allowing FilmOn to compete against cable network providers or by barring unlicensed Internet retransmission services. This issue is, broadly speaking, another iteration of the struggle to determine what role the courts should play in protecting existing markets and actors from new technologies that perhaps were not contemplated under existing law.

On one hand, courts are often hesitant to make determinations that would risk thwarting technological change. In Aereo, the Supreme Court took special care to limit its holding to the facts and emphasize that it was not judging cloud technology as a whole.32 The Southern District of New York seized on this by insisting that the Court’s “statements that Aereo (and, by extension, FilmOn) . . . is very similar to a cable system is not the same as a judicial finding that Aereo and its technological peers are, in fact, cable companies entitled to retransmission licenses . . . . [A]n implication is not a holding.”33 The Central District of California nevertheless believed that while § 111 licenses were not at issue in Aereo, the Court’s analogy came “about as close to a statement directly in [FilmOn’s] favor as could be made, and the decision’s reasoning” reflects a pattern in which “courts consistently reject the argument that technological changes affect the balance of rights” between broadcasters and retransmitters.34

On the other hand, courts have successfully protected copyright holders in the past from infringers employing new technology without dooming the technology itself. For example, the demise of Napster and its ilk did little to stop the spread of legal downloadable music services or prevent the creation of entirely new business models, such as advertising-supported music streaming services.

Another Wrinkle: Retransmission Consent Agreements

Beyond the immediate issues of § 111, the FilmOn cases may raise the question of whether cloud-based retransmitters—even if entitled to a compulsory license—may nevertheless have to negotiate with the broadcast networks for permission to stream their programming.

This is because the Cable Television Consumer Protection and Competition Act (Cable Act), enacted in 1992, grants broadcasters the right to prevent multichannel video programming distributors (MVPDs) from retransmitting television signals (regardless of the programming content) without the broadcaster’s consent.35 The Cable Act provisions thus result in negotiations between broadcasters and cable providers every few years for retransmission consent agreements, notwithstanding that cable providers are entitled to a compulsory license under § 111 of the Copyright Act. If FilmOn were found to be a cable system under § 111, the next question may be whether it is also regarded as an MVPD and thus required to obtain a retransmission consent agreement under the Cable Act. Ultimately the entire system of seemingly contradictory mandatory licenses and retransmission consent agreements may be called into question.

Conclusion

These cases highlight how emerging technology can create uncertainty in the law. Innovators and entrepreneurs should heed the warning from the Aereo and FilmOn cases: clever use of technology to avoid running afoul of rights holders may prove unsuccessful. Similarly, rights holders can look at the same cases—and the current fallout regarding § 111 compulsory licensing—and conclude that the law may not always protect their interests either. Given this uncertainty, the sensible approach for all sides remains negotiating a mutually acceptable license. Securing a license is likely to remain the most dependable way to ensure a positive result for both the innovator and the rights holder—because the current state of copyright law may not block innovation, but it may not pave the road either.

Endnotes

1. 134 S. Ct. 2498 (2014).

2. Craig B. Whitney, Aereo Post-Mortem: Was It Ever Really About the Cloud?, 7 Landslide, no. 5, May/June 2015, at 8.

3. 17 U.S.C. § 111.

4. See Memorandum and Order, CBS Broad. Inc. v. FilmOn.com, Inc., No. 1:10-cv-07532-NRB (S.D.N.Y. July 24, 2014), ECF No. 102 [hereinafter CBS Broad. July 2014 Order]. FilmOn has appealed the decision. See Notice of Appeal, CBS Broad. (S.D.N.Y. Aug. 25, 2014), ECF No. 114.

5. See Order, Fox Television Stations, Inc. v. Aereokiller LLC, No. CV 12-6921-GW (C.D. Cal. July 16, 2015), ECF No. 204 [hereinafter Aereokiller July 2015 Order].

6. See Order, Fox Television Stations, Inc. v. FilmOn X LLC, No. 1:13-cv-00758-RMC (D.D.C. Nov. 12, 2015), ECF No. 128; Plaintiff and Counterclaim Defendants’ Memorandum of Points and Authorities in Support of Motion for Summary Adjudication of First Cause of Action for Declaratory Relief and Section 111 Affirmative Defense, FilmOn X LLC v. Window to the World Commcn’s, Inc. (WTTW), No. 1:13-cv-08451 (N.D. Ill. Sept. 18, 2015), ECF No. 59.

7. The networks had sued FilmOn in the Southern District of New York in October 2010 based on an earlier version of FilmOn’s service. That case settled with a consent injunction in August 2012. See CBS Broad. July 2014 Order, supra note 4, at 1. FilmOn also filed for a declaratory judgment of noninfringement in the Northern District of Illinois. See Complaint for Declaratory Judgment, WTTW (N.D. Ill. Nov. 22, 2013), ECF No. 1.

8. Aereokiller July 2015 Order, supra note 5, at 6.

9. 17 U.S.C. § 111(f)(3).

10. 691 F.3d 275, 279 (2d Cir. 2012).

11. Id. at 282.

12. Id. at 280.

13. Id. at 281–82.

14. Id. at 282.

15. In 1988, Congress added § 119 to the Copyright Act to separately license retransmissions by satellite carriers, and in 1994, amended § 111 to include facilities that transmitted via “microwaves” within the definition of qualifying cable systems. See ivi, 691 F.3d at 281–82.

16. ivi, 691 F.3d at 283.

17. Id. at 283–85.

18. CBS Broad. July 2014 Order, supra note 4, at 1–2.

19. Id. at 9–10.

20. Id. at 10–11.

21. Aereo, Inc.’s Opposition to Plaintiffs’ Memorandum in Support of Preliminary Injunction at 6–7, Am. Broad. Cos., Inc. v. Aereo, Inc., No. 1:12-cv-01540 (S.D.N.Y. Aug. 29, 2014), ECF No. 325.

22. Memorandum on Remand in Support of a Preliminary Injunction at 2–3, Aereo, No. 1:12-cv-01540 (S.D.N.Y. Aug. 15, 2014), ECF No. 323.

23. Id. at 3.

24. Aereo, No. 1:12-cv-01540, slip op. at 6 (S.D.N.Y. Oct. 23, 2014), ECF No. 341 (citation omitted).

25. Aereokiller July 2015 Order, supra note 5, at 11–13, 15.

26. Id. at 11 (citing 17 U.S.C. § 111).

27. Id.

28. Id. at 12.

29. Id.

30. Id.

31. Id. at 16.

32. Am. Broad. Cos. v. Aereo, Inc., 134 S. Ct. 2498, 2510–11 (2014).

33. CBS Broad. July 2014 Order, supra note 4, at 9–10.

34. Aereokiller July 2015 Order, supra note 5, at 10.

35. See 47 C.F.R. § 76.64.