As the convergence of cloud-based products and services with the delivery and consumption of entertainment content continues to gain steam in the U.S., multiple courts across the U.S. are being asked to weigh in on the copyright implications of a new type of online TV service offered by two entities—namely, Aereo and FilmOn X (aka cloud cityAereokiller and Barry Driller).  A cross-country surge of litigation in the matter is testing the balance between copyright holders’ exclusive rights to exploit their works and consumers’ and service providers’ ability to make lawful use of these works through emerging cloud-based technology solutions. Since our last article on the subject, litigation involving these two service providers has now spread from courts in New York and California to courts in Massachusetts, Utah and the District of Columbia—and now, the U.S. Supreme Court has been asked to weigh in by the plaintiffs. The technology prompting the disputes consists of a cloud-based solution that captures and digitizes over-the-air television broadcast signals for transmittal to individual subscribers utilizing remotely located, miniature TV antennas. Both services employ a similar protocol in assigning each individual subscriber his/her own thimble-sized antennae located at the service provider’s facility which can be used solely by that subscriber to view live, as well as time and place shifted, streams and downloads of over-the-air television broadcasts on any Internet-connected device, including mobile devices. Like several other businesses in the cloud-based storage and transmission space, both Aereo and FilmOn X developed their business models and corresponding operational protocols in reliance upon the Second Circuit’s controversial 2008 holding in Cartoon Network, LP v. CSC Holding Inc., 536 F.3d 121 (2d Cir. 2008) (“Cablevision Case”), which addressed the copyright implications of a remotely located, cloud-based DVR system (“RS-DVR”). There, the Second Circuit, held that the transmission of television/movie programming from the RS-DVR to Cablevision’s cable subscribers who requested playback in their homes did not violate the copyright holders’ public performance rights. The defendant, Cablevision, argued against the TV network plaintiffs (and the court found relevant) that, “because each RS-DVR transmission is made using a single unique copy of a work, made by an individual subscriber” only one subscriber is capable of receiving the transmission of that particular work and thus the performance is not “public” as such term is defined under the U.S. Copyright Act. It was this holding—that individualized, unique digital copies of audio/visual content stored in the cloud at a user’s direction and streamed back to that particular user constitute private (as opposed to public) performances—which seemingly has provided many cloud-based businesses—from Dropbox and SoundCloud to Apple iCloud and Google Drive—with a modicum of legal cover to stream user uploaded or authenticated content without first securing authorization from the applicable copyright holders. Aereo and Film On X have taken this concept and proverbially “ran with it”, effectively, moving the needle from the storage and delivery of end user uploaded and authenticated content to the capture and streaming of over-the-air television broadcast signals. In response, a no-holds barred, legal battle royale with TV broadcasters has ensued, one that is primed for resolution by the U.S. Supreme Court. Aereo was first sued by a group of TV broadcasters in 2011 for copyright infringement in the Southern District of New York and prevailed against an injunction motion (see American Broadcasting Companies, Inc. v. Aereo, Inc., No. 12 Civ. 1540 (AJN), 2012 U.S. Dist LEXIS 96309 (S.D.N.Y. July 11, 2012) (“Aereo I”)), including the broadcasters appeal of that decision to the Second Circuit (see American Broadcasting Companies, Inc. v. Aereo, Inc., 12-2807-cv (2d Cir. April 1, 2013) (“Aereo Appeal”, and together with Aereo I, the “Aereo Case”)). There, the Second Circuit upheld the lower court’s holding, relying heavily on the contours of its own decision in the Cablevision Case, finding “no adequate basis to distinguish [the salient features of the RS-DVR system employed by] Cablevision from the Aereo system” (i.e., both systems create a unique copy of the program that an end user wishes to watch or record and the transmission of such program to such end user is generated from that unique copy such that no other end user can receive or view a transmission created from such copy) and concluding that Aereo was supplying “private” as opposed to “public” performances” (i.e., the potential audience of each Aereo transmission of a program is the single user who requested to view or record such program). Meanwhile, across the country, a similar group of TV broadcasters also filed a copyright infringement suit against FilmOn X in the Central District of California (see Fox Television Stations, Inc., et al. v. BarryDriller Content Systems, PLC, et al., CV 12-6921-GW (JCx), 2012 WL 6784498 (C.D. Cali. December 27, 2012)) (“FilmOn I”). This time, they prevailed—obtaining a preliminary injunction against the service in those territories encompassed by the Ninth Circuit (i.e., Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, Washington and Guam). Here, the court declined to enter a nationwide injunction against Film On X and its business operations, finding that the “principles of comity prevent the entry of an injunction that would apply to the Second Circuit,” and extending beyond the Ninth Circuit was inappropriate because “[i]f other circuits do not have law that conflicts with this decision, they might adopt such law when presented with the choice.” On the private versus public performance issue, the court disagreed with the Second Circuit’s holding in the Cablevision Case (and by extension the Aereo Case) and found that “the right to transmit a performance publicly is exclusive ‘whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times.’ 17 U.S.C. § 101.” FilmOn X promptly appealed the decision and a ruling on the matter is pending. On the heels of their success in FilmOn I, a similar group of TV broadcasters filed a similar copyright infringement suit against FilmOn X in the District of Columbia and prevailed once again, obtaining another a preliminary injunction against Film On X (see Fox Television Stations, Inc. v. FilmOn X LLC, Civil Action No. 13-758 (D.D.C.) (“FilmOn II”). The court in the case stated that, “…[T]his case could just boil down to a binary choice between the reasoning of the Second Circuit in the [Aereo Case] or the California district court in [Film On I], [but] it does not. This Court is tasked with making a legal judgment.” The court then concluded that “While it has carefully considered the competing authorities offered by the parties, the Court applies the Copyright Act and case law and finds that Plaintiffs are likely to succeed on their claim that FilmOn X violates Plaintiffs’ exclusive public performance rights in their copyrighted works.” More specifically, the court found that Film On X’s transmissions were encompassed by the statutory language of the U.S. Copyright Act which defines the contours of the public performance right.

“By making available Plaintiffs’ copyrighted performances to any member of the public who accesses the FilmOn X service, FilmOn X performs the copyrighted work publicly as defined by the Transmit Clause [of the Copyright Act]: Film On X “transmit[s] . . . a performance . . . of the work . . . to the public, by means of any device or process.” See 17 U.S.C. § 101. “A ‘device,’ ‘machine,’ or ‘process’ is one now known [i.e., in 1976] or later developed;” “[t]o ‘transmit’ a performance or display is to communicate it by any device or process.” Id. (emphases added).”

Perhaps the most noteworthy aspect of the decision, however, was the territorial scope of the preliminary injunction granted. While the court acknowledged that its decision would certainly conflict with the law of the Second Circuit under the Aereo Case, it held that “As far as [this] Court is aware, its decision does not conflict with the law of any other circuit, including the Ninth Circuit, where Film On I’s preliminary injunction remains in effect, accordingly, [this] Court will grant Plaintiffs’ request for nationwide relief except as to the Second Circuit, where the Aereo Case is the binding precedent.” Put simply, the court prohibited Film On X from operating or offering its service anywhere in the United States, with the exception of those states covered by the Second Circuit, where the Cablevision Case and Aereo Case still provide legal cover. Despite victories over Film On X in both California and D.C., the broadcasters suffered a setback on October 8, 2013, when a US District Court in Massachusetts declined a TV broadcaster’s request to enjoin Aereo’s operations in Boston (see Hearst Stations Inc. v. Aereo, Inc., 2013 BL 282327 (D. Mass. 2013) (“Aereo II”). There, the court appeared to agree, at least in part, with the court in the Cablevision Case and its statutory reading of the distinction between a public and private performance (i.e., one-to-one, private retransmissions of television programs are not public performances, even if made simultaneously to multiple viewers).  It added, “While the Transmit Clause is not a model of clarity, [this] Court finds at this juncture that Aereo presents the more plausible interpretation.  As such, [the plaintiff] has not persuaded the Court that it is likely to succeed on the merits of its public performance claim.” To that end, the court ultimately concluded that the plaintiff had “made a minimal showing of irreparable harm, [one] that is an insufficient basis for entering a preliminary injunction in its favor.” Three days after the decision in Aereo II, a group of TV broadcasters, on October 11, 2013, submitted a petition to the U.S. Supreme Court, to resolve the dispute claiming their petition for rehearing en banc in the Aereo Case was unjustly denied. In a petition for writ of certiorari, the over-the-air broadcasters included their core question presented —specifically, “[Does] a company “publicly perform” a copyrighted television program when it retransmits a broadcast of that program to thousands of paid subscribers over the Internet.” According to the petitioners’ brief, immediate intervention is required from the Court, as the decision rendered in the Aereo Case is already having a transformative effect on the industry and “once Aereo’s technology is entrenched and the industry has restructured itself in response, a ruling by this Court in petitioners’ favor will come too late.” The petitioners additionally highlighted the importance of the Court’s timing, stating that “The disruption threatened by Aereo will produce changes that will be difficult, if not impossible, to reverse. Accordingly, the exceptional importance of the question presented warrants this Court’s resolution now.” As the petition further notes, “The decision [in the Aereo Case] has far-reaching adverse consequences for the broadcast television industry, making the need for this Court’s review urgent and acute.” The petitioners’ arguments, in large part, underscore the adverse business and financial ramifications of Aereo’s unchecked expansion and material disruption to the broadcast television industry’s long-standing statutory model, which requires third party distributors to obtain the broadcasters’ consent prior to the retransmission of the broadcasters’ signals.  As the petitioners note, “Aereo’s victory in the Second Circuit also has emboldened certain cable and satellite companies to question why they should continue to obtain permission to retransmit broadcast programming when their competitor Aereo does not.” The petition further elaborates that:

“Aereo, which pays nothing for the content it retransmits and promotes itself as an alternative to cable and satellite retransmission services, has begun to attract subscribers with its low fees. Certain cable and satellite companies have responded by threatening to use the [decision in the Aereo Case] as a road map for reengineering their own delivery systems so they too can retransmit broadcast signals without obtaining the broadcasters’ permission. And copycat services have sprung up that, like Aereo, transmit live broadcast television over the Internet without obtaining permission or paying compensation. This Court’s intervention is urgently needed.”

Logically, the petitioners’ brief addresses many of the same arguments asserted in the ongoing litigation between the parties to date, including the fact that Aereo’s business model and corresponding operational protocols demonstrate dutiful compliance with the contours of the Cablevision Case.  Indeed, Aereo seemingly, as the petitioners’ assert, continues to exploit a proverbial “loophole” in the law intended to permit in-home time shifting by paying subscribers of cable television. As the brief states,

“Aereo employs a technology that it acknowledges was designed around the Cablevision holding… Aereo’s convoluted design serves no other purpose; it does not make transmission faster, more efficient, or cheaper, except insofar as Aereo believes its design obviates its need to pay the compensation legally demanded of its competitors. Indeed, Aereo initially confined its operations to New York because the Second Circuit alone had adopted this novel construction of the Transmit Clause. In short, Aereo crafted its system to accomplish what even the Second Circuit recognized in [the Cablevision Case] would frustrate Congress’ intent: Aereo itself ‘creates essentially identical copies of the same program for every user who wishes to watch it in order to avoid copyright liability.’”

Ultimately, the appeal to the Supreme Court is a well-timed attempt, in part, to have the court weigh in on what has now become a vexing geographical split decision in the U.S., the resolution of which will undoubtedly have far-reaching effects on the media industry as whole.  Until such time, stakeholders in the cloud-based distribution space (content creators, copyright holders, distributors and service providers alike) are compelled to do business on the Internet in a nation where conduct by some service providers in some states is permitted under the law while the same conduct in other states by other operators is expressly prohibited. By way of example, Aereo is expanding its operations in Boston while Film On X is prohibited from offering its service or conducting business there.  In other words, the diametrically opposed holdings in the Aereo and Film On X cases have placed these stakeholders in an extremely precarious position, both legally and financially, with further muddying of the waters likely when even more U.S. courts have the opportunity to weigh in on the issue (the Sixth Circuit may be next on the list as Aereo goes plans to go live in Michigan on October 28, 2013 in the Detroit metropolitan area). Against this backdrop, additional proceedings on the matter in the U.S.’s highest court at some point appear to be all but inevitable. In other words, if the Ninth Circuit affirms the preliminary injunction decision in Film On I, then a Circuit Court split on the matter exists, which is a chief justification for Supreme Court review. In fact, in 2009, when the plaintiffs in the Cablevision Case sought Supreme Court review of the Second Circuit’s decision, the Obama Administration argued against certiorari, with then-Solicitor General (and now Supreme Court Justice) Elena Kagan advocating on behalf of the Department of Justice and stating that none of the Second Circuit’s “specific holdings in this case conflicts with any holding of this Court or another court of appeals,” and “Network-based technologies for copying and replaying television programming raise potentially significant questions, but this case does not provide a suitable occasion for this Court to address them.” Well, it appears that “suitable occasion” is about to arrive. For those in the TV/Film industry, the stakes could not be higher. A U.S. Supreme Court decision affirming the private versus public performance stance taken by the court in the Aereo Case (and, by extension, the Cablevision Case) would likely cause significant financial harm and force broadcasters to evaluate the effectiveness of the largely ad-supported business model that supports over-the-air television programming. Specifically, the consumption of TV content via Aereo-style businesses and other IP-connected technologies cannot, as of yet, be adequately measured for purposes of determining show ratings or viewership, which adversely affects the TV networks’ ability to effectively negotiate with advertisers and monetize their programming. As the court in the Aereo Case remarked, “[B]y siphoning viewers from traditional distribution channels, in which viewership is measured by Nielsen ratings, into Aereo’s service which is not measured by Nielsen, [Aereo] artificially lower[s] these ratings.” In addition, the ongoing operation of Aereo-style businesses may also provide multichannel video programming distributors (MVPDs) with substantial leverage in negotiations with network programmers and broadcasters concerning the licensing of programming for distribution on MVPDs’ systems, including the payment of retransmission fees—effectively, Aereo’s and Film On X’s mini-antenna farms and other similar content distribution systems offer an alternate means for acquiring network programming without having to pay broadcasters license fees and without having to be bound by broadcaster-mandated restrictions on the use of TV content through new technologies (e.g., online and mobile distribution/viewing, authenticated TV Everywhere initiatives, etc.). As the court in the Aereo Case affirmed, “Aereo’s activities will damage plaintiffs’ ability to negotiate retransmission agreements, as these [MVPD] companies will demand concessions from plaintiffs to make up for this decrease in viewership [attributable to Aereo]… The record reflects that such agreements amount to billions of dollars of revenue for broadcasters.” Accordingly, on the issue of the threat of harm, even the court in the Aereo Case (though bound by precedent on the legal issues in the Cablevision Case) agreed with the plaintiffs, concluding that “Aereo threatens plaintiffs with irreparable harm by luring cable subscribers from that distribution medium into Aereo’s service, diminishing plaintiffs’ ability to benefit from their content in ways that are fundamentally difficult to measure or prove with specificity.” The music industry—labels, publishers, performing rights organizations and distributors alike—also have skin in the game on the issue. Arguably, it was the holding in the Cablevision Case that facilitated major music locker services like Google Play and Amazon’s Cloud Player to launch and commence streaming music to their subscribers without securing licenses from the applicable music rights holders. Specifically (and in contrast to Apple which at the time had allegedly secured all of the necessary rights upfront to offer its iCloud and immediately begin streaming music from a master file once music tracks were authenticated on a user’s device), Amazon and Google had yet to reach agreements with all of the necessary parties and instead seemingly relied on the Cablevision Case to launch their cloud music services. As such, this approach required that each of its users upload his/her own unique copy of each music file in his/her music collection to the cloud to enable playback—a laborious process, demanding excessive amounts of time and data. Since that time, however, both Amazon and Google have cut deals with certain key rights holders, but Apple, Google and Amazon undoubtedly still rely on the private versus public performance holding in the Cablevision Case when unable to scan-and-match a particular track on a user’s device with its centrally located and licensed files. When this occurs, the full, unauthenticated music file is uploaded to cloud storage for playback to the particular user, all in compliance with the requirements of the Cablevision Case which demands a unique copy be uploaded, stored and used exclusively to stream back to the particular user. In fact, the current Terms of Service for Google Play, all but recites such requirements pertaining to unique copies stored and played back at the user’s direction: “By storing Music Products and Stored Content in Music Storage, you are storing a unique copy of such content and requesting Google to retain it on your behalf and to make it accessible to you through your Google account.” Accordingly, if the U.S. Supreme Court were to side with the Ninth Circuit and reject the holding in the Aereo Case and Cablevision Case, music performers, labels, publishers, writers and performing rights organizations would have the means to assert their copyrights against cloud-based digital locker services providing unlicensed streaming functionality—specifically, claims for direct copyright infringement attributable to unauthorized public performances. Even though the big three—Apple, Amazon and Google—all have industry agreements in place covering the majority of the music they stream, numerous cloud services continue to provide cloud storage and streaming music functionality without any music licensing agreements at all, all in (conscious or unconscious) reliance on the Cablevision Case. Needless to say, a ruling one way or the other on the private versus public performance issue by the U.S. Supreme Court, or even other Circuit Courts along the way, will cause material disruption in the entertainment and technology industries in the U.S. As always, we will keep a close eye on future developments in these matters and any case law potentially impacting the ongoing operation and future deployment of cloud-based products and services.