WASHINGTON -- With no less than the future of free, over-the-air TV at stake, Supreme Court justices expressed concerns about issuing a ruling that would have the unintended consequences of impacting another technology, that of cloud computing.
But they also queried both broadcasters and Aereo's attorneys on why the startup should not be considered a cable service, with a full slate of legal requirements including payment of royalties and retransmission fees.
Ruth Bader Ginsburg at one point noted that Aereo was "the only player that is paying no royalties whatsoever" for broadcast content, in contrast to multichannel video providers.
Justice John Roberts questioned whether Aereo was merely designed to exploit a loophole in copyright law. Stations argue that its system of copying live signals and then transmitting them to subscribers via dime-sized antennas constitute a public performance and therefore fall within the bounds of the Copyright Act.
Roberts even seemed to make light of Aereo's notion that its copying of broadcast signals, for transmission to subscribers, somehow made it different from other cases of infringement, and he queried its attorney several times on whether its design of thousands of dime-sized antennas was for anything other than to comply with copyright law.
"Is there any reason you need 10,000 of them?" Roberts asked.
As he grilled Aereo's attorney, David Frederick, over when a copy is fair use and when it is not, Roberts finally said, "You are saying your copy is different from my copy," he said to some laughs.
From oral arguments, it was hard to read exactly which direction the high court was moving; the Supreme Court is notoriously unpredictable in copyright cases. But the case undoubtedly touched a nerve in the entertainment industry, as an array of broadcast executives, copyright lawyers and tech advocates crowded the chambers. Fox's Peter Rice and 21st Century Fox's James Murdoch attended, as Fox is one of the most visible of the network plaintiffs, while Barry Diller, a chief investor in Aereo, was there along with the startup company's CEO and founder, Chet Kanojia.
The latter declined to comment after the oral arguments, telling reporters, "I would rather just win the case."
Diller has said that it is doubtful that Aereo would continue if justices were to rule against it.
Yet Justice Stephen Breyer asked Paul Clement, representing lead attorney ABC, how they could write a ruling that restricts Aereo yet doesn't also restrict cloud computing. One of Aereo's contentions is that there was a risk that a ruling against it could stifle innovation, particularly if the justices overturned a 2008 2nd Circuit Court of Appeals ruling that upheld the legality of a remote DVR storage offered by Cablevision.
"How do we get out of this? How do I write this?" Breyer asked at one point, telling Clement that he was "nervous of following your preferred route."
"Not all cloud computing is created equal," Clement said. He said that there was a difference between a service set up for the public and one that is meant for private use, just as a car dealership is meant to sell autos to the public while a valet service is merely to take cars legally owned and store them temporarily.
Breyer even raised the prospect of sending the case back to the lower courts to make the determination of whether Aereo is essentially a cable service, something that would subject it to paying copyright royalties and presumably fees to broadcasters for retransmitting their signals.
"Why are they not a cable company?" asked Justice Sonia Sotomayor. "It seems to fit" the description.
Neither Clement or Frederick agreed.
While cable and satellite providers pay fees to retransmit broadcast signals, Aereo argues that it is merely supplying the antenna equipment and letting individuals direct what they watch and when.
Nevertheless, plenty of time during the oral arguments was paid to the future of technology, and why Aereo was any different from a host of in-home devices that have disrupted entertainment in the past, like the VCR and the DVR.
The question is where a line can be drawn on when a manufacturer ceases to be just an equipment company and is, in fact, providing a service to the public that must fall under copyright law.
Going into the hearing, many in the broadcast industry had been optimistic about their prospects. The Supreme Court didn't have to take the case now, but did so after they petitioned the justices when the 2nd Circuit Court of Appeals and a district court refused to grant an injunction to shut Aereo down. Moreover, the U.S. solicitor general filed a brief favoring the broadcast side, and one of the deputies, Malcolm Stewart, argued before the justices on Tuesday.
Yet in copyright cases, the justices do not have the same ideological split as they have on other issues, like health care and same-sex marriage.
The case is by far the most significant entertainment industry copyright litigation to reach the high court in a decade. In 2004, the justices decided 9-0 that file-sharing site Grokster bore responsibility for the piracy of its users because it promoted its technology as a way to pirate content. Two decades before that, the Supreme Court ruled that Sony was within legal bounds with the Betamax, as consumers' use of its video recorders was for private "time-shifting" of TV content in the home.
Like the Grokster and Sony Betamax cases, the justices' decision in Aereo could have a huge impact on TV. Networks had argued that Aereo undermined their ability to collect an ever-more lucrative stream of revenue that cable, telco and satellite providers pay to transmit their signals, and some top executives have even suggested that were the startup to win, they would abandon the broadcast business and go to a pay platform.
Aereo, meanwhile, argued that the net result of a loss would be to stifle innovation, particularly when it comes to cloud computing. The latter, Aereo argued, flourished after the 2nd Circuit Court of Appeals ruling on Cablevision's remote DVR. Kanojia has contended that his purpose was not to upend the broadcast business but to lure consumers craving an alternative to pricey cable and satellite TV packages.
Nevertheless, not everyone agrees that the dire scenarios predicted on each side will play out as planned.
In a research report sent out over the weekend, Bernstein Research argued that a copycat service could very well launch with its technology tweaked. But they also suggested that a victory for broadcasters may also be a missed opportunity, as Aereo was a way to present broadcast TV to a next generation of viewers who are shunning pricey cable subscriptions.
Justices Express Concern Over a Sweeping Aereo Ruling
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