August 06, 2014 Top Story

Internet Technology Infringes Exclusive Intellectual Property Right

Supreme Court implies Internet provider is a cable company under the Copyright Act

Kelso L. Anderson

An Internet service provider that offers subscribers television programming at or near the time of the program’s broadcast may be the definition of a cable company that “perform[s]. . . copyrighted work publicly,” in violation of the Copyright Act of 1976American Broadcasting Cos. v. Aereo, Inc. The divided ruling from the U.S. Supreme Court also portends the potential conflict between technological innovation and the letter of the Act.

Aereo’s Technology

In Aereo, the respondent, Aereo, Inc., offered Internet subscribers access to television programs—some of which were copyrighted works—for a monthly fee. Aereo neither owned the copyrights in nor held a license to perform any of the copyrighted works. Aereo’s system was made up of servers, transcoders, and thousands of tiny antennas housed in a central location. A subscriber would visit Aereo’s website to select a program to view, and then an Aereo server would select an antenna for use for that subscriber alone for the duration of the program.

Another server would tune the antenna to the broadcast carrying the show, the antenna received the broadcast, and an Aereo transcoder converted the signals received into data that it streamed over the Internet. Aereo’s server saved the file on a subscriber-specific folder on Aereo’s hard drive, which allowed the subscriber to watch the streamed program over the Internet on a smart phone, computer, tablet, or other device.

Copyright Infringement Action

The petitioners in Aereo are marketers, broadcasters, distributors, and others who own copyrights in many of the programs that Aereo streams to its subscribers. They brought a copyright infringement action in the U.S. District Court for the Southern District of New York, seeking an injunction by arguing that Aereo infringed their right to “perform” their works “publicly.”

The district court denied their injunction request, and the U.S. Court of Appeals for the Second Circuit affirmed, concluding that Aereo’s system does not “transmit to the public” since Aereo’s stream is available privately to each subscriber. The Second Circuit also denied a motion for rehearing en banc, with two judges dissenting. The U.S. Supreme Court granted certiorari.

The issue before the Supreme Court was whether Aereo’s system “performs” and, if so, whether it did so “publicly,” contrary to Section 106(4) of the Act, which gives copyright owners the exclusive right to perform their works publicly. Answering both questions in the affirmative, the Court noted that the letter of the Act was unclear, but Congress’s intent in amending the Act in 1976 was “unmistakable.” That unmistakable intent was to bring community antenna television (CATV) systems within the ambit of the Act, since prior to 1976 CATV systems—precursors of present-day cable systems—were deemed unlike broadcasters and outside the Act’s scope. The Court concluded that Aereo’s system “performs publicly” because it transmitted copyrighted images and sounds (performs) to its multiple subscribers (publicly).

Letter of Act Sufficient

Because the Act defines “perform” as showing images or making accompanying sounds audible, some Section leaders believe a plain reading of the Act was a sufficient basis to conclude that Aereo’s system infringed. “The majority should have looked at the definition of cable system under Section 111(f)(3),” says Vanessa J. Soman, New York, NY, cochair of the Internet & Privacy Subcommittee of the ABA Section of Litigation’s Intellectual Property Litigation Committee. “The fact of the matter is that Aereo is performing or displaying copyrighted material without authorization,” Soman emphasizes.

Instead of deeming Aereo a “cable system” directly, the Court implied as much by citing Fortnightly Corp. v. United Artists Television, Inc.and Teleprompter Corp. v. Columbia Broadcasting Systems, Inc. Those cases held that CATV providers do not come within the reach of the Act because they carry programs without procuring or editing, unlike broadcasters.

Chilling Innovation

In an animated dissent, Justice Scalia, joined by Justices Thomas and Alito, argued that Aereo’s system did not “perform” under a plain reading of Section 106(4), and thus there was no infringement. According to the dissent, since Aereo’s subscribers select the programs they wish to see, those persons “perform,” not Aereo’s system. The majority’s contrary reading, said the dissent, announces a “look-like-cable-TV” standard to determine whether conduct is infringing, contrary to the Act.

“The majority adopted a functional equivalence approach: If it looks like a cable system, then that’s what it is,” says Andrew Berger, New York, NY, former cochair of the Copyright Subcommittee of the Section’s Intellectual Property Litigation Committee. “This can only chill innovation and the willingness to invest in it,” Berger continues. Berger fears that the Court’s ruling will “breed investor reluctance, and without risk capital start-ups never start. Plus it could take years for the lower courts to flesh out the functional equivalence approach, which will bleed dry poorly capitalized start-ups.”

In contrast, other Section leaders analogize the ruling in Aereo to Napster’s failure over 10 years ago, noting that a business built on infringement cannot succeed. “Innovation is great,” says John P. Hutchins, Atlanta, GA, cochair of the Section of Litigation’s Technology for the Litigator Committee, “but a business model that is premised on making a buck from someone else’s copyrighted expression without giving them a little slice of the pie is doomed to fail.”

Kelso L. Anderson is an associate editor for Litigation News.

Keywords: copyright, infringement, cable system, subscriber, section 106(4)

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