Trying to Turn Lemons into Lemonade: Aereo Fails to Redefine Itself as a Cable System

Screen Shot 2014-10-31 at 9.14.40 AMBy Sam Hampton

This month, the streaming television service provider Aereo suffered a second major legal defeat. The first came last spring, when the Supreme Court held that the live streaming of television content over the Internet, Aereo’s core business model, violated the Copyright Act. (We previously covered that case here and here.) Now a federal district court has granted the broadcasters relief in that case: a nationwide preliminary injunction against Aereo’s live streaming of content. Does this pair of decisions effectively spell the end of the company? Or can Aereo redefine its business model and live on?

Aero operated by establishing a system of small antennas that capture broadcast television. A subscriber to the company would pay for the use of such an antenna, which would transmit the signal over the Internet to a device for viewing. The content streamed by Aereo was only slightly delayed, allowing for the near simultaneous viewing of live television broadcasts. Aereo did not pay fees to the broadcasters, and from its inception was the object of their ire. Aereo was initially successful in court battles, but the company’s luck ran out at the Supreme Court.

In ABC v. Aereo, the Supreme Court held that the retransmission of copyrighted television programs over the network amounted to performance within the meaning of the Transmit Clause of the Copyright Act. In the opinion, the majority likened Aereo’s business model to that of a cable system and stated that it should be regulated as such; the majority seemed less concerned with statutory technicalities and more so with the likely intent of Congress. In his dissent, Justice Scalia derided the majority’s reasoning as “Guilt By Resemblance.”

This month, on remand, a federal district court implemented the Supreme Court’s holding. In a ruling filed on October 23rd, Judge Alison J. Nathan granted ABC injunctive relief because she found that Aereo had little chance of prevailing on the merits in light of the Supreme Court opinion. Though Aereo interposed some new defenses, Judge Nathan dispensed with these. She stated: “Doing its best to turn lemons into lemonade, Aereo now seeks to capitalize on the Supreme Court’s comparison of it to a [cable system] to argue that it is in fact a cable system that should be entitled to a compulsory license.” The court found that such an argument fails—simply being similar to a cable system does not make a company one.

But some commentators see a future for the television startup. The scope of the preliminary injunction is explicitly limited to the transmission of television content as the content is being broadcast. The question of using Aereo as a sort of cloud-based DVR still remains open. Further, cloud-based DVR services have been held to be legal, including in the Second Circuit. Perhaps Aereo could continue in this mold.

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