The Supreme Court case that will decide the future of television
Today, the Supreme Court will hear a case involving a start-up named Aereo that could help define the future of television.
Aereo was created by engineer and entrepreneur Chet Kanojia, and is designed to help individuals consume broadcast television on their own schedule. When a user signs up with Aereo, for $8 a month, they are given an antenna to receive broadcast television and DVR functionality. Consumers can use Aereo to record content, like a TiVo, and watch broadcast television programs on their TV, iPod or other device – either while it is being broadcast or later at their convenience. Essentially it’s the same as having an antenna on your TV with a DVR, except it costs a lot less and has much more significant functionality (being able to access your content anywhere, set it remotely, record more content, etc.).
Frankly, the ability to cloud DVR content you can already access is functionality that the cable industry should have been providing to consumers a long time ago – if there was more serious competition.
Innovation makes the content industry angry
But Aereo has made the broadcasters extremely angry, because they believe they won’t be able to make as much money in a market with this type of technology. From a public-policy perspective, the fear that an incumbent industry won’t make as much money is irrelevant; in fact, incumbent industries having to adapt to change is evidence of innovation. It’s evidence of the system working.
We should not be particularly surprised by their fear, as these actors do not like users to have any level of control over their own content. The content industry was vehemently against the first VCR when it appeared in the United States, allowing individuals to have any control of their own media. The content industry went to war to kill the idea of individuals recording live television, and argued that an individual recording live television for home consumption was copyright infringement – even though the broadcasters put their content on the airwaves for free. They argued that time-shifting over-the-airwaves content was copyright infringement, and that average citizens could be liable for $150,000 per recording.
Then-MPAA President Jack Valenti testified before Congress and argued: “I say to you that the VCR is to the American film producer and the American public as the Boston strangler is to the woman home alone.” Jack Valenti even threatened that if Congress didn’t regulate the VCR, movie producers might have to cut their movie production in half.
The content industry sued to ban the VCR and to bankrupt Sony for selling the technology. But the Supreme Court ultimately upheld the VCR by one vote in 1984.Within two years of this ruling, far from Valenti’s fears of doom and gloom, the content industry actually made more money from home video sales than from in-theater sales.
Luckily, Mr. Rogers was there to testify that he supported consumers being able to record his content, “I have always felt that with the advent of all of this new technology that allows people to tape the ‘Neighborhood’ off-the-air…Very frankly, I am opposed to people being programmed by others.”
Unfortunately when we need Mr. Rogers most, he’s not here to stand up to us “being programmed by others.” And today we are hearing the same threats from the broadcasters that Valenti made in the 1980s.
CBS CEO Les Moonves has threatened to take his network to cable-only if Aereo is upheld. “We will go after them in the courts and, if that doesn’t work, there are other remedies. There are financial remedies; there are congressional remedies,” Moonves said. The NFL and MLB are threatening to ditch broadcast if Aereo wins, and News Corp. has threatened to take the Fox network to cable.
Good, let them eat cake – I mean, go to cable
The broadcasters’ threat that they will go to cable, or online, if Aereo wins, is not a threat at all. It would be incredible news! If only we could be so lucky – this could be one of the best things to happen in years for the industry. Many analysts believe that this is an empty threat and that the broadcasters will not give up on broadcasting, since they make 90 percent of their revenue from advertising (and could receive perhaps even more with Aereo). But let’s take them at their word, even given the history of the content industry of manipulating data and making up things — like comparing the VCR to the Boston Strangler and saying it would kill their industry.
Perhaps the most valuable commodity in the United States is our spectrum. Broadcasters are wasting this incredible resource, and now are even threatening to not use the spectrum.
There is only a limited amount of spectrum to go around. And nearly every growth industry, even the federal government, needs much more spectrum. According to the FCC:
Detailed analysis by commission staff and industry experts reveals that, despite significant investment in networks and advances in wireless efficiency, demand for mobile broadband service is likely to outstrip spectrum capacity in the near term. Without action to address this spectrum crunch, service quality is likely to suffer and prices are likely to rise.
Broadcasters are sitting on a gold mine, in their monopoly of a large amount of prime spectrum real estate. It’s perhaps the most valuable resource of the United States. If Aereo wins and they make good on their threats and switch to cable, an enormous amount of spectrum will be made available. What will this mean for consumers? A whole lot.
Expansion of 4G LTE technology is dependent upon more spectrum availability. Transitioning to 5G wireless technology will require more spectrum and new ideas, like super wi-fi, will require yet more spectrum availability. Cheaper data rates, faster Internet, less dropped calls etc. Today, while millions of Americans can receive fast Internet on their phones, it is rarely a direct competitor to cable internet, because it’s not quite fast enough. But if more spectrum was available and phone Internet speeds continued to increase, many Americans could have a new viable competitor to cable Internet.
These are all good things, but they would only result if broadcasters followed through on their threat. If only the public could be so lucky as to have them pull this trigger, and really follow through.
What’s the legal argument here – and what are the legal implications?
The broadcasters claiming that by providing an antenna for you at their facility and streaming the content directly to the consumer on a very long wire, Aereo’s service constitutes a public performance. Therefore, they argue, it is legally different from using a DVR with an antenna on your roof.
When cable television rebroadcasts content on live television, they have to pay for “re-transmission” fees, which can be quite high. But Aereo does not pay for these fees, because they are essentially just offering the consumers rental space for an antenna at their location and a long cable to their house.
There have actually been Supreme Court cases on similar arguments, where the court has previously said essentially, as long as there is a one-to-one transmission, then it’s a private performance/transmission. This means it would be legal if 100 consumers all recorded “The Good Wife,” or if a cloud DVR kept 100 different copies with each person’s name on it.
But if they combined it to one copy and provided it to 100 customers — thereby saving 99 percent in hard-drive space — that would be illegal. Some groups, like the Computer & Communications Industry Association, fear that if Aereo loses then this precedent could stifle innovation in the cloud computing market. The broadcasters are asking that Aereo be banned, and that the court precedent allowing for this, the Cablevision case, be struck down, thereby threatening significant innovation in the cloud market.
The case for judicial restraint
The best course of action here is judicial restraint. Federal statute does not make it clear that Aereo’s action is a public performance. A transmission from a consumer-made copy by, and to that consumer, is not “public,” regardless if they use their own TiVo, or if they use a cloud-based version of TiVo.
Congress has the option to go back and rewrite the statute, and decide that they don’t want an Aereo-type market model to exist. And surely, broadcasters have enormous lobbying influence to accomplish that goal. But the court should defer to Congress when the statute is unclear or silent on the matter.
In fact, deferring to Congress is exactly what the court did in a case that is somewhat similar to Aereo, involving patent law.
In Deepsouth Packing Co. v. Laitram Corp. the court dealt with a problem of how far patent protection should cover. Clearly, patent law bans selling the exact same invention on the open market. But what if, instead, someone merely exported all the components of an invention in a box – would that be illegal? If it was illegal, would exporting even the screws and other basic equipment therefore be illegal too? It was a somewhat thorny legal question. The plaintiff had a patent on a shrimp deveiner, a centrifuge-like device that cleaned raw shrimp and made it sellable (by removing the head etc.). Another company started selling a kit with all the basic building blocks of that exact centrifuge device, but not put together.
The court looked at the statute, and said that while this felt like infringement, and that this could be very bad for the inventor, the statute simply didn’t say that you couldn’t sell the components. The patent statute said one couldn’t copy the invention itself, but the components weren’t a direct copy. Essentially the court recognized that this was a loophole, but deferred to Congress because the statute was silent on the matter, and the implications of this line-drawing were significant.
Congress responded by analyzing the problem and deciding that they didn’t want this “loophole” to exist, and then passed a law to close it based upon their analysis of public policy considerations. The court has followed that law to this day.
Deepsouth teaches us that when a law is unclear, particularly in the context of intellectual property, we are best suited by having the judicial branch defer to Congress on which market models to effectively ban, because those are the stakes of the decision. That’s a big decision with enormous repercussions, so if the law is unclear, then let the branch closest to the people make the decision. When the Supreme Court upheld the VCR in 1984, the court also was deferring to Congress to ultimately decide what to do with this technology.
Here, if what Aereo provides is a private performance/transmission, then that is legal. There is one antenna, one data file, being sent over a long wire, to one user. When the underlying statute was written, the idea of Aereo wasn’t even on the map, as it wasn’t even possible. If Congress thinks a user initiating at his request to have a file recorded on the cloud, and streamed directly to the user, should be a public performance, then Congress can change the statute – but as written that’s not in the statute.
In the case at hand, Aereo is either a billion dollar company, or a billion dollar liability. But it should be up to Congress to decide, not the court. If broadcasters make good on their threats and shift to cable, far from being a disaster, it could prove to be a momentously positive change resulting in massive increases in technology and innovation. In short, let them switch to cable.