Why Aereo Matters: Where did Secondary Liability Go?

Earlier this summer, in American Broadcasting Cos., Inc. v. Aereo, Inc., 573 U.S. (2014), the United States Supreme Court held that Aereo infringed the copyright holders’ exclusive rights to publicly perform their works by providing a service which allows subscribers to watch free, over-the-air broadcast television channels over the Internet. Aereo provided the service by mounting an array of small antennas — each dedicated to one individual subscriber. Aereo’s antennas would receive the broadcast signal, which Aereo would then buffer and stream over the Internet to the subscriber, much the same as any individual could do by connecting an antenna to a PC or laptop. The Court’s decision matters because the Court’s reasoning and ultimate decision that Aereo was engaged in direct copyright infringement, if widely followed, could eviscerate the concept of secondary liability on which many online services depend for their legality, and with it, the framework which has provided some degree of predictability to a complex area of law.

Copyright law applies to original works of authorship that are fixed in a tangible medium, and is the protective shield for movies, books, songs, dances, architecture and other artistic endeavors. There exists a “bundle of rights” within each copyrighted work, which are: the right to make copies of the work, the right to distribute copies of that work, the right to prepare derivatives, and depending on the nature of the work, the right to publicly perform or display the work publicly. A copyright owner can then assign or license any of these rights to any number of parties. In the Aereo case, the petitioners — TV broadcasters — alleged that Aereo infringed upon their exclusive right to publicly perform the work, specifically, their right to distribute and broadcast various television shows.

As background, one can become liable for copyright infringement in one of two ways: directly or secondarily (also known as contributory or vicarious infringement). Tracing concepts that are familiar in many other areas of law, direct liability for copyright infringement occurs when the infringer engages in one of the rights described above without authorization, ordinarily requiring some “volitional conduct” on behalf of the person accused of infringing. See Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 422 (1984); 3 W. Patry, Copyright §9:5.50 (2013). Secondary infringement occurs when the infringer has not itself engaged in the infringing activity but “intentionally induces or encourages infringing acts by others or profits from such acts while declining to exercise a right to stop or limit them. See MGM Studios, Inc. v. Grokster, Ltd. 545 U.S. 913, 930 (2005). Think of a secondary infringer as a co-conspirator or enabler.

Prior to the Aereo decision, companies that provide a commercial technology capable of both infringing but also substantial non-infringing uses could count on any copyright challenge being analyzed under principles of secondary, not direct liability. This was established in the landmark case of Sony Corp. of America v. Universal Studios, Inc., 464 U.S. 417 (1984), in which the Court refused to hold a manufacturer of VCR technology liable for copyright infringement. Under the test established by Sony and cases that followed it, the defendant would not be secondarily liable for copyright infringement unless the defendant had (i) actual knowledge of specific instances of infringement and failed to act on that knowledge, or (ii) through public statements or advertisements, promoted the technology’s use as a means to infringe copyright. Id., see also MGM, Inc. v. Grokster, Ltd., 545 U.S. 913 (2005). This legal framework has provided some comfort to the owners of products and services such as the VCR, DVR, peer-to-peer file-sharing networks, cloud storage services, antennas, and many other Internet businesses, that they would not be sued out of existence by overly zealous copyright owners. In light of this clear history, it would seem to have made sense for Aereo’s service to be analyzed under a theory of secondary liability. That’s not what happened.

In the complaint, the petitioners alleged direct and secondary liability. They also requested a preliminary injunction to force Aereo to suspend its services during the pendency of the litigation. The request for a preliminary injunction was based exclusively on the theory of direct liability. The district court denied the injunction, finding Aereo did not itself publicly perform the work; rather, each Aereo user specifically requested be content for his or her own personal viewing. The Court of Appeals denied rehearing the case. Therefore the only issue the Supreme Court could decide on, was whether or not Aereo directly infringed the petitioners’ right to publicly perform the work for purposes of the preliminary injunction.

One possible result, and one that many commentators thought likely, would have been for the Supreme Court to agree with the district court that Aereo did not engage in direct infringement and remand the case back to the lower courts to play out. Instead, the Court steamrolled ahead and seemingly ignored the volitional-conduct requirement for direct infringement. In its place, the Court’s analysis depends on what the dissenting Justices snarkily called the “Looks Like a Cable Company” test in order to analyze Aereo’s technology under a theory of direct infringement.

While not officially called the “Looks Like a Cable Company” test, heavily seasoned throughout the Court’s reasoning was a 1976 Congressional amendment to the U.S. Copyright Act, in which Congress sought to include the activities of cable companies within the statute’s scope. Under the amended Copyright Act, “perform” means “to show its images in any sequence or to make the sounds accompanying it audible.” 15 U.S.C. 101. At the same time, Congress also added the “transmit” clause within The Copyright Act, which expanded the copyright owner’s exclusive right to perform its work to the public to include conduct which “transmits or otherwise communicates a performance… to the public, by means of any device or process.” 15 U.S.C. 101. Despite Aereo’s protests that it does no more than supply equipment that emulates the operation of a home antenna and DVR, the Court found that by providing a service which allowed subscribers to select a TV program to watch on Aereo’s website, which then streamed a single copy specifically downloaded for the subscriber to his or her device, it performed the work. Moreover, the Court held that the transmission to a single subscriber from a personal copy was, under the statute, a “transmission to the public” because “an entity communicates the same contemporaneously perceptible images and sounds to multiple people, it transmits a performance to them regardless of the number of discrete communications it makes.”

Under the Court’s reasoning, it is now more difficult to delineate between online technologies which do and do not run afoul of The Copyright Act. Arguably, the only way online technologies could be 100% certain of their legality under copyright law would be s to implement filtering tools to prevent the use of their service to access copyrighted works unless the user can provide proof they are the copyright owners or are entitled to lawful possession of such works. Obviously, copyright owners would love that to become common practice, but it has very clearly not been a requirement of US law. Seeking assistance from the public on this question, the U.S. Copyright Office, Library of Congress issued a Request for Additional Comments for interested parties to provide thoughts and questions on the relevancy of secondary liability and the meaning of “making available” and “communication to the public” in light of the Aereo decision. Comments must be received by August 14, 2014.

In the meantime, here are the not-so-comforting words of The Supreme Court:

We cannot now answer more precisely how the Transmit Clause or other provisions of the Copyright Act will apply to technologies not before us. We agree with the Solicitor General that “[q]uestions involving cloud computing, [remote storage] DVRs, and other novel issues not before the Court, as to which ‘Congress has not plainly marked [the] course,’ should await a case in which they are squarely presented. And we note that, to the extent commercial actors or other interested entities may be concerned with the relationship between the development and use of such technologies and the Copyright Act, they are of course free to seek action from Congress.

So, the Supreme Court’s advice to tech innovators and entrepreneurs is to either wait for a lawsuit or get Congress to pass a law (which, of course, takes years and lots of lobbying dollars). Not exactly practical or appealing options.