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Cable Technology Feature Article

April 25, 2014

Aereo Supreme Court Decision Will Have Big OTT, Cloud Ramifications

By Tara Seals, TMCnet Contributor

Online streaming video company Aereo has finally had its day in court—the Supreme Court, that is—this week, and so far the outcome is far from clear. Several Justices asked tough questions, and both sides offered compelling arguments. Whichever way the judgment falls, it will have definite consequences for the future of the cloud marketplace.

Aereo retransmits local broadcast signals via the Internet for $8 to $12 per month, but doesn’t pay retransmission fees to broadcasters because, it says, it should be seen as an over-the-air (OTA) service, using the modern-day equivalent of rabbit-ear antennae. That’s because it issues dime-sized antennae to all users, which are housed in data centers across the country. Broadcasters of course see this as copyright infringement and have mounted a series of lawsuits against Aereo.

The Justices seemed a bit skeptical when oral arguments were presented on Tuesday. “It looks as if somehow you are escaping a constraint that’s imposed upon [other companies]. That’s what disturbs everyone,” said Justice Stephen Breyer.

“You are the only player so far that doesn’t pay any royalties at any stage,” added Justice Ruth Bader Ginsburg, underscoring the lack of parity with other online streamers.

Some see Aereo as merely looking for loopholes. “All I’m trying to get at, and I’m not saying it’s outcome determinative or necessarily bad, I’m just saying your 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,” said Chief Justice John Roberts (News - Alert).

And not to put too fine a point on it, “There’s no technological reason for you to have 10,000 dime-sized antennas, other than to get around the copyright laws,” Roberts added.

David Frederick, Aereo’s attorney, counter-argued that the technology optimizes Aereo’s operations, because they can add antennae easily to a central location instead of having to gain permits to mount aerials on roofs and the sides of buildings.

The merits of Aereo’s technology aside, the Supreme Court’s decision will also clearly have widespread ramifications for over-the-top (OTT) business models going forward—something that Justice Stephen Breyer pointed out. “I don’t see how to get out of [separating the Aereo verdict from the larger cloud-computing industry],” he said.

That’s because the case at its heart hinges on two precedents: The Cablevision and Betamax court decisions. The U.S. Supreme Court’s Sony-Betamax decision in 1984 affirmed that consumers have a fundamental right to record copies of over-the-air broadcast television using an individual antenna, for their personal use—paving the way for VCRs and, later, DVRs. Then, in 2008, Cablevision beat back broadcaster opposition with a Second Circuit decision that cleared the way for network DVRs to be considered legal, paving the way for cloud-based broadcast models and the cloud storage industry.

In Cablevision, the court agreed that legally, there is no difference between DVRs that stored content remotely on a server and those that keep it locally on a set-top box at the home.  Aereo says that this is the same concept behind its own approach, and that broadcasters are simply denying technological innovation and the rise of cloud services.

“The broadcasters are asking the Court to deny consumers the ability to use the cloud to access a more modern-day television antenna and DVR,” Aereo CEO Chet Kenojia said in a separate court filing last month. “They are asking the Court to confine consumers to outdated equipment and limit their access to lawful technology in order to protect a legacy business model, the success of which is built on eliminating consumer choice and competition in the marketplace. If the broadcasters succeed, the consequences to American consumers and the cloud industry are chilling.”

Frederick made the argument that the same precedent should hold here, but Chief Justice Roberts appeared unconvinced. “If I’m making a copy using Aereo’s system, no one else can look at it,” Frederick said. “Even if you happen to have watched the same program, you can’t watch my copy, I can’t download it.”

“That’s just saying your copy is different from my copy,” Chief Justice Roberts said.

“Correct,” Frederick said.

“But that’s the reason we call them copies, because they’re the same,” Roberts retorted.

Justice Sonia Sotomayor asked Paul Clement, the attorney for the broadcasters, about the consequences of the court’s decision.

“If they actually provide something that is a net benefit technologically, there’s no reason people won’t license them content,” Clement said. “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.”

But what of the implications for cloud computing at large? “There is a fundamental difference between a service that provides new content…and a service that provides a locker,” he argued, adding that Aereo is like a car dealership, selling new wares, while a company like Dropbox (News - Alert) and other cloud purveyors are more like a parking garage, and should be treated differently.

Several amicus briefs were filed on Aereo’s behalf ahead of the trial, including from CCIA and Mozilla, Public Knowledge (News - Alert), the Consumer Electronics Association and the Electronic Frontier Foundation. The Justice Department and even Cablevision itself however have filed against the streamer. In Cablevision’s case, it argued that Aereo should be found illegal because it’s “functionally identical to a cable system,” and that cable systems are subject to must-carry regulations that require that they pay broadcasters for the right to retransmit their over-the-air signals.

But the Justice Department, despite being anti-Aereo, was anxious to narrowly define the scope of the issue, agreeing that the decision could set precedent for how cloud computing infrastructures may be used overall by consumers and businesses.

“A decision rejecting [Aereo’s] infringing business model and reversing the judgment below need not call into question the legitimacy of innovative technologies that allow consumers to use the Internet to store, hear and view their own lawfully acquired copies of copyrighted works,” it said in its filing.

Indeed, “reversal of the judgment below need not threaten the legality of cloud computing,” the department’s lawyers noted. The issue with Aereo, it argued, is that the company is providing access to content that has not already been paid for.”

Aereo’s service is available in 11 cities, and has been cleared by lower courts to operate for now, except in the Western circuit. The service has been barred in half a dozen Western states, including Utah and Colorado, until the Court hands down its decision, sometime in June.

In a press conference outside the courthouse, Frederick said he remained “cautiously optimistic” that Aereo would prevail.

“What is at stake in this case is much bigger than Aereo,” Kanojia said. “We believe that consumers are entitled to use a modern, cloud-based, version of an antenna and DVR, and that consumers should not be constrained to 1950s-era technology to watch free-to-air broadcast television. The broadcasters’ positions in this case, if sustained, would impair cloud innovation and threaten the myriad benefits to individuals, companies and the economy at large of the advances in cloud computing and cloud storage.”

Edited by Alisen Downey

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