Today, the Supreme Court is hearing arguments in a case called American Broadcasting Companies, Inc. v. Aereo, Inc. Until this week, you'd probably never heard of it. But because the case involves big TV networks, high-profile investors like Barry Diller, and the Future of Media, there's been an above-average amount of commentary swirling around it.
Narrowly, the case is about whether Aereo — a two-year-old, Long Island City–based company — is violating copyright law by letting people stream broadcast TV directly to their devices without paying for the rights. But it's really about whether a start-up that is entirely based on a convoluted legal gimmick should be allowed to profit from its cleverness.
If you're new to ABC v. Aereo, SCOTUSBlog has a good explainer. Basically: Aereo has a warehouse with thousands of tiny antennas (pictured above) arranged in neat rows inside. When an Aereo subscriber opens the Aereo app, one of those antennas is assigned to her, and the shows it picks up (on ABC, NBC, CBS, et al.) are recorded and stored on a hard drive, where they can be either streamed live to a device of a user's choosing (with a slight delay) or played back at a later time. Each antenna makes only one copy of the shows it receives, and each Aereo user is watching what amounts to a private showing. But since it's being transmitted over the internet, and since thousands of copies of each show are being streamed at any given time, the broadcast networks consider it a public performance that entitles them to millions of dollars in re-transmission fees. The networks won initially, lost on appeal, and their case is now in front of the Supreme Court.
There's all kinds of interesting legal precedent about what constitutes a "public performance" of a work and what doesn't, but what it boils down to is this: Aereo is a clever bit of regulatory arbitrage masquerading as a start-up, and should be treated as such.
Normally, I'm all for legal cleverness, but Aereo's gambit doesn't pass the smell test. Here's another way to think about it:
(Update: After some well-informed objections, I now see that this was a dumb analogy. See my follow-up post.)
I work at a magazine whose content is copyrighted. Currently, it's illegal to scan an entire issue of New York, post it on your website as a PDF, and charge visitors for access to it. But it's legal to browse a copy of New York at your local newsstand, read every article inside, and put it back without making a purchase. It's probably even legal for your friend to go to the newsstand, pick up the latest issue of New York, read every article to you over the phone, and put it back on the shelf without buying it. (Though I don't recommend this — it would be painfully slow, and newsstand operators wouldn't like it.)
Imagine if you came up with an idea for a start-up — let's call it Readeo — that would exploit this loophole. For $8 a month, Readeo would give you the right to rent a small, magazine-reading robot. Every time you wanted to read a New York article, you'd tap a button on your iPad, and your personal Readeo robot would be dispatched to the nearest newsstand, where it would pick up a copy of the magazine and read the article to you over the phone using OCR and speech software. Now imagine that, somehow, this process could be sped up to the point where it was nearly instantaneous — desire article, tap app, dispatch robot, read article — and where the robots could replicate pictures as well as words. You'd be getting a perfect, on-demand copy of New York's editorial content anytime you wanted it, without paying a cent to the magazine.
And our lawyers would (I imagine) sue the bejeezus out of you.
"But I'm just doing what I've always done at the newsstand!" you'd protest. "The robot is just like my friend, who reads articles to me over the phone. That's legal. Why isn't this legal?"
"Because you're ridiculous," our lawyers would answer. (Actually, though I've never met them, I imagine our lawyers are much more professional and courteous than that.)
This isn't a perfect analogy for what Aereo is doing. But it's close enough. Nothing Aereo does — the tiny antennas, the recording, the real-time streaming — couldn't be done before it existed. Aereo's innovation was taking a copyright loophole and building a sleek technological package to exploit that loophole as profitably as possible.
The loophole that explains Aereo's entire existence is found in the so-called "transmission clause" of the Copyright Act, which defines what constitutes putting on a "public performance":
(2) to transmit or otherwise communicate a performance or display of the work to a place specified by clause (1) or 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.
Investing in Aereo was, essentially, making a bet that the courts would reinterpret the transmission clause. That wasn't necessarily a bad bet. (Among other things, the 2007 Cablevision decision seemed to carve out room in the law for DVR-like systems that allowed users to preserve copies of TV shows for their own use.) But it was a bet predicated on an odd notion: that judges would be so impressed by Aereo's copyright-avoidance gimmick that they would overlook that the entire company was, as a Second Circuit dissenting judge wrote, "a Rube Goldberg–like contrivance" built to violate the spirit of the law.
(It's kind of funny, also, that Aereo's pre–Supreme Court lobbying blitz centered on a site called ProtectMyAntenna.org, since Aereo users rent a different antenna every time they use the service. In other words, there's no such thing as "my" Aereo antenna. ProtectTheAntennaToWhichIWasRandomlyAssigned.org must have been taken.)
Look, I don't like defending broadcast networks, and I'm not opposed to most forms of technological innovation (even legally murky innovation!). But the networks are right here. Aereo will make a fascinating law-school case study in ten years. But it's not a real business. Barry Diller and other investors must have felt like daredevils when they threw millions of dollars at Aereo, knowing that its fate hinged on a specific legal outcome. But I hope — for the sake of common sense, if nothing else — that the Supreme Court will ignore all the hype and doomsaying and issue a narrow ruling that shuts down Aereo but still preserves other legal uses of cloud-based technology. If the tech industry can't do better than dressed-up legal gimmicks, maybe those investors don't deserve their millions back.