The U.S. Supreme Court heard arguments Tuesday in a case that may determine the fate of technology start-up Aereo, a controversial service launched two years ago and backed by entertainment industry veteran Barry Diller.
Aereo allows subscribers to control individual dime-sized antennas maintained in enormous arrays that capture over-the-air local television broadcasts and store the programs on low-cost hard drives. Subscribers can then replay the shows over the Internet on devices of their choice, effectively watching broadcast television without even owning a set. And notably, without Aereo or its subscribers paying any fees, royalties, or licenses to the broadcasters.
The relevant legal questions — let alone the engineering — are so complicated that they appeared to utterly confound the lawyers and the justices. On the one hand, Aereo seems to be operating like a cable or satellite system, collecting programming and resending it to customers. On the other hand, the company looks to have been designed specifically to avoid that legal classification—and the myriad requirements that go with it under state and federal law.
No one seriously contends there is a clear answer to be found in current copyright and communications law, which have been repeatedly amended over the last fifty years by earlier court decisions and statutory changes, often in response to earlier technological disruptors. But which view of Aereo the court adopts could mean the difference between a multi-billion dollar innovation or, as the company acknowledges, a quick end to the service.
Summing up the choice, former U.S. solicitor general Paul Clement, representing the broadcast networks, put it this way: “[I]f they actually provide something that is a net benefit technologically, there’s no reason people won’t license them content. But on the other hand, if all they have is a gimmick, then they probably will go out of business and nobody should cry a tear over that.”
It’s obvious which of those two views Clement’s clients are taking. Some have even threatened to stop broadcasting if the court sides with Aereo, instead licensing their content exclusively to closed cable and satellite systems.
Given that broadcasting has always relied principally on advertising and not subscriber fees from viewers, that threat rings hollow. Indeed, given the dwindling number of U.S. households—possibly only 10 percent — that continue to rely on over-the-air signals, eliminating broadcast might be a blessing in disguise.
The FCC has been working for years on a plan to get local broadcasters to trade in their valuable and underutilized frequencies to be auctioned off to mobile broadband providers and unlicensed WiFi users instead. This week, in fact, the FCC will publish draft rules for new “voluntary incentive auctions,” where broadcasters who participate will share with the government in the proceeds of future licenses. A decision by the networks to get out of the broadcasting business altogether would certainly help make those auctions a success.
That isn’t going to happen, which is part of the problem with the Aereo case, and whenever courts are called upon to force-fit disruptive innovations into legal buckets that were never designed to hold them. Everyone always bluffs.
Aereo is hardly immune to overly-simple rhetoric. The company argued that it only rents equipment to its subscribers, who would be perfectly within their rights, under long-standing Supreme Court precedent, to use an antenna at home to capture and record free TV signals and watch the programs later.
The main technical and legal wrinkle here is that Aereo is also doing the storing and replay from DVRs it maintains, a difference the networks argues turns Aereo into a willful infringer of copyright. Except that a different federal court decision (which the Supreme Court may choose to ignore) upheld a similar remote DVR service provided to customers of Cablevision.
Putting the two cases together, Aereo argues that its service complies with the law. And perhaps, was explicitly designed to do so.
The company claims there are other technical reasons for the separate equipment. But if Aereo is complying with the law, weighing its design choices are hardly the job (or the expertise) of courts.
As Chief Justice Roberts put it snidely during the argument, “[Y]our technological model is based solely on circumventing legal prohibitions that you don’t want to comply with, which is fine. I mean, that’s, you know — lawyers do that.”
Indeed they do. Especially when, as here, the applicable law is a tangled mess of earlier efforts to fix problems created by earlier disruptors.
Copyright, after all, begins with a legal fiction that grants creators temporary monopolies to control the reproduction of their work, but rests with the public any and all uses of that work once the term expires.
If Aereo is a gimmick, it is a gimmick made necessary by an increasingly fragile series of compromises, reactions, and stop-gap measures aimed at restoring an uneasy balance between private and public uses of information. A balance that is now under constant pressure from better and cheaper digital technologies that give consumers more choices and more options for creative content.
Aereo’s service, in fact, is no more a gimmick than cable TV was when it was first introduced in 1948 as a single giant antenna to be shared by communities that had trouble receiving over-the-air signals. It took multiple acts of Congress to retrofit the reality of that technology into the patchwork quilt of copyright and communications law. More fictions were added to the rickety edifice — compulsory licenses, must-carry rules, retransmission consent — leaving it that much more vulnerable to the digital onslaught.
Lurking in the shadows here is what my co-author Paul Nunes and I refer to as an “inevitable truth.” It’s clear that video content will eventually embrace the all-digital future, one in which consumers may choose their programming a la carte or in personalized bundles or both, supported by a combination of on-demand, pay-per-view, all-you-can-eat, and advertising-supported models.
Along the way, long-standing distinctions between broadcast and cable, over-the-air and over-the-top, networks, affiliates, channels and devices, may be erased by new technological realities.
But in the meantime, expect a messy transition, and more efforts to use the courts to skew the speed and trajectory of the transformation to shore up, if only temporarily, the vested interests of incumbents. That, after all, is how “big bang disruption” always plays out.
Though most commentators assume the Supreme Court will rule decisively on Aereo’s technical and business model, the court may decide to punt. The case could be sent back down to the lower court to determine if, as some of the justices hinted, Aereo can be shoehorned into the existing definition of a cable TV service after all.
A non-decision decision could actually be the best outcome. As Tuesday’s arguments made crystal clear, judges are ill-suited to weigh the technical and business features of innovative new services, or to consider the bigger implications a decision against Aereo could have on a growing ecosystem of cloud-based services, none of whom were represented directly but who were invoked repeatedly.
It’s time for Congress to weigh in. Perhaps we just need a new set of compromises to account for the reality of digital disruptors. Or perhaps, as Rep. Steven Scalise (R-La.) has proposed, we need to tear down much of the current system and rebuild it to better reflect emerging technologies.
Moving the fight to Congress won’t be pretty, and the outcome isn’t likely to make anybody especially happy. But leaving the course of the Internet ecosystem to nine confused justices makes even less sense.
Larry Downes is co-author with Paul Nunes of Big Bang Disruption: Strategy in the Age of Devastating Innovation (Portfolio 2014).