Aereo’s legal strategy straightens up and flies right

I have argued several (0) times (1)  over the past months that the Aereo case has wrongly been framed in terms of Copyright law – that it is really a case about communications law and policy and, in particular, about our ongoing commitment to broadcast television in the era of online video. Just this week I argued (2) that the Supreme Court’s opinion should have been framed in terms of Section 111, a specialized section of the Copyright Act that deals specifically with the retransmission of broadcast television content. The same day, news broke (3) that Aereo has reframed its legal strategy to embrace just this argument, now arguing that it is a cable system and that it can avail itself of the Section 111 compulsory license to gain access to broadcast television content.

This post takes a quick look at Aereo’s new argument. As I explained in (yet another!) post (4) on this topic, “The central question moving forward is likely to be ‘what is a cable system?’ This is where things get fascinating.” Unsurprisingly, Aereo has seized the Supreme Court’s description of the Aereo system as “cable-like” to suggest that its system must be treated like cable. The analysis is quite a bit more complicated – and the outcome very uncertain. No matter your thoughts on the merits of Aereo’s business model, the decision to advance the Section 111 arguments will hopefully put the core legal and policy issues front and center in a way that previous litigation has not. This can only be a good thing.

The key question: Is Aereo a cable system?

The key element of Aereo’s new argument is that it is, for purposes of the Copyright Act, a “cable system.” As I explained in my previous post, being classified as cable is critical: if Aereo is not classified as a cable system, then its secondary transmission of broadcast content is illegal. If, on the other hand, it is a cable system, then its secondary transmission of broadcast content is legal and subject to the Section 111 compulsory license, under which retransmission of local broadcast content is effectively free.

So, is Aereo a cable system? Despite the Supreme Court describing it as “cable-like,” the answer is unclear – indeed, it is likely that the court deliberately described Aereo in that way to avoid weighing in on this difficult question. As an initial matter, both the Copyright Act and the Communications Act have definitions of “cable system,” each with slight differences. The Copyright Act definition has been construed by the Register of Copyrights, an administrative official within the Copyright Office, as not applying to Internet-based video distribution. The FCC has also been asked to consider the same question, but has yet to come to a conclusion; I will return to the FCC in a bit.

There are three important reasons that the Register of Copyrights has held that Internet-based video systems are not “cable systems.” First, and least persuasively, the definition of “cable system” requires the system to have its own “facility,” which the Register has interpreted to mean a cable distribution infrastructure. Because an online video service delivers video over the Internet (which it does not own, of course), it doesn’t have the requisite facilities to qualify as a cable system under the Copyright Act – or so the Register has held. Of course, Aereo does have facilities filled with thousands of antennas and servers. (Note: under the Section 111 argument, Aereo can probably get rid of all those silly little antennas and replace them with a single master antenna!)

Second, and much more compelling, the cable systems envisioned by the Copyright Act are creatures defined within a narrow local geography. There are thousands of cable systems in the United States (many under common ownership by a small number of firms). This is definitionally important because the Copyright Act, and its underlying policy, deals extensively with the retransmission of distant content into local markets.  Previous Internet-based video distribution systems (such as ivi, discussed in a moment) operated on a nationwide level, picking up signals from New York (for example) and distributing them nationwide. Because the system operated in a nationwide market, there was a mismatch between the New York broadcast market and the nationwide online video market. Since these two markets were supposed to be of similar geography, the Copyright Office reasonably decided that online video couldn’t be a cable system for purposes of the Copyright Act. But note! Aereo uses geolocation technology to limit the retransmission of broadcast to the local broadcast market.

Third, the Register has looked at the statutory history of the Copyright Act, in particular at how Congress changed the statute to deal with satellite TV. Rather than modify Section 111, Congress added new sections to the Copyright Act to address the new technology. From this, the Register somewhat reasonably concludes that Congress didn’t intend Section 111 to be technology neutral, but rather meant for it to apply to traditionally-defined cable television systems. Any new video delivery system would require further amendments to the Copyright Act, similar to the amendments for satellite. Importantly, however, satellite technology is more different from traditional cable than Internet-based television is. Indeed, many “traditional” cable companies already use, or are developing technologies that use, the Internet Protocol to deliver their television content – arguably (and contrary to Justice Scalia’s understanding presented in his dissenting opinion) the technology used by “traditional” cable and online video services is the same.

Who decides if Aereo is a cable system?

Very importantly, the Court of Appeals for the Second Circuit has upheld the Register’s understanding that online video is not a “cable system” under the Copyright Act. In a 2012 case (5) challenging the ivi system, the court both agreed with the conclusion that Congress did not intend for Section 111 to apply to online video services and also found that, independent of its own analysis, the Register’s construction of the statute was reasonable. (For the real law nerds: the court found that the statute was clear under Chevron step one, but engaged in a step-two analysis anyhow and found the Register’s construction to be reasonable.)

But as noted above, there are important differences between the system challenged in the Second Circuit and what Aereo is doing. Most important is that Aereo is geographically limited rather than operating in a nationwide market. And, in practical terms, the Supreme Court’s description of Aereo as “cable-like” will likely influence any court considering this question in the future – even if, from a purely legal stance, it shouldn’t.

The history presented above also demonstrates another important point. Arguably, whether Aereo is a “cable system” is a question to be answered by the Register of Copyrights – it is not a question for the courts to decide. This follows from principles of administrative law (the Chevron case mentioned above) that tell the courts that they are supposed to defer to agency interpretations of ambiguous statutes. At the same time, the Copyright Office isn’t a traditional administrative agency; it is unclear whether the Registrar actually merits such deference. This means that Aereo will need to face a number of administrative law questions if it wants to be deemed a cable system – and even if the court agrees that it is, it may face the situation where the Register of Copyrights can subsequently disagree!

What about the FCC?

I mentioned above that the Communications Act also has a statutory definition of “cable system.” The FCC decides whether this definition applies to Aereo (and unlike the Register of Copyrights, the FCC clearly gets substantial deference). This definition is used for different purposes than the Copyright Act. The Copyright Act only covers whether a cable system can avail itself of the compulsory license. The Communications Act, on the other hand,  subjects cable systems to the full range of cable regulations. Perhaps the most important of these regulations are the “must carry” and “retransmission consent” rules, which govern the terms under which cable systems can retransmit broadcasters’ signals.

Yes, that’s right. Both the Copyright Act and the Communications Act have provisions governing retransmission rights. (Technically, the Copyright Act governs retransmission of the copyrighted programming contained within broadcast signals, whereas the Communications Act governs the retransmission of the signals themselves, independent of what programming they contain.)

This is a risk that Aereo runs in now arguing that it is a “cable system.” It wants to be deemed a cable system for purposes of the Copyright Act, but not deemed a cable system for purposes of the Communications Act. The Copyright Act would let it retransmit local television content, basically for free; the Communications Act would require it to get permission from the broadcasters to retransmit their signals. The broadcasters likely would not give this permission; and even if they did, they would likely expect a lot of money in exchange.

This risk may be somewhat mitigated because the classification of online video distribution is a more difficult question for the FCC than for the Copyright office. Applying the Communications Act’s full range of cable regulations to online video distribution would be challenging and, in some cases, may raise unanswerable questions. As such, the FCC may be more likely than the Register of Copyrights to resist classifying online video as a “cable system”. And it may be more successful too, both because it is more likely to receive deference from the courts and because its more comprehensive statutory scheme can more easily be viewed as incompatible with such a classification.

At the end of the day, we should be thankful for Aereo’s willingness to put these issues front and center. Unlike their previous legal theory, where they tried to drive a freight train of copyright violations through the eye of the Cablevision needle, they are now forcing our attention to the key legal and policy issues. There are good arguments on both sides of the Aereo-as-cable question. In either event, judicial resolution of the issue would increase certainty within the industry in a way that the Supreme Court’s Aereo decision did not. Even more important, a decision – whichever way it goes – would helpfully frame the issue for ultimate resolution by Congress. If there’s one thing that the Aereo saga makes clear, it’s that current video regulations are a poor fit for the Internet age; Aereo’s continuing efforts can only help get the much-needed involvement of Congress (6) in updating these out-of-date regulations.

Related Articles

Aereo: Too clever by half gets you nowhere, fast

June 26, 2014 6:00 am

Gus Hurwitz

Since 10:17AM yesterday morning, hundreds, if not thousands, of articles and blog posts have been written explaining, dissecting, and analyzing...

Aereo: Pulling the wrong question from the quiver

April 4, 2014 6:00 am

Gus Hurwitz

Aereo goes to the Supreme Court later this month in what is one of the most important broadcasting and...

A Supremely broken Aereo  

July 9, 2014 6:00 am

Gus Hurwitz

Even though it reaches the correct outcome, the Supreme Court’s Aereo opinion is staggeringly, and confusingly, bad. The...

Aereo poses a problem that only Congress can solve

April 25, 2014 6:00 am

Gus Hurwitz

I have no idea how the Supreme Court is going to decide the Aereo case. But I do know...