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Aereo-decision: Injecting New Uncertainty into the Liability of Online Service Providers

27 Jun , 2014  | by:

TV-over-Internet service Aereo suffered a major defeat yesterday, when the U.S. Supreme Court decided its service infringed on ABC’s copyrights. Aereo offers its subscribers free-to-air TV programming over the Internet. The service depends on thousands of antennas housed in a central warehouse. On Aereo’s website subscribers can select a TV show that will then be tuned into and streamed to the subscriber’s device. For every user watching, Aereo dedicates one antenna, and in order to transcode and stream the show, Aereo stores a copy of the show in a subscriber-specific folder on its servers. Thus, instead of setting up an own antenna to pick up free-to-air TV, one “rents” an antenna from Aereo’s antenna-park to remotely pick up a specific TV show, which is then streamed to an Internet-connected device.

Direct copyright infringement?

The issue before the Supreme Court was whether Aereo publicly performed the TV shows that it picked up and streamed to its subscribers. In other words, whether or not Aereo directly infringed ABC copyrights. The Supreme Court held that Aereo did.

The Supreme Court’s reasoning goes back to two earlier decisions from 1968 and 1974 in which the Court considered the liability of Community Antenna Television (CATV) Systems under copyright law. These CATV Systems, which were the precursors of modern cable systems, picked up local television broadcasting from the air and carried the signals through cables to the television sets of subscribers. In these two decisions, the Supreme Court essentially held that these providers, by receiving and rechanneling the broadcast signals, performed a “viewer function” that was outside of the scope of copyright law. However, Congress, through the 1976 Copyright Act, overturned the Supreme Court decisions and included the functions performed by these CATV systems and other cable companies in the performance right.

Congress’ rejection of the Supreme Court’s CATV decisions to a great extent informs the Supreme Court’s reasoning in Aereo. Because the Court deemed Aereo’s activities “substantially similar” to those of the cable companies, and Congress intentionally brought the activities of the latter within the Copyright Act’s reach, the Court argues that Aereo too performs copyrighted works. The technical differences between Aereo service and the service of cable companies do “not make a critical difference here”, the functional similarities do.

Volitional Conduct

In its decision, the Supreme Court rejects the argument that Aereo’s subscribers transmitted the TV shows to their screens, and not Aereo, which only provided the means to do so. In this argument, Aereo is compared to “a copy shop that provides its patrons with a library card”, which falls outside of the scope of copyright’s exclusive rights.

This argument, in particular the copy shop-analogy has been helpful to internet access providers and other online service providers in shielding them from liability for direct copyright infringement. Already in 1995, in Religious Technology Center v. Netcom on the liability of a Bulletin Board System-provider and an internet access provider for direct infringements, the District Court held that infringement requires an “element of volition or causation.”

The volitional conduct-requirement has not just been applied in other cases of BBS and internet access providers, but made its way to cases dealing with direct liability of hosting service providers that hosted infringing content for others. In these cases the hosting provider is compared to an owner of a public copying machine that does not himself copy, but only provides the means to copy, distribute or display copyrighted works. Also service providers that, through automatic processes are more involved with the content they store, have not been held liable for direct infringement based on the volitional conduct-requirement. The Fourth Circuit Court’s decision in CoStar v. Loopnet, on the liability of real estate listing service Loopnet’s for user-uploaded images, is a good example of that.

The absence of “volitional conduct” does not mean online service providers cannot be held liable for infringements at all. Rather, their liability for involvement in infringements of others is looked at through an indirect infringement lens. This approach allows to take into account notions such as knowledge of and control over the primary infringements. It frees online service providers from copyright’s strict liability regime and its mechanical application, and weighs their involvement in infringements primarily instigated by others.

The Supreme Court’s “limited holding”

Although the Supreme Court in Aereo limits its decision to cable company-like activities, the Court is well-aware of the potential effect its holding may have for online service providers and other providers of innovative technologies. The Court notes:

“In other cases involving different kinds of service or technology providers, a user’s involvement in the operation of the provider’s equipment and selection of the content transmitted may well bear on whether the provider performs within the meaning of the Act. But the many similarities between Aereo and cable companies, considered in light of Congress’ basic purposes in amending the Copyright Act, convince us that this difference is not critical here.”

In particular with regard to remote storage services, the Court notes:

“And we have not considered whether the public performance right is infringed when the user of a service pays primarily for something other than the transmission of copyrighted works, such as the remote storage of content.”

And with regard to new technologies in general:

“Aereo and many of its supporting amici argue that to apply the Transmit Clause to Aereo’s conduct will impose copyright liability on other technologies, including new technologies, that Congress could not possibly have wanted to reach. We agree that Congress, while intending the Transmit Clause to apply broadly to cable companies and their equivalents, did not intend to discourage or to control the emergence or use of different kinds of technologies. But we do not believe that our limited holding today will have that effect.”

Blurring the line between direct infringement and indirect infringement

Although the Supreme Court’s notes that its holding is “limited”, and it provides examples of services to which the holding does not necessarily applies (e.g. remote storage), the Court with its cable system-analogy does blur the line between direct and indirect copyright infringement. Justice Scalia in his dissenting opinion argues that the “this looks like cable TV”-rule opens the door to other analogies and distorts the sharp distinction between direct and indirect infringement:

“Third, and most importantly, even accepting that the 1976 amendments had as their purpose the overruling of our cable-TV cases, what they were meant to do and how they did it are two different questions—and it is the latter that governs the case before us here. The injury claimed is not violation of a law that says operations similar to cable TV are subject to copyright liability, but violation of §106(4) of the Copyright Act. And whatever soothing reasoning the Court uses to reach its result (“this looks like cable TV”), the consequence of its holding is that someone who implements this technology “perform[s]” under that provision. That greatly disrupts settled jurisprudence which, before today, applied the straightforward, bright-line test of volitional conduct directed at the copyrighted work.”

Furthermore, by not providing criteria for determining when the new “looks like cable TV”-rule applies, the Supreme Court creates uncertainty as to whether the conduct of certain online service providers may amount to direct infringement. We have already seen District Courts wrongly applying the volitional conduct requirement to the conduct of certain online service providers (see Arista Records v. Usenet.comCapital Records v. MP3tunes, 2009 WL 2568431; and Perfect 10 v. Megaupload, 2011 WL 3203117), or disregarding the requirement altogether (Arista Records v. Myxer, 2011 WL 11660773). The Supreme Court’s decision in Aereo may only foster more confusion about and misapplication of the volitional conduct requirement.

European perspective

From a European (Union) perspective, the volitional conduct-requirement seems like a sensible criterion to keep online service providers outside of copyright law’s direct infringement realm. Instead of creating ad-hoc exceptions, such as those for transient copies, and amassing an overcomplicated body of  case law on what constitutes a communication to the public, the criterion helps to asks the relevant question: who caused the copy to be made or the work to be communicated? In that regard, it’s too bad the U.S. Supreme Court in Aereo is clouding the direct infringement concept, and with it the distinction between direct and indirect infringement.

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