Pennies Not From Heaven
Aereo settles broadcasters’ claims in bankruptcy

Aereo Inc. has reached a proposed settlement with the broadcasters that have sued it for infringing their copyrighted works.  The settlement would result in payment of $950,000 to the broadcasters in satisfaction of their claims seeking over $99 million – amounting to less than a penny on the dollar.

This development follows lengthy legal proceedings that saw the dispute go all the way to the Supreme Court on the issue whether Aereo was publicly performing the plaintiffs’ television shows, originally broadcast over the air for free, by streaming them to subscribers over the Internet.  Section 106 of the Copyright Act reserves to the copyright owner six exclusive rights, including the right to publicly perform literary, musical, dramatic and motion picture works.  In the so-called “Transmit Clause,” the statute provides that “to perform or display a work ‘publicly’ means … To transmit or otherwise communicate a performance or display of the work . . . to the public, by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times.”  17 U.S.C. § 101.  The Transmit Clause was added to the Copyright Act when it was amended in 1976 as a result of two Supreme Court cases:  Fortnightly Corp. v. United Artists Television, Inc. and Teleprompter Corp. v. Columbia Broadcasting System, Inc.  In those cases, the Court had held that community cable systems that retransmitted free, over-the-air broadcast signals did not “perform” the copyrighted works in the broadcasts and did not infringe the copyright owners’ public performance rights.  Congress added the Transmit Clause to the 1976 Act to overturn these decisions.

In Aereo, the defendant offered a service that captured free, over-the-air broadcast television programming and delivered it to subscribers over the Internet.  Aereo did not license the content from the copyright owners.  Its system infrastructure consisted of thousands of dime-sized antennas which captured  the over-the-air broadcasts, converted them into data, and streamed the data to subscribers over the Internet.  Each subscriber was assigned an individual antenna, and each subscriber’s recordings were stored in a subscriber-specific folder on the Aereo server.  Subscribers could store recordings for later viewing, or view them nearly simultaneously via streaming.  The Supreme Court’s opinion addressed only the streaming aspect of the system, and not the storage for later viewing.

Aereo specifically designed its system architecture in this manner to make it comply with the Second Circuit’s decision in Cartoon Network LP, LLLP v. CSC Holdings, Inc., 536 F.3d 121 (2008) (popularly referred to as the “Cablevision” case).  In that case, cable operator Cablevision offered its subscribers a remote DVR which allowed cable subscribers to record television shows and store the recordings on dedicated spaces of Cablevision’s central servers.  The Second Circuit found that this service did not violate the copyright owners’ public performance rights.  Because the Transmit Clause defines a public performance as a transmission that can be received by the public at different times and places, the Second Circuit interpreted it as turning on the potential audience of the transmission.  In Cablevision, each subscriber made his or her own individual copy of each television program, which was stored in the subscriber’s own dedicated portion of Cablevision’s server.  Since only one individual was capable of receiving each transmission, the Second Circuit concluded that there was no public performance and no infringement.

A group of television studios and other copyright owners sued Aereo, alleging that the service violated their public performance rights notwithstanding Cablevision.  Aereo argued that because its system operated the same way as Cablevision’s remote DVR, it was noninfringing.  In at 6-3 opinion authored by Justice Breyer over a dissent authored by Justice Scalia and joined by Justices Thomas and Alito, the Supreme Court disagreed.  It addressed two distinct questions: (1) whether Aereo “performed” the television programs it distributed to its subscribers; and (2) if so, whether those performances were “to the public.”  The Court answered each question in the affirmative.

The 1976 Act provides that to “perform” an audiovisual work means “to show its images in any sequence or to make the sounds accompanying it audible.”   17 U.S.C. § 101.  The Court compared Aereo’s service to the community cable systems involved in Fortnightly and Teleprompter, and determined that Aereo bears an “overwhelming likeness to the cable companies targeted by the 1976 amendments.”  Aereo, 134 S.Ct. at 2507.  Like those cable companies, “Aereo’s system receives programs that have been released to the public and carries them by private channels to additional viewers.”  Id. (internal quotations and citations omitted).  Viewed in the context of the statutory definition of a “performance,” and the backdrop of the amendments spurred by Fortnightly and Teleprompter, the Court concluded that Aereo “performs” the works that it delivers to its subscribers.

The Court then turned to the question whether Aereo performs the works “publicly.”  The Transmit Clause provides that  an “an entity performs a work publicly when it ‘transmits … a performance … of the work … to the public.’”  17 U.S.C. §101.  And to transmit a performance “is to communicate it by any device or process whereby images or sounds are received beyond the place from which they are sent.”  Id.  “When an Aereo subscriber selects a program to watch, Aereo streams the program over the Internet to that subscriber.  Aereo thereby ‘communicates’ to the subscriber, by means of a ‘device or process,’ the work’s images and sounds.”  Aereo, 134 S.Ct. at 2508 (internal quotation and citation omitted).  Accordingly, the Court concluded that Aereo “transmits a performance whenever its subscribers watch a program.”  Id.  The one-to-one ratio between antennas and subscribers did not mean that these transmissions were private.  Because the Clause specifically states that “one may transmit a performance to the public ‘whether the members of the public capable of receiving the performance … receive it … at the same time or at different times,’” an entity “may transmit a performance through multiple, discrete transmission . . . through a set of actions.”  Id. at 2509.  Although the statute does not specifically define “the public,” Aereo’s subscribers fall within that category because the Act also states that “an entity performs publicly when it performs at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered.”  Id. at 2509-10 (internal citation omitted).

The Court thus concluded that Aereo’s streaming service violated the copyright owners’ public performance rights, and remanded the case for further proceedings.  On remand to the district court, Aereo reversed course and took the position that it was a cable operator eligible for a statutory license pursuant to 17 U.S.C. § 111.  The district court rejected this argument.

Aereo then filed for bankruptcy under Chapter 11 of the Bankruptcy Code.  The proposed settlement was reached with the broadcasters in the context of the bankruptcy proceeding, and must be approved by the court.

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