The Rise and Fall of Aereo

The Supreme Court squashes one possible future of television.


"Watch live TV online," the advertisements said. "No apps, no cords, no clutter, no fuss," they said. It sounded too good to be true. It was too good to be true.

The company was called Aereo and its product was "a new species of antenna." "If you have this and you have Netflix, you absolutely have the ability to not have a standard cable subscription," Chet Kanojia, Aereo's founder and chief executive, told The New York Times when the company opened for business in early 2012.

That was the key selling point. In its Brooklyn, New York, facility, Aereo had some 10,000 dime-sized antennas, each one ready to capture over-the-air television broadcasts on behalf of its paying customers. "When you sign up for Aereo, we assign you an antenna so you can watch TV on your mobile devices," the company announced. "Enjoy live programming or record your favorite shows. That's it."

But that wasn't it. What the advertisements didn't say was that Aereo had placed itself on a collision course with federal copyright law. Aereo's opponents in that impending conflict would include not just the federal government but some of the most powerful names in media—ABC, NBC, CBS, Fox, and Disney, to name a few of the players who promptly filed suit. As those entities saw it, Aereo was in flagrant violation of the Copyright Act because the company failed to obtain permission (and pay royalties) on the copyrighted materials it transmitted to paying customers. "They're basically taking our content, charging people for it, and not paying us for our content," CBS President Les Moonves told Bloomberg TV. "This is theft."

Is it? According to Aereo, the company was just an "equipment provider." And the equipment it provided—antennas and digital video recorders (DVRs)—were already perfectly legal for home use. The only difference was that the equipment happened to be stored remotely and connected to consumers via the long "cord" (Aereo's word) otherwise known as the Internet. "People make money selling equipment, people lease equipment all day long," Kanojia declared. "Nothing about any of these things is novel or illegal."

It was an attractive product backed by a clever legal argument. But if Aereo's "new species of antenna" was going to stick around long enough to reach adulthood, it faced a daunting challenge: Survive first contact with the nine justices of the United States Supreme Court.

TV Party Tonight

The Supreme Court is not exactly renowned for its technological prowess. The Court not only forbids the press from making any sort of video, audio, or photographic recordings of its proceedings, it limits the reporters in the press gallery from using any tools more technologically sophisticated than pen and paper.

But that doesn't mean the justices are all a bunch of Luddites. In fact, when it comes to the uneasy intersection of copyright law and broadcast television, the justices have often—though not always—revealed a certain appreciation for the cutting edge.

Take the 1968 case of Fortnightly Corp. v. United Artists Television, Inc. That dispute originated in the late 1950s in the West Virginia towns of Clarksburg and Fairmont. Due to the hilly environment, local residents were unable to receive most broadcast television signals, even when they went to the trouble of attaching antennas to the roofs of their houses. Fortnightly solved that problem by placing antennas on the surrounding hillsides, allowing the company to capture the broadcasts of five nearby TV stations and transmit them via coaxial cable to the homes of paying customers. This operation is what's known in the trade as a community antenna television system, or CATV. In effect, it was a local cable company.

Trouble arose when this set-up came to the attention of United Artists Television, which objected to the fact that Fortnightly was paying no royalties on this copyrighted programming. Such transmissions, United Artists said, ran afoul of the Copyright Act of 1909, which granted copyright holders such as United Artists the exclusive right to "perform" their works "publicly."

Chet Kanojia, CEO of Aereo, outside the Supreme Court.
Jonathan Ernst/Reuters/Newscom

But the Supreme Court sided with Fortnightly. "If an individual erected an antenna on a hill, strung a cable to his house, and installed the necessary amplifying equipment, he would not be 'performing' the programs he received on his television set," the Court ruled. Fortnightly was basically doing the same thing on behalf of its individual paying customers. "A CATV system no more than enhances the viewer's capacity to receive the broadcaster's signals," the ruling declared.

Six years later, the Court doubled down on Fortnightly in a case known as Teleprompter Corp. v. Columbia Broadcasting Systems, Inc. Once again, a CATV operator was charged with violating copyright law after it captured and transmitted local television signals via antenna and coaxial cable. "The privilege of receiving the broadcast electronic signals and of converting them into the sights and sounds of the program inheres in all members of the public who have the means of doing so," the Court ruled. For all practical purposes, Teleprompter maintained, the actions of the home viewer and those of the CATV system were one and the same.

United Artists, Columbia, and other copyright holders did not like the sound of that, and they wasted little time before taking their complaints to Capitol Hill. Congress responded with the Copyright Act of 1976. Among other things, the new law expanded the definition of "public performance" to include the following: "to transmit or otherwise communicate a performance or display of the work…to the public, by means of any device or process, 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." Furthermore, Congress defined the terms "device" and "process" to include "one now known or later developed."

Put differently, Congress nullified Fortnightly and Teleprompter. In its official report on the 1976 Copyright Act, the House of Representatives spelled out that very objective. The legal foundation underpinning Fortnightly and Teleprompter, the House said, is "completely overturned by the present bill and its broad definition of 'perform." Congress killed the CATV star.

Tape It

In the meantime, an even bigger TV-related copyright case began working its way to the Supreme Court. At issue in Sony v. Universal City Studios was the Sony Betamax video tape recorder, a forerunner to the VCRs that would soon revolutionize the concept of home entertainment.

Sony started selling its device in 1975. In 1976, Universal City Studios and Walt Disney Productions sued, charging the company with aiding and abetting the widespread violation of federal copyright law. According to the lawsuit, Universal and Disney suffered a distinct copyright violation each time a home viewer taped one of their copyrighted movies off of broadcast television. Thanks to the introduction of the Betamax, the movie studios alleged, every scofflaw in America was able to steal their content with impunity.

Once again, the Supreme Court sided with the upstart technology. "One may search the Copyright Act in vain for any sign" that it was "unlawful to copy a program for later viewing at home," the five-justice majority declared in 1984, or that it "enacted a flat prohibition against the sale of machines that make such copying possible."

Writing in dissent, Justice Harry Blackmun, joined by three other justices, took the opposite view. "It is only with the aid of the Betamax or some other [VCR], that it is possible today for home television viewers to infringe copyright by recording off-the-air. Off-the-air recording is not only a foreseeable use for the Betamax, but indeed is its intended use." Blackmun and his fellow dissenters were prepared to see the sale of all such devices put on hold until the courts were able to fashion "an appropriate remedy."

To describe Sony as an important ruling would be a severe understatement. Had Blackmun's position attracted just one more vote, the Supreme Court might have made it illegal to tape a movie when it aired on TV. What's more, Sony would have been on the hook for every such "crime" facilitated by the manufacture and sale of its devices. "It's because of the Betamax ruling," observes the website of the Electronic Frontier Foundation, a nonprofit group that advocates copyright reform, "that the makers of VCRs and every other technology capable of infringing and non-infringing uses (e.g., personal computers, CD burners, the TiVo DVR, Apple's iPod, and Web browsers) can continue to sell their wares without fear of lawsuits from copyright owners."

Aereo: CATV or DVR?

Which brings us back to Aereo and those 10,000 wee antennas in Brooklyn. In the eyes of ABC and its big media allies, the Aereo case was Fortnightly redux. Both disputes featured for-profit entities whose antennas grab TV signals and feed them to subscribers' personal viewing devices. Fortnightly carried those signals by stringing coaxial cable from hillside to town. Aereo, the argument went, did the same basic thing by using the extra long "cable" known as the Internet. "Like the CATV system in Fortnightly," ABC's brief to the Supreme Court declared, "Aereo simply captures over-the-air broadcasts and then, without authorization, profits from retransmitting those broadcasts to its subscribers." Because Congress expressly disallowed that approach in the 1976 Copyright Act, ABC argued, Aereo must pay the price for its copyright infringement.

Unsurprisingly, Aereo rejected the comparison. For one thing, the company said, it was not a cable system in any sense of the term. Yes, it offered the use of its antennas to customers who wanted to watch live TV online; and yes, it connected those antennas to customers' screens through a long "cord" that stretched through the Internet. But there was still a profound difference. "Cable systems actively 'transmit'; Aereo does not," the company stressed in its main brief. "Aereo's antennas and DVRs do nothing except as directed by a user. Once activated, an [Aereo] antenna receives only the specific signal requested by the user."

In other words, Aereo said, it was not engaged in what copyright law calls a "public performance." Instead, its customers were doing the (private) "performing" when they tuned their Aereo antennas to watch or record their favorite TV shows. It was the 21st-century equivalent of the "rabbit ear" antennas once commonly affixed to TV sets. Furthermore, Aereo argued, its position was fully consistent with the precedent set in 1984. "Aereo's technology permits consumers only to make personal copies of local broadcast television—a quintessential fair use under Sony," its brief declared.

And then there was Aereo's ace in the hole, a 2008 ruling by the U.S. Court of Appeals for the 2nd Circuit known as Cartoon Network v. CSC Holdings, Inc., or Cablevision for short. That case centered on a "Remote Storage DVR System" (RS-DVR) offered by the cable company Cablevision. Unlike a TiVo (or a VCR, for that matter), Cablevision's product was not a standalone device. It was a technologically complex service run from Cablevision's facilities that users activated at home via remote control. Put simply, at the push of a few buttons, Cablevision would record your favorite shows for you and allow you to play them back later.

The problem with that, according to Cartoon Network, Fox, Disney, and others who filed suit, was that Cablevision was not paying any royalties on the copyrighted material it was showing. Sure, Cablevision had secured the necessary licenses to broadcast that material on cable television the first time around; but it had failed to secure the rights for future showings via remote DVR.

In its 2008 ruling, the 2nd Circuit sided with Cablevision. Because "each RS-DVR playback transmission is made to a single subscriber using a single unique copy produced by that subscriber," the court held, "such transmissions are not performances 'to the public.'" From the standpoint of copyright law, the ruling said, it made no difference whether an individual installed a DVR at home or rented a remote DVR from the cable company.

So what exactly was Aereo? Was it a descendent of the Fortnightly CATV system and therefore barred from existence by the Copyright Act of 1976? Or was it a 21st-century rabbit-ear antenna hooked up to a remote DVR, which is itself the 21st-century version of the SCOTUS-approved Sony Betamax?

'These Other Technologies'

"We'll hear argument next in case 13-461, American Broadcasting Companies v. Aereo," declared Chief Justice John Roberts on the morning of April 22, 2014. The Aereo saga had arrived at the Supreme Court.

Up first at the lectern that morning was the Washington lawyer Paul Clement, a former solicitor general under President George W. Bush who now works as something of a Supreme Court gun-for-hire. In 2012, for example, Clement represented the 26 states challenging the constitutionality of the Patient Protection and Affordable Care Act. Today he was in Court representing ABC and its allies. To nobody's surprise, he came out guns booming against Aereo.

"Mr. Chief Justice, and may it please the Court," Clement began, employing the traditional opening used by all parties that appear before the high court. "Aereo's business model is to enable thousands of paying strangers to watch live TV online. Aereo's legal argument is that it can make all of that happen without publicly performing. But," he stressed, "Congress passed a statute that squarely forecloses that rather counterintuitive submission."

The Supreme Court was not so quick to agree. "In their briefs," Justice Stephen Breyer told Clement, Aereo "have thrown up a series of serious problems, not involving them, like the cloud, which make me nervous about taking your" side.

Aereo had indeed thrown up some serious problems. First and foremost was the future survival of what's known as cloud computing, which Aereo defined as "technology that is remotely located but readily accessible and operated by the consumer through an Internet-connected device." According to Aereo, ABC's "renewed efforts to force consumers to use less convenient, more expensive equipment to accomplish the same ends" as cloud computing and other new technologies (including Aereo) "threaten that progress and will stifle further innovation."

The morning's oral arguments left little doubt that the Court had been disquieted by that passage in Aereo's brief. Justice Sonia Sotomayor, for example, pointed to "the Dropbox and the iCloud," then added, "What does the Court do to avoid a definition or an acceptance of a definition [of public performance] that might make those people liable?"

Justice Samuel Alito soon raised a similar concern. "What is the difference," he asked Clement, "between what Aereo does and a remote storage DVR system," such as the one upheld by the 2nd Circuit in Cablevision? Does a ruling against Aereo call Cablevision into doubt?

Clement did his best to dodge the question. "I don't think this Court has to decide it today," he responded. "I think it can just be confident they are different."

"Well, I don't find that very satisfying," Alito shot back, a look of impatience on his face. "I need to know how far the rationale you want us to accept will go, and I need to understand, I think, what effect it will have on these other technologies."

"I'm hearing everybody have the same problem," Justice Stephen Breyer declared a few minutes later, circling back to his original complaint. How does the Court rule against Aereo without "catching other things that really will change life and shouldn't, such as the cloud?"

'That's What Disturbs Everyone'

Representing Aereo before the Supreme Court that morning was a veteran Washington lawyer named David Frederick. He too had his work cut out for him.

"If I take a phonograph of a record and duplicate it a million times the way you're doing it," Justice Sotomayor told Frederick, "and I then go out and sell each of those copies to the public, then I am violating the [Copyright] Act. So why is it," she asked, "that you are not?" Justice Ruth Bader Ginsburg launched a similar attack. "If every other transmitter does pay a royalty," she said, "you are the only player so far that doesn't pay any royalties at any stage."

But Frederick fought back against those negative characterizations. "Well, Justice Ginsburg," he replied, "the person who sells an antenna to me at the local Radio Shack doesn't pay copyright royalties either." Indeed, Frederick said, the Radio Shack analogy is perhaps the best way to view Aereo. "Aereo is an equipment provider," Frederick stressed. "All Aereo is doing is providing antennas and DVRs that enable consumers to do" what the law already allows them to do on their own at home.

But unfortunately for Frederick and his clients, that argument appeared to gain little traction with most of the Court. Once again, Justice Breyer spoke on behalf of his colleagues. What Aereo does, Breyer declared, "sounds so much like what a CATV system does or what a satellite system does that it looks as if somehow you are escaping a constraint that's imposed upon them. That's what disturbs everyone."

Those disapproving words turned out to be a sour taste of things to come.

'Pause Our Operations Temporarily'

In the end, Aereo was Fortnightly redux. "Aereo's equipment may serve a 'viewer function'; it may enhance the viewer's ability to receive a broadcaster's programs. It may even emulate equipment a viewer could use at home," declared the majority opinion, written by Justice Stephen Breyer. "But the same was true of the equipment that was before the Court, and ultimately before Congress, in Fortnightly and Teleprompter." Indeed, Breyer maintained, "given Aereo's overwhelming likeness to the cable companies targeted by the 1976 [Copyright Act] amendments," the Supreme Court had no choice but to conclude that "Aereo is not simply an equipment provider." Rather, "Aereo 'perform[s]' petitioners' copyrighted works 'publicly,' as those terms are defined by the [Copyright Act]."

To add insult to injury, even Justice Antonin Scalia—who dissented from Breyer's ruling on the grounds that Aereo was "akin to a copy shop that provides its patrons with a library card" and therefore "does not 'perform' at all"—suggested that Aereo should probably lose in a future copyright case on slightly different grounds. His dissent, Scalia declared, "does not necessarily mean that Aereo's service complies with the Copyright Act. Quite the contrary."

It was a total defeat for the tech upstart. Three days later, on June 28, Aereo chief Chet Kanojia tried to put a positive spin on the disastrous news. "We have decided to pause our operations temporarily," he explained in an open letter to Aereo's customers. He even tried to strike a note of defiance. "We believe you should have a right to access [live broadcast] programming whether your antenna sits on the roof of your home, on top of your television or in the cloud," he wrote.

But one simple sentence, included quietly in Kanojia's third paragraph, said it all: "All of our users will be refunded their last paid month." Aereo's "new species of antenna" had just gone extinct.