No Lemonade For Aereo’s Lemons

Over at the Volokh Conspiracy blog, Professor David Post laments “our incoherent copyright law.” His case in point: The opinion and order issued last week by District Judge Alison J. Nathan granting a preliminary injunction against Aereo.1 Professor Post claims that “the Copyright Act is an incoherent mess” since, in his opinion, Judge Nathan held that Aereo “may be a ‘cable system’ for purposes of determining whether it is infringing, but it’s not a ‘cable system’ for purposes of determining eligibility for the statutory license.” Professor Post explains:

[T]he Copyright Act not only says that cable system re-transmissions are infringing, but it also, importantly, provides them with a compulsory statutory license, at a fixed rate, to do so, in sec. 111 of the Act. That is, Congress didn’t merely make cable systems liable for infringement – it provided them with a defense to an infringement claim (provided that they paid the statutorily-set royalty to the copyright owners). So Aereo said, in effect: OK, if we’re a cable system, we can (like other cable systems) continue to re-transmit these signals to our customers (just like the cable companies do), so long as we pay the royalty.

Contrary to Professor Post, I don’t think there’s anything “incoherent” about Judge Nathan’s holding that Aereo is not a “cable system,” as that term is defined in Section 111. Curiously, Professor Post declares the result “bizarre and counterintuitive” without supplying any of Judge Nathan’s reasoning. The problem with Professor Post’s approach stems from his premise, namely, that the Copyright Act “says that cable system re-transmissions are infringing.” But that’s not what the Transmit Clause in Section 101 says. It instead broadly defines what it means “[t]o perform . . . a work ‘publicly.’” And while all cable systems may publicly perform under the Transmit Clause, it doesn’t follow that only cable systems publicly perform thereunder. A different type of service—one that isn’t a “cable system,” as Aereo is not—may publicly perform as well.

Professor Post claims that Judge Nathan held that Aereo “may be a ‘cable system’ for purposes of determining whether it is infringing,” but that’s not what she said. Nor is it what the Supreme Court held in Aereo III. The Court instead simply deduced that Aereo performs because it “acts like a CATV system.” The Court’s reasoning can be boiled down to a syllogism: Since cable systems perform, and since Aereo is functionally equivalent to a cable system, it follows that Aereo performs. But saying that Aereo “acts like” a cable system for the purpose of determining whether it performs under the Transmit Clause has nothing to do with whether Aereo is a “cable system,” a term of art, under Section 111. It makes little sense to argue otherwise.

Yet, in the district court, Aereo argued that if it’s a cable system under the Transmit Clause, then it’s a “cable system” under Section 111. Judge Nathan soundly rejected this logic:

Doing its best to turn lemons into lemonade, Aereo now seeks to capitalize on the Supreme Court’s comparison of it to a CATV system to argue that it is in fact a cable system that should be entitled to a compulsory license under § 111. This argument is unavailing for a number of reasons.

To begin with, Aereo’s argument suffers from the fallacy that simply because an entity performs copyrighted works in a way similar to cable systems it must then be deemed a cable system for all other purposes of the Copyright Act. The Supreme Court’s opinion in Aereo III avoided any such holding.

Indeed, the Supreme Court consistently stated throughout its opinion that Aereo’s similarity to CATV systems informed its conclusion that Aereo performs, not that Aereo is a cable system. . . .

But the Supreme Court in Aereo III did not imply, much less hold, that simply because an entity performs publicly in much the same way as a CATV system, it is necessarily a cable system entitled to a § 111 compulsory license. . . . Stated simply, while all cable systems may perform publicly, not all entities that perform publicly are necessarily cable systems, and nothing in the Supreme Court’s opinion indicates otherwise.

The issue before the Supreme Court was whether Aereo publicly performs under the Transmit Clause, not whether it’s a “cable system” under Section 111. That the Court did not consider the Section 111 defense is Aereo’s own fault—it never argued that it’s a “cable system” under Section 111 in the first place. Arguing that it’s a “cable system” would have meant conceding the one thing it didn’t want to admit, namely, that it publicly performs. Aereo’s strategy, until recently, has been to deny that it publicly performs at all.

Unable to find anything in Aereo III indicating that it is in fact a “cable system” under Section 111, Aereo posited that certain statements made by the Justices during oral argument prove that its newly-found Section 111 defense excuses its otherwise-infringing conduct. Of course, as Judge Nathan acknowledged, statements made at oral argument have no “legal effect,” and “only the Justices’ written opinions have the force of law.” More damaging to Aereo’s cause, Judge Nathan noted that “the statements of the Justices at oral argument cut against its position because the statements indicate that the Justices were certainly aware of the possibility of the § 111 defense and did not address it in the opinion.” To this I would add that the Court didn’t address the Section 111 defense because Aereo made the strategic choice not to present it.

Even more desperate than its claim that some offhand and out-of-context remarks made at oral argument prove a defense that it had expressly disavowed, Aereo argued that the Second Circuit’s opinion in ivi is not on point.2 There, the Second Circuit had held that “Congress did not intend for § 111’s compulsory license to extend to Internet retransmissions.” Confronted with this binding precedent contravening its Section 111 argument, Aereo declared that Aereo III overruled ivi by implication. Judge Nathan rejected this claim as well:

But the Supreme Court did not mention ivi or ivi’s holding, and . . . nothing in the Supreme Court’s opinion can be read as abrogating ivi because the Supreme Court limited its holding to a finding that Aereo performs like a cable system for purposes of the transmit clause, not that it is a cable system entitled to a § 111 license. Thus, ivi remains good law and binding precedent here.

Additionally, Aereo argued in the alternative that ivi is distinguishable on the merits. According to Aereo, “the unrestricted nature of ivi’s transmissions was the determinative fact for the Second Circuit, which noted that Section 111’s compulsory license scheme was intended to support local market—rather than national market—systems.” Thus, Aereo hypothesized that the fact that it only transmits content its users can receive in their home markets means that everything the Second Circuit said in ivi about Section 111 does not apply to its service. Since ivi transmitted content to anyone, anywhere—not just content available in its users’ home markets—Aereo argued that ivi is inapposite.

Reading the ivi decision, I don’t see how Aereo could possibly argue that this home market distinction is “the determinative fact” that obviates everything else the Second Circuit said about Section 111 and internet retransmissions. With even the most charitable eye, I can’t conceive of how ivi can be read to turn on this lone distinction. Judge Nathan agreed:

To the contrary, the geographic reach of internet retransmission services was but one of many factors the Second Circuit considered in reaching its holding that § 111 does not cover internet retransmission services. . . . Only at the end of its step two analysis did the Second Circuit note that “[m]ore broadly, the Copyright Office has maintained that § 111’s compulsory license for cable systems is intended for localized retransmission services; under this interpretation, Internet retransmission services are not entitled to a § 111 license.” . . . This reference to the possible geographic reach of ivi’s system provided an additional point of distinction between Internet retransmission and traditional cable systems, but it was not “the determinative fact” for the Second Circuit.

In sum, Judge Nathan rejected all of Aereo’s Section 111 arguments: The Supreme Court never said that Aereo is a “cable system” under Section 111—its focus was on the Transmit Clause because that is what the parties had argued. Nothing the Justices said at oral argument changes this—in fact, the Justices conspicuously failed to mention Section 111 in the opinion despite the issue having been discussed at oral argument. And most devastatingly, Aereo could find no support for its argument that ivi is no longer good law or that ivi does not apply to its own internet retransmissions. I think Judge Nathan got it right on all counts, and I don’t see anything “incoherent” about it.3

Aereo threw out some other arguments that Judge Nathan easily dismissed. For example, Aereo contended that it qualifies for the safe harbor under Section 512(a) of the DMCA. This is the safe harbor that applies to services that act as mere conduits of content. The obvious problem for Aereo is that it does more than act as a mere conduit—it stores the content as well. Furthermore, Aereo’s own actions are sufficiently proximate such that it publicly performs, that is, it causes the transmissions to occur. Judge Nathan observed that Aereo, consistent with Aereo III, could not seek refuge in this safe harbor:

Aereo’s service uses antennas to capture over-the-air broadcasts and then transcodes and buffers the broadcasts before sending them to a “server, where a copy of the program is saved to a large hard drive in a directory reserved for [a given] Aereo user.” . . . In other words, Aereo stores and provides links to copyrighted material. . . .

§ 512(a)(1) states that the safe harbor will only be available if “the transmission of the material was initiated by or at the direction of a person other than the service provider.” This was essentially the defense that Aereo has asserted all along: it only acts at the direction of its users, who do the “performing” when they click play on Aereo’s site. The Supreme Court rejected this defense and expressly held that Aereo performs.

What’s more, Judge Nathan noted that Aereo never asserted that it qualifies for the Section 512(a) safe harbor in the first place since it never claimed to have a repeat infringer policy in place pursuant to Section 512(i): “Failure to have in place such a policy is thus an absolute bar to asserting any defense under § 512.” So not only did Aereo not qualify for the safe harbor because it failed to allege one of its prerequisites, the safe harbor would not have protected Aereo even if all of the prerequisites had been met. And this followed from the fact that Aereo is not a mere conduit of content, as it, quite remarkably, still claimed to be—the Supreme Court’s opinion in Aereo III to the contrary notwithstanding.

Turning to irreparable harm, Judge Nathan saw no reason to revisit her earlier holding in Aereo I that the plaintiffs had established that they would suffer irreparable harm in the absence of a preliminary injunction.4 As to the balance of hardships, however, Judge Nathan found that things were now different. In Aereo I, the plaintiffs had been deemed unlikely to succeed on the merits under the Second Circuit’s reasoning in Cablevision. As such, Judge Nathan had rejected the plaintiffs’ contention that Aereo’s hardships were not cognizable since they were alleged to be founded on infringement. With Aereo’s affirmative defenses under Sections 111 and 512(a) now rejected, Judge Nathan made short work of Aereo’s argument that the plaintiffs are unlikely to succeed on the merits:

In light of the Supreme Court’s holding, Plaintiffs have demonstrated a likelihood of success on the merits, and Aereo has not demonstrated a likelihood of success on the merits of its novel affirmative defenses.

And given the plaintiffs’ likelihood of success on the merits post-Aereo III, Judge Nathan held that the balance of hardships now favors the plaintiffs:

[A]s the Second Circuit has held, “[i]t is axiomatic that an infringer of a copyright cannot complain about the loss of ability to offer its infringing product.” ivi, 691 F.3d at 287. The Supreme Court has concluded that Aereo performs publicly when it retransmits Plaintiffs’ content live over the Internet and thus infringes Plaintiffs’ copyrighted works. In light of this conclusion, Aereo cannot claim harm from its inability to continue infringing Plaintiffs’ copyrights. . . . Aereo cannot claim significant hardship if an injunction issues, while Plaintiffs can still claim harm if an injunction does not issue. Thus, the balance of hardships tips in Plaintiffs favor.

Turning to the scope of the preliminary injunction, Judge Nathan held the plaintiffs “to their earlier decision, strategic or otherwise, to seek a preliminary injunction limited in scope to enjoining retransmission of their copyrighted works while the works are still being broadcast.” Thus, Judge Nathan only enjoined Aereo’s near-simultaneous transmissions, though she did make the injunction applicable nationwide. Whether Aereo’s time-shifted transmissions should also be enjoined will have to wait until the district court considers granting a permanent injunction. In a previous post, I argued that these time-shifted transmissions are infringing as well. And it’s interesting to note that Aereo does not appear to be offering time-shifted transmissions at this time. Perhaps it’s because Aereo realizes that these time-shifted lemons don’t make lemonade either.

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© 2014 Devlin Hartline. Licensed under the Law Theories Public License 1.0.

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  1. See Am. Broad. Companies, Inc. v. Aereo, Inc., Case No. 12-cv-1540, 2014 WL 5393867 (S.D.N.Y. Oct. 23, 2014). 
  2. See WPIX, Inc. v. ivi, Inc., 691 F.3d 275 (2d Cir. 2012), cert. denied, 133 S.Ct. 1585 (2013). 
  3. I should note that I’m not claiming that ivi was decided correctly. I’m merely saying that Judge Nathan properly concluded that ivi remains good law and that it’s dispositive here. 
  4. See Am. Broad. Companies, Inc. v. Aereo, Inc., 874 F. Supp. 2d 373, 397-400 (S.D.N.Y. 2012).