UPDATE:  Earlier this month, the Second Circuit in a 2-1 decision affirmed a lower court ruling rejecting an injunction against broadcast television retransmitting service Aereo, based on the Copyright Act’s public/private performance provisions. Yesterday, in response to this decision, broadcasters filed a petition with the Second Circuit for an en banc review arguing that the recent decision defeats the “express purposes” of the Copyright Act of 1976 by “allowing new and existing distributors to design around th[e] license requirement and profit from the delivery of copyrighted programming while paying nothing for it.”

Below we have republished our firm’s blog entry discussing the recent Second Circuit decision, which the broadcasters are now challenging in their petition. 

Repost from Sports, Media and Entertainment Online blog

Authored by Andrew L. Deutsch, Melissa A. Reinckens and Marc E. Miller.

Court of Appeals rejects shutdown of retransmission service Aereo

The United States Court of Appeals for the Second Circuit has rejected an attempt by broadcasters to shut down Aereo, a service that receives broadcast television signals and retransmits them to individual subscribers over the Internet – but, unlike cable providers, pays no retransmission fees to the copyright holders. 

In WNET et al. v. Aereo Inc., the Second Circuit found that it was bound by an earlier holding, Cartoon Network LP, LLLP v. CSC Holdings, Inc., 536 F.3d 121 (2d Cir. 2008) (Cablevision), which held that transmission of broadcast channels to Cablevision’s Remote Service Digital Video Recorder system (RS-DVR) was not an infringement of the copyright holders’ public performance right.

While the Aereo ruling is undoubtedly a setback to the plaintiffs, it concludes just one phase of what will likely be an ongoing litigation between the parties.

Aereo transmits to its subscribers broadcast television programs over the Internet for a fee. Aereo functions much like a television with an RS-DVR – the subscriber can tune in to a live broadcast or record a broadcast program for later viewing. The back end is unique: Aereo uses thousands of tiny antennas, each assigned to a single subscriber, to receive over-the-air broadcasts, and a remote server that creates individual copies of broadcast programs that its subscribers wish to watch live or at a later time. Aereo does not have any license from copyright holders to record or transmit their programs and pays no retransmission fees to broadcasters, unlike cable channels which pay such fees.

Two groups that own copyright in network television programming filed separate copyright infringement actions against Aereo. They alleged that the Aereo service infringed their exclusive right to publicly perform copyrighted programs, and sought a preliminary injunction that would have halted the service. The district court, however, refused to enjoin the service. It found that Aereo’s individual antenna system was not materially distinguishable from Cablevision’s RS-DVR system and that Aereo’s transmissions of broadcast programs to individual subscribers were not “public performances.”

The Second Circuit, in a 2-1 decision, affirmed the denial, finding that the Aereo service was not distinguishable from the RS-DVR system involved in Cablevision. Section 106(4) of the Copyright Act grants the copyright owner the exclusive right “to perform the copyrighted work publicly.” Under the statute, to “publicly perform” a television program means either (1) to show the program at a place open to the public or where a substantial gathering of persons other than family and acquaintances is gathered, or (2) to transmit the program to the public, whether the members of the public capable of receiving the performance receive it in the same place at the same time or in separate places at different times.

In Cablevision, individual customers sent signals through the RS-DVR system to servers at Cablevision, which made a unique recording of a broadcast program for that customer; that recording was then transmitted to the customer only and could be played back or paused, as with a standard DVR. Any other customer seeking to access the same program had to direct the making of a different copy. The Second Circuit held that the RS-DVR’s transmission to the customer was not a public performance because each transmission of a program was made to a single customer using a single unique copy produced at the direction of that customer. Thus, under Cablevision, a service that creates unique copies of each work and transmits that unique copy to a particular customer, and to no other customer, will not infringe the copyright owner’s public performance right.

The Second Circuit likewise determined that Aereo’s system does not infringe the broadcasters’ public performance rights. The majority opinion reasoned that Aereo’s system has two essential features also present in Cablevision’s RS-DVR system: (1) Aereo’s system assigns each subscriber an individual antenna and a dedicated portion of Aereo’s server, at which a unique copy of each program is created; and (2) Aereo transmits that unique copy to the subscriber that requested it, and to no other subscriber. The court found that this system is not a “public performance” because the potential audience of each transmission is the single user who requested it, and that subscriber only.

The court rejected the plaintiffs’ attempts to distinguish Aereo’s system from the RS-DVR system in Cablevision. “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,” it noted, adding, “Plaintiffs have presented no reason why the result should be any different when that rooftop antenna is rented from Aereo and its signals transmitted over the Internet.” The Second Circuit concluded that under Cablevision, Aereo’s transmissions of unique copies of broadcast television programs created at its users’ requests and transmitted to users while the programs are still airing on broadcast television are not “public performances” of those works.

In a dissenting opinion, Circuit Judge Denny Chin concluded that the Aereo system infringed the owners’ public performance rights. He described Aereo’s technical architecture as “a sham,” and “a Rube Goldberg-like contrivance” designed to take advantage of a perceived loophole in the law. Judge Chin discerned two “critical differences” between Cablevision and this case: (1) Cablevision involved a cable company that paid statutory licensing and retransmission consent fees to broadcasters, while Aereo paid no fees; and (2) the subscribers in Cablevision already had the ability to view broadcast programs in real-time through their authorized cable subscriptions, and the RS-DVR was merely adding a time-shifting service similar to a standard DVR, while no part of Aereo’s system is authorized. Judge Chin concluded that the majority’s decision “does not merely deny the broadcasters a licensing fee for Aereo’s activity; it provides a blueprint for others to avoid the Copyright Act’s licensing regime altogether.”

Although the Second Circuit affirmed the denial of preliminary relief, the dispute is not yet over. Several of the plaintiffs’ claims – infringement of plaintiffs’ right of reproduction and contributory infringement – have yet to be litigated. The broadcasters may seek further review of the public performance issue by requesting a rehearing en banc or by seeking review from the United States Supreme Court.

Nonetheless, in the short term, the decision in Aereo is likely to have a significant impact in the real-world economics of television and cable. Aereo has announced that it is expanding into new geographical markets. Among the decision’s potential effects is the incentive it gives to television users who do not want to pay for cable TV channel bundles and who may now be able to receive an unbundled service at a lower price. The decision also incentivizes cable channel operators which may seek to lower the retransmission fees they, but not Aereo, pay to broadcasters.