Last month, in American Broadcasting Companies Inc. v. Aereo, Inc., the Supreme Court ruled that Aereo’s service of streaming broadcast TV over the Internet violated copyrights in the streamed TV shows.  Although this ruling appears at first blush to threaten Internet TV’s business model, it may pave the way for Internet TV companies to participate in the compulsory licensing scheme that cable companies are entitled to use.

Working with the system, or cheating it?

Aereo had designed its service to comply with copyright law—or dodge it, depending on your perspective.  Aereo maintains thousands of dime-sized antennas in a centralized location to pick up free over-the-air broadcast TV.  Aereo’s service allows its individual subscribers to watch TV on Internet-connected devices by selecting a show from a menu on its website.  When a subscriber selects a show, Aereo assigns one of its antennas exclusively to the subscriber and tunes to the appropriate over-the-air broadcast.  The broadcast is saved in a subscriber-specific folder on Aereo’s servers, creating a personal copy of the program.  The personal copy is then transmitted to that subscriber alone over the Internet once several seconds of the broadcast have been saved.  Aereo used thousands of individually-assigned antennas for the sole purpose of avoiding violating the Copyright Act, which grants copyright holders the exclusive right to “perform the copyrighted works publicly.”  17 U.S.C. § 106(4).

Numerous private transmissions add up to a public transmission

The Supreme Court ruled that, despite the fact that Aereo did not transmit anything until a subscriber selected which shows to watch, and the fact that each Aereo subscriber received a unique transmission from a privately assigned antenna, Aereo’s service amounted to an improper public performance of copyrighted works.

The Court noted that a principal purpose of the 1976 Copyright Act was to overturn the Court’s previous decisions that community antenna television (CATV) systems, which were precursors to modern cable TV, were outside the scope of the Act because they did not “perform.”  In 1976, Congress amended the act such that a public performance included a transmission of a performance to the public; transmitting a performance meant “to communicate it by any device or process whereby images or sounds are received beyond the place from which they are sent.”  There is no dispute that CATV companies “transmitted” performances to the public, and thus they fell within the scope of the amended act.

The Court in Aereo reasoned that because Aereo looks a lot like a cable company, it “performs” the works.  The Court also asserted that an entity could “transmit” a performance “through multiple, discrete transmissions” and still be covered by the Act because the Transmit Clause provides that a performance can be transmitted to the public “whether the members of the public capable of receiving [it] receive it in the same place or in separate places and at the same time or different times.”  In other words, lots of “private” transmissions can amount to a “public” transmission that violates the Act.

A lifeline for Internet TV—for a price

Notably, the same amendments that brought CATV companies within the scope of the 1976 Copyright Act also established a compulsory licensing scheme that permits cable companies to retransmit broadcasts in exchange for set licensing fees.  A 2012 Second Circuit decision had held that an Internet TV provider was not a cable company that could take advantage of the compulsory licensing scheme.  But the Supreme Court’s decision in Aereo gives Internet TV providers an argument that they should be entitled to use this compulsory licensing scheme to provide their services to their customers.  Obtaining (and paying for) a compulsory license will almost certainly affect consumer pricing for Internet TV services, since the providers will no longer be able to pull broadcast signals off the airwaves for free, but it shouldn’t be the death-knell for new technologies that some have feared.

Updated 7/11/2014: Aereo has asserted in a court filing that it is a cable system entitled to a compulsory license under the Copyright Act.