Shades of 1984 Emerge in Broadcast TV Copyright Flap

Tens of thousands of dime-sized broadcast television antennas line Aereo's datacenter in Brooklyn, New York. Photo: Aereo

In 1984, Hollywood was arguing that the VCR and home taping would kill its business and wanted the Supreme Court to outlaw the devices from Americans’ living rooms. Luckily for Americans and Hollywood, the Supreme Court recognized the power of innovation and the limits of copyright in a 5-4 decision that helped unleash a revolution in home entertainment that included a multi-billion-dollar market in videotape and DVD sales and rentals.

Fast forward three decades and we’re right back to 1984. Broadcasters including ABC, CBS, Fox, NBC and Univision are set to appear in court next month to urge a New York federal judge to block the latest television-viewing technology they claim will bankrupt their business model.

It’s not quite George Orwell’s 1984. But it is legal déjà vu.

To understand the latest legal jockeying, substitute the term VCR with Aereo. The upstart, Aereo, opened for business last month and supplies internet streams and a DVR service for over-the-air broadcasts to its New York customers. In other words, Aereo lets those in New York who want to watch on their iPad what they can pull down for free from the public airwaves to their TV with an antenna. For the moment, the service is free, but will soon charge $12 monthly.

Echoing Hollywood’s arguments against the VCR before the Supreme Court, broadcasters claim Aereo will doom them and are asking a federal judge to ban the service.

“Unless restrained by this court, Aereo’s unlawful conduct causes plaintiffs to lose control over the dissemination of their copyrighted programming, disrupts their relationships with licensed distributors and viewers and usurps their right to decide how and on what terms to make available and license content over new internet distribution media. That constitutes irreparable harm and Aereo’s service should be enjoined,” Bruce Keller, their lawyer, wrote the federal judge presiding over the litigation.

Three decades ago, before the Supreme Court in what is famously known as the Sony Betamax case, Stephen Kroft, a lawyer for Hollywood, said this to the justices: (.pdf)

“Underneath all the legal arguments and legal labels that we’ve thrown around in this case, the case is really very simple and straightforward. Petitioners have created a billion dollar industry based entirely on the taking of somebody else’s property, in this case copyrighted motion pictures, each of which represents a huge investment by the copyright owners,” he said.

Aereo’s fate now resides in the hands of the courts, the latest chapter in the ongoing legal battle between copyright holders and technology innovators. And the outcome could do more than just decide Aereo’s fate. It could shape the manner and method by which people watch television in the future, and perhaps provide an early answer to the question of whether online television would be controlled by a stodgy industry that once shunned the VCR, or whether third-party innovators embracing technological advances have a chance to build on the openness of the public airwaves.

Unfortunately for the upstarts and the audience, the spirit of 1984′s Supreme Court majority seems to have escaped the modern judiciary, which has tended to largely side with copyright holders.

That’s left a trail of dead startups – NapsterSeeqPod, Muxtape and Ivi TV to name a few — leaving many early-stage investors wary of funding anything related to music and video. Video site Veoh, for example, prevailed in a suit brought by Universal Music, but was driven into bankruptcy fighting the allegations. RealNetworks has foundered since 2009, when a federal judge blocked the distribution of its DVD copying software.

To be sure, precedent and federally mandated licensing arrangements may not be on Aereo’s side. Its oddball technology, however, just might be its saving grace.

If Aereo were a cable or satellite company, it could transmit publicly available broadcast signals to its customers — under a complicated licensing-fee structure — though they do need the consent of the local broadcasters. Given that local broadcasters are always hungry for more over-the-air revenue, that’s almost never a problem.

Copyright holders in the programs being re-broadcasted have no say in the matter, under what is known as compulsory licensing. Congress adopted the licensing structure following Supreme Court decisions in the ’60s and ’70s that allowed cable companies to hijack over-the-air broadcasts and include them in their primitive television packages.

And herein lies a 21st century anomaly: The federally mandated licensing structure put into place is silent when it comes to internet streaming of over-the-air broadcasts that are carried over public airwaves.

Even so, Aereo claims that, because of its proprietary technology, it doesn’t need anyone’s permission to supply freely available television signals over the internet to paying customers. It claims it is neither a cable nor satellite concern.

Instead, Aereo has deployed a small forest of baby antennas, which users rent from Aereo. Chet Kanojia, the company’s chief executive, said the business model of providing a remote antenna for a user is “consistent with over-the-air broadcasting.” He said “it doesn’t require licensing.”

But now-defunct Zediva recently tried a not-dissimilar technological workaround to skirt copyright issues for online DVD rentals, only to go belly-up after being successfully sued on infringement allegations.

Photo: Aereo

Aereo’s New York customers basically rent two tiny antennas, each about the size of a dime. Tens of thousands of the antennas are housed in a Brooklyn data center. One antenna — unique to a customer — is used when a customer wants to watch a program in real time from a computer, tablet or mobile phone.

The idea is to rely, in part, on a 2008 federal appeals court ruling known as Cablevision.

That ruling, which the Supreme Court declined to review, said Cablevision Systems’ cloud-based DVR service was legal only because each user who ordered Cablevision to make a copy of last Thursday’s Seinfeld got their own individual copy in their own folder in the company’s data center. Hollywood claimed Cablevision’s service directly infringed its exclusive rights to both reproduce and to publicly perform their copyrighted works. In a highly complex and nuanced ruling, the court said individual consumers, not Cablevision, were copying and acquiring the material at their own discretion, which amounted to fair use.

That leaves some hope for Aereo. And the company’s got another thing going for it — a deep-pocketed investor who appears willing to fund an expensive and lengthy court fight.

Barry Diller, the chairman of internet company IAC/InterActiveCorp, has invested $20.5 million of the company’s money in Aereo. Ironically, Diller founded Fox Broadcasting in 1986, which is one of the plaintiff’s suing Aereo.

“He’s putting a lot of weight behind this company,” Aereo spokesman Mike Schroeder said.

The broadcasters, however, are crying foul:

“No amount of technological gimmickry by Aereo — or claims that it is simply providing a set of sophisticated ‘rabbit ears’ — changes the fundamental principle of copyright law that those who wish to retransmit plaintiffs’ broadcasts may do so only with plaintiffs’ authority.”

The National Cable & Telecommunications Association declined to comment on the case.

That’s a bit odd because the only reason the re-transmission licensing rules came into effect was due to the rogue history of cable systems and broadcast TV. Cable systems largely began in rural areas where cowboy entrepreneurs figured out they could deliver clear TV signals to places that had a tough or impossible time pulling down over-the-air broadcasts. So the cable systems put an antenna somewhere central, then piped the signals to their customers for a small fee.

If Aereo wins, the cable industry could get an advantage in negotiations with content owners.

In a research note to investors, International Strategy & Investment analyst Vijay Jayant said Aereo “might finally have cracked some legal barriers,” which would be positive for cable and satellite companies. “We believe that the negotiating pendulum might incrementally shift back toward the side of the distributors, a clear positive for all Cable/DBS stocks,” he said.

But, for now, there’s no clear winner.

John Bergmayer, a staff attorney with digital-rights group Public Knowledge, said it’s a “tough call” on whether Aereo would prevail, but he believes it should.

“It’s just like the antenna on your roof. They are providing an individual antenna for each individual and don’t need anybody’s consent,” Bergmayer said.

Congress, he said, should change the law so companies, like Aereo, “don’t have to go through technological contortions” to provide a service.

“They should fix the regulatory system so it is no longer the case you have to be DirectTV, Dish or Comcast to qualify for the legal privileges to provide broadcast television,” he said. “The criteria shouldn’t be whether you have coaxial cable running through a city.”