Aereo and Future Innovation

Stuart N. Brotman

Much of the post-mortem analysis on this Wednesday’s Aereo decision by the US Supreme Court is focusing on winners and losers in that particular case. The Court’s 6-3 opinion found that the Aereo system of broadcast television signals retransmitted online via a system of micro-antennas was a violation of copyright law. Aereo used these signals without paying any copyright fees, claiming that it did not trigger the “public performance” requirement for copyright liability because it transmits to individual paid subscribers one-by-one rather than en masse.

Winners and Losers

The conventional wisdom is that broadcasters are the big winners and Aereo is the big loser. Aereo now faces a critical challenge in executing its business model, since the Court’s finding of copyright liability means that it must now pay hefty licensing fees to content owners. There is speculation that Aereo even may shut down its service entirely because a new business model will not be sustainable.

The majority opinion, written by Justice Breyer, made clear that for now, the impact that the ruling has on other technologies that allow for content storage and delayed transmission—such as off-premises DVRs and cloud-based services—will await potential future cases based on other sets of technology facts at play.

The larger outstanding issue thus is what message the Aereo decision provides for technological innovation writ large. There was considerable anxiety that a decision against Aereo could freeze innovation and deprive consumers of exciting new products. Nothing in the narrowly-tailored opinion, however, suggests that any other service faces a litigation threat from copyright owners.

Implications for Innovation

The Aereo system architecture uniquely was a product of reverse-engineering to capitalize on what was perceived to be a legal loophole regarding the definition of a “public performance”. As Chief Justice Roberts noted in the oral argument, there was “no technological reason for [Aereo] to have 10,000 dime-sized antennas, other than to get around the copyright laws.” Consequently, in the aftermath of the decision, there now is some useful legal guidance that has been provided both to inventors and investors.

Future innovation should devote more time and money to developing business models that have a rational economic basis, and less attention on developing technical architectures that are designed to cut out compensation for content providers entirely. The Court essentially has blown the whistle on a business built on reselling no-cost goods for a premium, and pocketing all the money from those who signed up. If that dissuades others from going down a similar road, it is likely to promote rather than hinder innovation.

It’s best to have an innovation ecosystem that includes both technology and content companies. The Aereo case sends a strong signal that these two essential stakeholders should work together. A decision affirming Aereo’s business model would have given the green light to counting legal gaming as innovation and would have had disastrous consequences for innovators, consumers, and content creators.