The Supreme Court Killed Aereo, But the Future of the Cloud Is Wide Open

The ruling is a major victory for the nation's largest media companies, which have argued for more than two years that Aereo's service amounts to blatant theft.

Jun 25 2014, 5:20pm
Image: Aereo

Aereo, the online video startup that has bedeviled the major TV broadcasters, was dealt a resounding defeat on Wednesday by the Supreme Court, which ruled that the company's internet video service violates copyright law. The verdict is a clear-cut victory for the nation's largest media companies, which have argued for more than two years that Aereo's service amounts to blatant theft. What's less clear is the effect the ruling will have on the technology industry, and cloud computing services in particular.

In a 6-3 decision, the high court ruled that Aereo's service—which uses thousands of dime-sized antennas to pick up free, over-the-air TV signals before sending them to its customers over the internet for a monthly fee—constitutes a public performance. Aereo had argued that because each user leases his or her own tiny antenna, the broadcasts are private, and thus don't infringe copyright laws.

In its ruling, the Supreme Court's majority deicided that Aereo is the functional equivalent of a cable provider, and is thus subject to copyright laws. But the high court effectively punted on whether Aereo's service relies on the same legal rationale as remote-storage DVR technology and cloud computing services like Google Drive and Dropbox. Tech policy experts are already warning that those services could be at greater legal risk as a result of the ruling.

"In short, a cloud of lawsuits now hangs over cloud computing."

The question of Aereo's legality has preoccupied media executives, industry analysts, and tech policy experts from New York to Washington, DC to Los Angeles for more than two years. From the beginning, the case had all the hallmarks of a David vs. Goliath struggle, pitting a scrappy tech startup -- albeit one funded by billionaire mogul Barry Diller -- against the nation's most powerful media companies, including NBC, FOX, ABC, and CBS​.

The broadcasters warned that if Aereo prevailed, they could yank popular shows like "The Big Bang Theory" and "NCIS" from free TV and move them to pay channels like Showtime. The National Football League and Major League Baseball threatened to take high-profile broadcasts like the Super Bowl and World Series to cable.​ CBS CEO Les Moonves, Aereo's most outspoken antagonist, repeatedly branded the startup as nothing more than a thief.

The Supreme Court's ruling protects the TV industry's current broadcast business model, a highly lucrative system in which cable and satellite companies pay billions of dollars annually to the TV companies for the right to carry popular programming. These retransmission consent fees are projected to reach $4 billion this year and $7.6 billion by 2019, according to research firm SNL Kagan. The broadcasters argued that Aereo was circumventing that system using a technological gimmick. The Supreme Court agreed, effectively putting Aereo out of business.

“Today’s decision by the United States Supreme Court is a massive setback for the American consumer," Aereo CEO Chet Kanojia said in a statement following the ruling. "We’ve said all along that we worked diligently to create a technology that complies with the law, but today’s decision clearly states that how the technology works does not matter. This sends a chilling message to the technology industry."

The decision vindicates US District Judge Denny Chin, the lone dissenter in last year's key Second Circuit ruling in Aereo's favor, who called Aereo a “sham” and a “Rube Goldberg-like contrivance.” The Supreme Court found that Aereo’s “behind-the-scenes [technology] does not distinguish Aereo’s system from cable systems, which do perform publicly.”

The broadcasters argued that Aereo’s service amounts to theft because the company doesn’t pay retransmission consent fees. But last year, federal courts in New York and Boston agreed with Aereo’s argument that it is transmitting legally protected “private performances” to individual users over their own leased antennas, based on principles established by the 2008 Cablevision decision, which allowed remote-storage DVR technology. Those verdicts set the stage for the Supreme Court showdown.

“We’re gratified the Court upheld important Copyright principles that help ensure that the high-quality creative content consumers expect and demand is protected and incentivized," The Walt Disney Company, which owns ABC, said in a statement after the ruling.

Aereo had warned that a defeat could imperil cloud computing services offered by companies like Google, Amazon and Dropbox, because Aereo relies on the same legal principles as the entire cloud computing industry​. During oral arguments in April, several justices appeared sympathetic to that argument, and Wednesday's majority opinion appears narrowly crafted so as not to implicate, or even address, that question.

"We agree with the Solicitor General that [q]uestions involving cloud computing, [remote storage] DVRs, and other novel issues not before the Court, as to which ‘Congress has not plainly marked [the] course,’ should await a case in which they are squarely presented," wrote Justice Stephen Breyer, who was joined in his majority opinion by Chief Justice John Roberts and Justices Anthony Kennedy, Ruth Bader Ginsburg, Sonia Sotomayer, and Elena Kagan.

"We have not considered whether the public performance right is infringed when the user of a service pays primarily for something other than the transmission of copyrighted works, such as the remote storage of content," Justice Breyer wrote.

That would suggest that, for the moment, cloud computing as we think of it won't be affected by the ruling. But the lack of clarity has legal ramifications in its own right. As new services appear, courts will have to sort out whether they're closer to Aereo or simply a remote container of content; they'll also have to figure out if such services could be considered to be primarily for the transmission of copyrighted works, as some rights-holders argue is the case for torrent sites.

"In short, a cloud of lawsuits now hangs over cloud computing," says Mark Cooper, director of research at the Consumer Federation of America.

In his dissenting opinion, Justice Antonin Scalia wrote that the majority's ruling rests on "the shakiest of foundations​" and disregards "widely accepted rules for service-provider liability and adopting in their place an improvised standard ('looks-like-cable-TV') that will sow confusion for years to come."

Justice Scalia, who was joined in his dissent by Justices Clarence Thomas and Samuel Alito, disputed the notion that Aereo's service constitutes a public performance—or any kind of performance at all. "Aereo does not 'perform' for the sole and simple reason that it does not make the choice of content. And because Aereo does not perform, it cannot be held directly liable for infringing the Networks’ public-performance right," Justice Scalia wrote.