Dr. Monica Horten, a writer, policy analyst and visiting fellow at the LSE, looks at copyright liability for cloud computing services hovering on the EU horizon and asks what we can learn from the case of ABC Inc v Aereo in the United States Supreme Court. 

A judgement handed down in the US Supreme Court recently has underpinned the claim of a group of broadcast companies that royalties were due from a cloud-based service relaying copyrighted content. The ruling also raises a looming threat of new liabilities for the nascent cloud computing industry.

The case of ABC Inc et al vs Aereo Inc, concerned whether or not a cloud service transmitting broadcast television to computer users over the Internet infringes copyright law. In brief, the Supreme Court ruling means that it does, but it is in the detail of the ruling that the cloud liability is implied.

The ruling is the culmination of a two-year legal battle between a group of television broadcasters and the New York-based start-up company, Aereo. The broadcasters include the major US networks, ABC, CBS, NBC Universal, Fox and Disney. Aereo offers a service enabling people to watch broadcast tele-NEW-vision programmes on a digital device such as a smart phone, tablet or personal computer.

The case is intriguing because the copyright issues are cogently argued on both sides. This is not your typical little David versus giant Goliath copyright battle. It is David and Goliath where both have guns of equivalent fire-power, and what they are arguing about is potentially a game-changing technology. Today’s ruling overturns two earlier rulings in favour of Aereo.

The broacasters’ specific allegation is a breach of performance rights under US copyright law. Having failed to get an injunction in the New York District Courts, and failed again on appeal, the broadcasters took the case to the Supreme court for a ruling to clarify the legal position because their business model is coming under threat as a consequence of Aereo’s activities, with some cable companies demanding to re-negotiate their re-transmission fees.

Aereo denies any copyright infringement and states that its service was designed in order to comply with US copyright law. It claims that copyright royalties do not apply, on the basis that its service is functionally equivalent to a digital video recorder. It claims that it is merely an equipment provider, albeit that the equpment is remotely controlled by the user. Citing the 1984 Sony Betamax case, and the US ‘fair use doctrine’, Aereo claims that its users are entitled to make copies for private use and that it cannot be held liable for copyright infringement by its users. On that basis, Aereo argues that it does not need to pay copyright fees to the broadcasters.

The case has been hanging on a cliff-edge following a hearing in April this year, when the judges indicated that they were troubled by the decision they were being asked to make. A decision one way risked damaging the broadcast business model. The other way, it risked imperilling the new and innovative cloud computing businesses.

The case turns on a very narrow and specific point of United States copyright law, that might or might not apply in other countries. The legal question is whether or not Aereo is engaging in a public performance when it transmits programming to its users. Aereo argued that it is not, because the transmission was technically one-to-one, and each user was assigned their own mini-aerial and their own space on Aereo’s hard drives, which they, the user, controlled. Thus, Aereo argued that each transmission was a private performance, even though there could be thousands of such private performances at any one time, for example during popular sporting matches. The broadcasters countered that Aereo was transmitting very high volumes of the same programme at any one point in time, therefore it was not possible to say these were individual, private performances and logically, taken in aggregate, Aereo was engaging in a public performance.

The Court has today agreed that Aereo engages in public performance, and as such has come down in favour of the broadcasters. The ruling stated “We must decide whether respondent Aereo, Inc., infringes this exclusive right by selling its subscribers a technologically complex service that allows them to watch television programs over the Internet at about the same time as the programs are broadcast over the air. We conclude that it does.”

Out of nine judges, three dissented. In their statement, the dissenting judges said that “The Court manages to reach [its] conclusion only by disregarding widely accepted rules for service-provider liability”.

It is not clear where the matter will go now. Aereo’s technology is clearly disruptive and poses a threat to an old business model because it begins to re-draw the lines for broadcast television distribution. Moreover, the cloud computing industry fears that they will either have to monitor the content of their users, or risk an expensive liability for copyright fees, if multiple users watch or listen to the same content at the same time. It’s also not clear at this stage how this judgement could affect European-based cloud services.

As far as the European Union is concerned, cloud liability for copyright is hovering on the horizon. The precise legal formula that both enabled and caught out Aereo does not exist, since the EU copyright rules are differently structured than those in the US, but there are already lobbying moves to bring cloud services into the copyright fold. The Aereo case distills the challenges that cloud providers and rights-holders face for similar services in the EU.

 The ruling is here

This article was originally written for the RCUK Centre for Copyright and New Business Models in the Creative Economy and Internet Policy Review Journal on Internet Regulation. It is reposted here with permission of the author. It gives the views of the author and does not represent the position of the LSE Media Policy Project blog, nor of the London School of Economics.