Under the U.S. Supreme Court: Snatching profits out of the air

WASHINGTON, Jan. 19 (UPI) -- Major television broadcasters -- ABC, CBS, Fox, NBC, Disney and others -- have stampeded to the U.S. Supreme Court to demand justice in a dispute with a new technology business that could radically change their industry.

With everything else cooking at the high court, the case probably isn't on the public's front burner, but it soon may be.

Only about 20 percent of television viewers get their programs through free broadcasts, as opposed to cable TV, but the case is a classic confrontation between old technology and the new.

Aereo Inc. "is a retransmission service that 'enables its subscribers to watch broadcast television programs over the Internet for a monthly fee [of $8 to $12];" the broadcasters told the Supreme Court in a successful petition for a review. The justices agreed earlier this month to hear argument in the case later in the term.

The broadcasters pointed to federal law.

"A copyright holder possesses the exclusive right 'to perform the copyrighted work publicly,'" the broadcasters said. "In the Copyright Act of 1976, Congress defined the phrase '[t]o perform ... publicly' to include, among other things, '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.'"

A subscriber "simply logs on to Aereo, selects from a guide a program currently being broadcast on local television, then watches the program live."

The broadcasters said in their petition Aereo "can offer access to that 'live TV' programming more cheaply than its competitors in part because, unlike cable and satellite services or licensed Internet video on-demand services, Aereo has not paid anything or obtained any kind of permission to offer this programming. ... Aereo simply captures over-the-air broadcast signals and then, without authorization, profits from retransmitting those broadcasts to its subscribers."

The broadcaster told the high court Aereo "captures over-the-air broadcast signals using thousands of dime-sized antennas arranged on circuit boards at its facility in Brooklyn [N.Y.]. When a subscriber logs onto Aereo to watch a program, Aereo temporarily assigns one of these miniature antennas to the subscriber, tunes it to the broadcast frequency of the requested channel and feeds the broadcast signal into a computer system that transcodes the data. Aereo then sends the transcoded data to a server, where a copy of the program is created in real time and saved in a hard-drive directory reserved for that subscriber."

When a subscriber chooses a particular broadcast, Aereo streams it to the consumer over the Internet after a buffer of six seconds of program has been saved.

Once a subscriber is through watching the little antenna is reassigned.

The "elaborate system of thousands of miniature antennas and digital copies is not easier, more efficient, or more technologically advanced than other retransmission systems," the broadcasters said. "Rather, it is a 'Rube Goldberg-like contrivance' designed for a single reason: 'to take advantage of [the] perceived loophole in the law' ... because each of its antennas is used by only one subscriber at a time, and each subscriber receives a separate transmission of the underlying performance."

Seeing all that profit disappear into the ether, the broadcasters filed suit in Manhattan in March 2012. But a federal judge, citing precedent in the 2nd U.S. Circuit Court of Appeals, refused to issue an injunction, though the judge conceded Aereo's activities damage the broadcasters' "ability to negotiate retransmission agreements with cable companies, which amount to billions of dollars of revenue for broadcasters."

A federal appeals court panel agreed with the judge, saying like a DVR system, "the potential audience of each Aereo transmission is the single user who requested that a program be recorded."

The broadcasters then turned to the U.S. Supreme Court, which granted review earlier in January.

As a company, Aereo has some heavy chops. It's backed by billionaire media executive Barry Diller, who helped found the Fox Broadcasting Co. and USA Broadcasting. Earlier this month, Aereo announced it has raised $34 million for expansion.

The company has expanded to 10 cities -- New York, Boston, Atlanta, Miami, Salt Lake City, Houston, Dallas, Denver, Detroit and Baltimore, infoworld.com reported, and five more cities are planned this year.

Though Aereo does not give a total, potential subscribers could be in the tens of millions.

"If the Supreme Court rules for Aereo, that's when things will get really interesting," businessweek.com reported. "Broadcasters have threatened to stop sending content over the airwaves, relying instead on cable transmissions that Aereo's antenna's cannot access. The National Football League and Major League Baseball say they might pull games from broadcast television."

In fact, the NFL and MLB have filed their own joint friend-of-the-court brief in the case supporting the broadcasters.

The leagues' "business models rely on a well-established, statutorily created legal regime that requires commercial services to obtain copyright licenses in order to retransmit programming on broadcast television stations. The decision [by the federal appeals court in New York] significantly alters that legal regime and unsettles the marketplace for licensing rights to broadcast television programming. A divided panel of the 2nd Circuit held that copyright licenses are unnecessary when a service uses 'mini antennas' and individual subscriber-associated copies of programs to make broadcast retransmissions. This judicially created loophole allows such services to avoid the force of the leagues' copyrights in broadcasts of their games, eroding the value of one of the leagues' most important assets."

The National Association of Broadcasters, supporting the broadcasters, told the Supreme Court in its own brief: "Quality broadcast television, delivered for free over the air by local stations is a public good, as Congress has long recognized. But free over-the-air television is not cost-free and cannot be taken for granted. Aereo and others following in its footsteps seek to subvert a carefully constructed legal framework with a technological gimmick."

In its own brief, Aereo said it agreed with the broadcasters the Supreme Court should step into the dispute.

"The core issue in this case is whether a consumer can access and control an individual, remotely located antenna and digital videorecorder, owned by a third party, to record and view local, over-the-air broadcast television programming without subjecting the third party to liability for infringing copyright owners' exclusive right to perform works 'publicly,'" Aereo said in its brief. "It is well settled that a consumer can deploy such equipment at home without infringing copyright. The 2nd Circuit [appeals court] here affirmed that consumers also may access and operate the same types of equipment remotely through the Internet without infringing [broadcaster's] exclusive public-performance rights."

Despite the appeals court ruling in New York, Aereo said, the broadcasters "have signaled their intention to wage a war of attrition by relitigating this issue in every market to which Aereo expands its business.

"Accordingly, Aereo believes it is appropriate for this [Supreme] Court to grant review to affirm the decision below."

But the brief added, "The decision below is correct. The essential bargain that [broadcasters] made to obtain, for free, public [broadcast] spectrum worth billions of dollars was that, once they have broadcast their programming, consumers have a right to receive and to view that programming using an antenna and to copy that programming for their personal use. The district court [judge] found that 'Aereo's system allows users to access free, over-the-air broadcast television through antennas and hard disks located at Aereo's facilities.'"

The individual consumer "uses Aereo's equipment to create a unique copy of that programming, and the individual user can view their copy using an Internet-connected device shortly thereafter," Aereo said. "No other person can access that copy. Under these circumstances, as the district court held and the 2nd Circuit affirmed, Aereo's system is used by an Aereo individual user to make a transmission only to himself, not 'to the public.'"

Aereo tried to draw a bright line between itself and subscribers. And depicted itself as a target of relentless broadcasters.

"Moreover, it is equally clear that Aereo's users, not Aereo, exercise the volitional control over the system that is necessary for any finding of direct liability for copyright infringement," the company said in its brief. "Nevertheless, petitioners aggressively have pursued claims that Aereo is infringing copyright owners' exclusive right, under [the federal statute] to perform their works 'publicly.' To date, [broadcasters] have commenced such claims in five cases in three states. None of the claims against Aereo has succeeded."

Aereo said the New York appeals court and a federal judge judge in Massachusetts rejected the broadcasters' argument, but two U.S. district courts "have ruled against one of Aereo's purported competitors, FilmOn. ...

"Therefore, although Aereo disagrees with [the broadcasters'] presentation in their petition, it does agree that review is warranted now, on this established factual record."

When the Supreme Court agreed to hear the case, the Consumer Electronics Association immediately issued a statement supporting Aereo.

The CEA says it "is the technology trade association representing the $208 billion U.S. consumer electronics industry."

Association President and Chief Executive Officer Gary Shapiro said the federal government "has given local television broadcasters billions of dollars in valuable public spectrum. In return, broadcasters are required to make free over-the-air television available to anyone in their geographic area. Aereo simply allows viewers in the broadcaster's area the flexibility and choice to watch that very same free television programming on tablets, smartphones, computers and other new products."

But Jewish Business News repeated businessweek.com's warning, reporting the major broadcasting networks -- CBS, ABC, Fox, NBC, etc. -- say if Aereo wins its case they may end their free broadcasting and become subscription channels.