Aereo, SCOTUS, and the Cloud

aereo_scales-justice_content-2__largeThis week the Supreme Court of the United States (“SCOTUS”) heard oral argument in American Broadcasting Companies, Inc. v. Aereo, Inc. Aereo, a startup with nearly $100 million in funding, lets subscribers view live TV through a tiny antenna that can be controlled over the Internet and on mobile devices. The case is one about copyright infringment, and a key issue is whether Aereo is engaged in the “public performance” of copyrighted material. If Aereo loses, it is unlikely it has a tenable business because the licensing fees it would have to negotiate and pay to TV stations would be crippling. The larger concern is whether, if Aereo loses, it would any longer be permissible for cloud services, such as Amazon’s MP3 locker or Dropbox, to allow users to store copyrighted material and then reproduce/call the material from the provider’s servers to the user’s computer.

In light of the drama I looked back at my early thoughts about Aereo, which I shared over email in July 2012. My thoughts on the business case have evolved some since, but it was a fun exercise anyway. Here is the [slightly] edited email:

“I’ve been a proponent of TV anywhere for some time.  I . . . think a 3rd party, [rather than content] programmers or cable distributors, will play a vital role in making it a reality.  The problem with operators like Comcast being the source of TV anywhere is that they are still forced to ink deals with the programmers under the same expensive terms since their current, traditional deals would be put in jeopardy if Comcast tried something more innovative or consumer friendly. 
Between Aereo and Nimble, it is a tough call.  I worked with Chet [Kanojia] (CEO at Aereo) when he sold Navic to Microsoft. With his TV business expertise and [Barry] Diller’s backing, I think Aereo is well positioned. . . If the goal is to get consumers to cut off their cable service providers, consumers will need the combination of Hulu, Netflix, HBO Go and Aereo to fulfill all their viewing needs.  It seems that so far Aereo only gives viewers freely available networks (~20 channels).
[As for Nimble,] on one hand all it does is supplement current cable subscriber’s viewing experience by allowing them to have already-paid-for TV on the go, much like Sling Box.  On the other hand, I suspect Nimble is also trying to provide non-subscribers with access by using Nimble-registered cable accounts to rebroadcast channels to Nimble users.  This type of intermediary behavior was expressly prohibited by Sling Box’s terms of use because of copyright concerns.
Legally, if Nimble pursues the latter model, it stands the risk of being shut down.  Using music streaming as analogy, it would be in the netherworld of Grooveshark.  However, without the latter model, I don’t see much value in a service that merely acts as a portable DVR.  Cable providers can easily replicate that service.  Continuing the music analogy, Aereo is like Pandora because it seems technically to abide by copyright law by using a separate antenna for each user on its service and thereby, not publicly rebroadcasting channels.  The sacrifice is that it [provides] . . . a less customized product [or slate of channels than Nimble].  Finally, I would equate TV anywhere efforts by the likes of Comcast to Spotify because both services require making costly deals with resistant content providers.
Overall, I’m skeptical about Nimble.  But if it is legal and inexpensive, the opportunity to disrupt artificial geographic territories and customize content is the bigger opportunity.  Otherwise, I’d bet on Aereo as the natural evolution toward filling the web TV gap and disconnecting from cable operators.”

Copyright Trolls – Firm Standing or Stuck Under a Bridge?

I recently came across an entrepreneur who was looking into the Righthaven lawsuits in which the copyright troll, Righthaven, suffered fatal blows to its business model of suing alleged copyright infringers.  Righthaven received the go ahead to sue on behalf of partner newspapers for the alleged copying of the newspapers’ content.  The courts decided against Righthaven on the basis that the company did not have standing to sue.

Question 1

The entrepreneur posed the following question:  does the ability to sue for copyright infringement require owning the copyright itself?  In other words, did newspapers have to sell their copyrights to Righthaven in order for the troll to have the right to sue?

In Silvers v. Sony Pictures Entertainment the court held that an assignee (person receiving rights from the copyright owner) who has no legal or beneficial interest in the copyright cannot sue for infringement.  A copyright owner cannot assign/transfer the bare right to sue under the Copyright Act.

Section 501(b) of the Copyright Act gives standing/ability to sue to owners of exclusive rights in a copyright. These exclusive rights are defined in section 106 of the Act.  Because Silvers did not possess any of these Section 106 exclusive rights, such as the right to reproduce or make derivative works from the copyrighted work, she could not sue. Thus, for Sony to have given her the right to sue, it also would have had to transfer a beneficial/exclusive right.

Question 2

The entrepreneur’s natural next question was why can’t the copyright owner simply hand over a 0.01% share of ownership in the copyright and thereby grant legitimate standing to sue?

In abstract theory, this should work.  But as flexible as modern copyright law is regarding divisibility of copyright ownership (relative to older versions of the act), I doubt an owner could draft an agreement that transfers a section 106 exclusive right without jeopardizing the copyright owner’s absolute control over the copyright.  This is not to say that an agreement couldn’t transfer a percentage of profits derived from the copyright. However, such an agreement would not constitute a transfer of exclusive rights under section 106, and then you’d have lack the standing to sue again.

In the end, the problem with transferring exclusive rights, even if done in a de minimus fashion, is that the transferee could then exploit the copyright in a way that is inconsistent with and/or harmful to the copyright owner.  In the Monty Python case (Gilliam v. ABC), the Monty Python writers suffered such an injury.  Fortunately for Monty Python, the court interpreted their contract very narrowly to find that Monty Python had conferred the right to make a derivative movie off their copyrighted script but reserved final approval.  Therefore, they could prevent exploitation of the movie that was inconsistent with their wishes.

However, the outcome of that case was dependent on contract-specific language and narrow interpretation of that language by the court.  Today, work for hire contracts (in which the creator of a script or software gives up ownership completely to the employer) would take care of the uncertainty.

The demise of Righthaven, thus, is a blow to all copyright trolls that don’t own the copyrights they are trying to monetize in court.

JD: Not Just the Protagonist of a Show I Used to Like

I’m at law school.  It’s finally sunk in, and it’s worth mentioning.  Many of the topics on this blog correspond with my past lives as a business student and technology investment banking analyst.  As a legal student, my current interests won’t simply vanish, but I do except to perceive the world in an increasingly altered fashion.

Already I have noticed just how retrospective law is compared to the forward looking natures of technology and financial analysis.  I can imagine former colleagues condescendingly spurning the legal field’s lack of velocity and disengagement with the “real world.”  Yet, I also already recognize the potential benefits of applying the rigors of thorough legal analysis to non-legal matters.  Having read dozens of cases already, parsing analytical discourse into the issue at hand, logical reasoning, and actionable theses is becoming second nature.  The skill of “pattern recognition” that venture capitalists and portfolio managers so proudly tout can be comprehensively honed in the pursuit of a juris doctor.

The distinctive feature about the study of law, of course, is the Socratic method.  It is alive and well a couple of millennia after the bearded sage last donned a toga.  The method is captivating, but it is also mentally taxing.  Some professors seem to employ it to make a point for the benefit of teaching, but others ask students questions seemingly to satisfy their own whims.

While it does help gradually reveal kernels of wisdom, the Socratic method in the legal field today might be less illuminating than in the past.  Reading century old cases, it is apparent that the law has evolved from primarily reflecting the collective moral compass to becoming more about functionality and establishing objective rules.  That means when reading older judicial opinions which rely less on the precedents of preceding cases and more on logical statements of morality, the conclusion is usually too obvious.  Then, when listening to classmates answer questions about these same cases, the kernel revealed is sometimes anticlimactic.

There is a tendency to want to jump ahead to the implied rule.  Perhaps, our primal sensitivity has eroded (or never existed), and in a jaded modern world, we immediately want to drill down to the detached, secular answer.  It is on this front that I will need to adjust most.  I will be forced to value the path to wisdom and not only the results, or risk being miserable for three years.  It is a mindset I happily espoused as an undergraduate, and hopefully, I can ease myself back into that disposition.

I was always fascinated by law school.  As funny as it sounds, attending law school has always been more of a dream than learning or practicing law.  Now that I am here, it is great to hear spirited discussions about legal controversies and public policy.  It is just funny to realize how only a couple of years as a working stiff can change one’s view on things.