It comes as little surprise that Internet start-up Aereo Inc., which allows users to watch or record television programs online, drew the ire of broadcasters. A group of plaintiffs, including Fox Television Stations Inc., CBS Studios Inc. and the Public Broadcasting Service, sued Aereo for copyright infringement in the Southern District of New York and sought a preliminary injunction against the service, which is currently only available in metropolitan New York.

The district court denied the broadcasters' request for a preliminary injunction, saying they were unlikely to succeed on the merits, considering the 2nd Circuit's 2008 decision in Cartoon Network v. CSC Holdings Inc., or Cablevision, as it's known. On April 1, the 2nd Circuit upheld the district court's ruling 2-1 in WNET v. Aereo Inc.

Technical Details

In Cablevision, the court considered a remote storage digital video recorder (DVR) that created copies of broadcast TV when users wanted to record programs. The district court found, and the 2nd Circuit majority agreed, that Aereo's system was not materially distinguishable from Cablevision's. The 2nd Circuit wrote that Aereo offers the functionality of three devices: “a standard TV antenna, a DVR, and a Slingbox-like device.” A Slingbox is a device that connects a cable box or DVR to the Internet. 

The plaintiffs argued that Aereo was infringing on their public performance rights, which led to a detailed discussion of whether Aereo's performances were, in fact, public. The 2nd Circuit found that they are not, due to how Aereo's system is set up. The company assigns a single antenna to each individual, meaning that whenever a user watches a program, the system creates a unique copy just for him. These little technical details were crucial to Aereo's victory—in Cablevision, too, customers had unique, and therefore private, copies of programs.

“If the potential audience of the transmission is only one subscriber, the transmission is not a public performance,” the court wrote.

The key difference between Cablevision and Aereo, the broadcasters claimed, was that Cablevision already had a license to broadcast content as a cable operator, whereas Aereo has no license at all. Judge Denny Chin, in his dissent, agreed with them on this point, writing, “Cablevision's RS-DVR system 'exist[ed] only to produce a copy' of a material that it already had a license to retransmit to its subscribers … but the Aereo system produces copies to enable  it to transmit material to its subscribers.” 

“If the broadcasters are going to reverse the tide [on this ruling], it's going to be on that front,” says Aaron Levine, a partner at Novak Druce Connolly Bove + Quigg.

However, the majority quashed this argument as well, saying “Cablevision did not hold that Cablevision's RS-DVR transmissions were licensed public performances; rather it held they were not public performances,” and therefore didn't need a license at all.

Smart Strategy

Considering Aereo went to the trouble of creating individual antennas for each user, and that the company rolled out first in New York where Cablevision is precedent, it certainly seems that Aereo designed its system specifically to be able to overcome this kind of litigation.

“It is not at all unusual to go out there, understand what the law is, what patents are out there or what protection is given, and design around it,” says Marshall Gerstein & Borun Partner Michael Graham. “It's a valid way of approaching a new technology.”

The dissent did not agree with such an assessment, calling Aereo's system a “Rube Goldberg-like contrivance, over-engineered in an attempt to avoid the reach of the Copyright Act and to take advantage of a perceived loophole in the law.”

Perhaps emboldened by its win, Aereo announced plans to expand to 22 more cities. Notably, though, none of them are in the 9th Circuit, which, due to the high concentration of the entertainment industry in that region, has historically been partial to copyright holders.

“If I were designing the rollout from a legal standpoint,” Levine says, “I would want to move into the 9th Circuit last, after I had racked up a lot of victories in other circuits.”

Although this case hinged on specific facts and isn't easily applied to other situations, in-house counsel should still take note of the cohesion between Aereo's business strategy and its legal strategy, which Levine says are “essentially in complete alignment.”

“It's a pretty powerful example of how a good and well-implemented legal strategy can be crucial to a tech business,” he says.