10 Jul 2014

Aereo's cloud of confusion: where to now for cloud computing services?

by Timothy Webb, Nicole Landerer

The Aereo decision has generated confusion in relation to what implications, if any, it will have for other cloud computing services.

The recent United States Supreme Court ruling in American Broadcasting Companies v Aereo Inc has raised questions about the legality of some cloud computing services based in the USA. By a 6-3 majority, the court held that the Aereo TV streaming service "performs" copyrighted works "publicly" and therefore violates US copyright law.

Aereo's streaming subscription service

Aereo is a technology company which streams TV programs to its subscribers over the internet without permission from the copyright owners of those programs.

Aereo enables its subscribers to watch the programs on various devices by assigning each subscriber a miniature, remotely-controlled antenna through which to receive broadcast shows and a remote DVR drive through which to record, store and stream those broadcasts. When subscribers log on to their account on Aereo's website, they are presented with a list of programs currently airing and can select the show they want to watch. Aereo's system then directs the antenna assigned to the individual subscriber to the broadcast carrying the selected show, translates the signals into transmittable data, saves the data onto the subscriber's folder on Aereo's hard drive and streams the show to the subscriber's screen.

The petitioners, a group of American broadcasting companies, brought copyright infringement proceedings against Aereo. They sought a preliminary injunction, alleging that Aereo infringed their right to perform their copyrighted works publicly. This was denied at first instance, and again upon appeal to the US Court of Appeals for the Second Circuit. That Court found that Aereo did not infringe the petitioners' copyright in the broadcasts, citing the Cablevision case, which established the legal basis for cloud-based video storage and playback systems.

The petitioners appealed to the Supreme Court and, unusually, Aereo supported the appeal, seeking a definitive decision on the lawfulness of its business model.

The Supreme Court finds Aereo did infringe copyright

The Supreme Court reversed the lower court decisions and held that Aereo infringes the petitioners' copyright by performing their works publicly within the meaning of US copyright law.

The US Copyright Act grants copyright owners several exclusive rights including the right to "perform the copyrighted work publicly". This includes the right to "transmit or otherwise communicate a performance … of the [copyrighted] work to a place open to the public … by means of any device or process, whether the members of the public … receive it in the same place or in separate places and at the same time or at different times".

The two questions dealt with by the majority were whether Aereo "performs" and, if so, whether it does so "publicly".

Does Aereo "perform"?

The majority held that by operating its service, Aereo "performs" within the meaning of the Copyright Act and does not, as it contended, merely provide equipment that enables others to do so. This conclusion was influenced by Congress' amendment of the Copyright Act in 1976 to overcome a prior Supreme Court ruling that the activities of community antenna television (CATV) providers fell outside the Act's ambit. The majority held that Aereo's activities are "substantially similar to those of the CATV companies that Congress amended the Act to reach" and therefore fall within the scope of the Copyright Act.

It did suggest that in other cases involving different kinds of services or technologies, a user's involvement in the operation of the provider's equipment and selection of the content transmitted may well bear on whether the provider "performs".

Does Aereo perform "publicly"?

The majority considered whether the fact that each transmission is only to one subscriber precludes the transmission from being "to the public". Again citing Congress' legislative objectives, the majority held that these behind-the-scenes technological features did not sufficiently distinguish Aereo's system from other cable systems caught by the Act.

Additionally, the majority held that Aereo's subscribers constitute "the public" since Aereo transmits the same contemporaneously perceptible sounds and images to a large number of people who do not know one another. It therefore held that Aereo does transmit a performance "to the public".

Aereo's implications for other cloud computing services in Australia and the US

The decision has generated considerable confusion in relation to what implications, if any, it will have for other cloud computing services.

While the majority emphasised that its decision is a narrow one, and not intended to stifle technological development, it made no meaningful distinction between Aereo and other cloud computing services. It is unclear whether the decision means that an Aereo-like service could be rendered legal by making a few technical changes, or that future courts will be forced to liken new cloud computing services to earlier cable services irrespective of the behind-the-scenes technological differences between them. As Justice Scalia asserts in his dissenting opinion, the majority provides no criteria for determining when its "cable-TV-lookalike" test applies.

The legality of similar services under Australian law remains unclear, particularly given the outcome of the recent TV Now litigation. The exclusive rights afforded to copyright owners under the Copyright Act 1968 (Cth) include the right to communicate works, films and broadcasts to the public. Communicate is defined as "make available online or electronically transmit".

In the TV Now litigation, Justice Rares held that there had been no communication to the public by Optus since the user clicked the "play" button to watch the recorded film – essentially communicating to him or herself, not "to the public". In overturning the first instance judgment, the Full Federal Court did not specifically deal with the issue of communicating to the public, therefore leaving the issue open.

This is unfortunate, since this is really a key issue. Courts here could be influenced by the US Supreme Court's analysis of "the public", or they could follow Justice Rares' lead in TV Now. It will be interesting to see how, if at all, this decision will impact upon future decisions of Australian courts.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.