June 13, 2012
As new technologies continue to emerge and threaten to upend long-standing business norms in the cable and satellite industry, both content providers and distributors have turned to the courts in a range of contractual and intellectual property disputes. Various disputes have arisen concerning the ability to stream television programming via the Internet for viewing on non-traditional platforms such as Apple's iPad and other mobile devices, commercial-skipping DVRs, and the use of remote, Internet-enabled DVR technology on personal computers, smartphones, and other transportable media. These new innovations have generated considerable debate and uncertainty as content providers and distributors have struggled to analyze them against the backdrop of pre-existing licensing contracts and the copyright laws.
Last year, Viacom separately sued Time Warner Cable and Cablevision, claiming that these distributors did not have rights to stream Viacom's programming to mobile devices.1 Both of these distributors had launched "apps" that allowed the streaming of television content—including from Viacom-owned channels Comedy Central, Nickelodeon and MTV—directly to iPads and other mobile devices. Viacom alleged that these apps were not authorized under the terms of the parties' licensing agreements, and asserted that it was entitled to an additional license fee.
Viacom claimed that it was harmed by the distributors' innovation because, among other things, Nielsen does not track viewership on mobile devices, and Viacom relies on Nielsen ratings to sell advertising time. Both complaints also included claims for copyright infringement. According to the cable companies, however, iPads are simply additional screens in a household that should be available to the consumer at no extra charge under the terms of existing license agreements.
Viacom settled with Cablevision in August 2011, and due to the confidential nature of the settlement agreement, it is not publicly known whether Cablevision agreed to pay Viacom for streaming rights. While Viacom's lawsuit against Time Warner was temporarily put on hold in the form of a "standstill agreement" in June 2011, that agreement has since been terminated, and the legal issues remain unresolved.
It is unlikely that we have seen the last of litigation among content providers and distributors regarding mobile streaming apps. As distributors continue to promote the concept of "TV Everywhere"—an initiative that allows an "authenticated" subscriber to access via the Internet and mobile devices the same television programming that previously was only accessible through traditional media—as a means of competing with online video services such as Hulu and Netflix, lawsuits similar to Viacom's may well become more common.
The Auto Hop Litigation
Dueling lawsuits were filed in May 2012 in connection with Dish Network's newly announced DVR feature—the "Auto Hop"—which allows Dish customers to skip over commercials while watching most prime-time network programming. Dish filed suit on May 24 in the Southern District of New York, seeking a declaratory judgment that its Auto Hop technology does not infringe upon the copyrights of the broadcast networks, naming ABC, CBS, NBC, and Fox as defendants. Dish Network v. American Broadcasting, 12 CV 4155 (SDNY) filed May 24, 2012.
On the same day, CBS, NBC, and Fox separately sued Dish Network for copyright infringement, among other claims, in the Central District of California. Fox Broadcasting v. Dish Network, CV 12-04520 (CD Cal) filed May 24, 2012; NBC Studios v. Dish Network, CV12-04536 (CD Cal) filed May 24, 2012; CBS Broadcasting v. Dish Network, CV12-4551 (CD Cal) filed May 24, 2012.
While Dish markets Auto Hop as a boon to consumers, broadcasters see it as a considerable threat to their well-established business model, which relies heavily on advertising. Indeed, according to the broadcasters, Dish's technology may ultimately harm the consumer, as advertising revenue streams allow television content providers to finance their original, popular programming. As CBS Chairman Leslie Moonves recently asked, "How does [Dish Network Chairman] Charlie Ergen expect me to produce 'CSI' without commercials?"
The Aereo Litigation
In March 2012, two groups of New York broadcasters separately sued the start-up Aereo Inc. in the Southern District of New York: One suit was brought by affiliates of ABC, NBC and CBS, among others, and the other was brought by local affiliates of Fox, PBS and Univision, among others.2
Both lawsuits allege that Aereo, which is backed by the media executive Barry Diller, is violating federal copyright law by using tiny antennas to receive broadcast signals and then transmitting the content to its users via the Internet for a $12 monthly fee.3 Specifically, plaintiffs argue that Aereo's service infringes upon their exclusive right to public performance and violates the Transmit Clause of the Copyright Act, which gives copyright holders the exclusive right to "transmit or otherwise communicate a performance or display of the work…to the public by means of any device or process…."4
Aereo's service, which launched exclusively in New York on March 14, 2012, uses dime-sized antennas connected to a digital video recorder to capture live over-the-air (OTA) content of about 20 major television networks, digitally converts those broadcasts, stores them remotely, and then streams the content to its users' Internet-enabled devices (including personal computers, mobile smartphones, and the iPad). Through Aereo's "Watch Now" offering, consumers can access OTA programming at approximately the same time that it is airing live, or they can later initiate playback through the system's "Record" mode.
According to the plaintiffs, "Aereo is an unauthorized Internet delivery service that is receiving, converting and retransmitting broadcast signals to its subscribers for a fee."5 In moving to enjoin the Aereo service, the broadcasters have argued that Congress has consistently protected against the unauthorized retransmission of OTA programming by "free-riders," and that Aereo's service threatens to irreparably harm the broadcast networks through a potential loss of retransmission and advertising revenue. The broadcasters have sought a preliminary and permanent injunction that would force Aereo to cease all Internet retransmission of plaintiffs' programming.
Aereo filed an answer and counterclaim seeking a declaratory judgment that it does not infringe the copyrights claimed by the broadcasters, and has opposed the broadcasters' motion for a preliminary injunction. Aereo also successfully sought to dismiss the public broadcaster plaintiffs' unfair competition claim under New York state law as preempted by the Copyright Act, but the copyright claims and plaintiffs' motion for a preliminary injunction to enjoin the Aereo service remain pending. Southern District Judge Alison Nathan recently held a hearing on plaintiffs' request for a preliminary injunction, and ordered both sides to submit post-hearing briefs prior to rendering her decision (NYLJ, May 31, 2012).
Aereo submits that the broadcasters' claims should fail because the case "involves nothing more than the application of settled law to updated technology," and that Aereo's service allows consumers "to do no more than what they are entitled to do: access local television broadcasts on the public airwaves using an individual antenna; create unique copies of that broadcast content for their own personal use; and play back their unique recordings to their televisions or other viewing devices for their personal use."6 In short, Aereo contends that it merely supplies the machinery to allow consumers to legally and privately access OTA broadcasting.
Aereo is seeking to replicate the success of Cablevision in a landmark copyright litigation brought by various broadcasters concerning Cablevision's Remote Storage Digital Video Recorder (RS-DVR) technology.7 Indeed, in many key respects, the Aereo litigation will be looked at through the lens of the Second Circuit's 2008 decision in the Cablevision RS-DVR case, which was brought by many of the same broadcasters currently challenging the Aereo service, and defended at the trial level by the same counsel at Goodwin Procter now representing Aereo.
In 2006, Cablevision announced plans for an RS-DVR that would enable Cablevision subscribers to record television content remotely (i.e., without using a home-based DVR) for an additional monthly fee. Various broadcasters and movie studios brought suit to enjoin Cablevision from using the RS-DVR technology without acquiring licences from them as copyright holders. Specifically, the content providers argued that the RS-DVR technology infringed upon two of the exclusive rights afforded to copyright owners under the Copyright Act: the right to reproduce a work and perform a work publically.8 The Southern District held that Cablevision had indeed violated the copyright owners' exclusive rights and required Cablevision to negotiate compulsory licenses for the release of the new RS-DVR system.9
The Second Circuit reversed, holding that Cablevision was not directly infringing the copyright holders' exclusive rights of duplication or public performance. The Second Circuit reasoned that Cablevision's storing of the transmitted content on its servers was not unauthorized "reproduction," and its playback of this content to individual subscribers was not a "public performance."
Aereo relies on this determination in its current dispute with broadcasters, citing the Cablevision decision throughout its responsive papers. Aereo maintains that the same principles of copyright law that, according to the Second Circuit, allowed Cablevision to use its RS-DVR to deliver broadcast content via network-based servers should likewise allow Aereo to deliver broadcast content via the Internet.
It is debatable, though, whether the two technologies are indeed exactly analogous. Cablevision's RS-DVR technology plays back a "unique copy" of specific programming to a single Cablevision subscriber at the subscriber's request (a fact the Second Circuit deemed critical to its analysis), while Aereo's data centers transmit, digitally encode and stream programming content over the Internet without, at that stage, any specific activity on the part of the consumer. Moreover, the real-time nature of Aereo's service may be analyzed differently than a DVR's time-shifting capabilities, and a court could thus potentially distinguish Aereo's "Watch Now" service as a "public performance," without disturbing the Second Circuit's finding to the contrary with regard to Cablevision's RS-DVR.
Licensing and compensation are additional elements that could serve as distinguishing characteristics. Pursuant to licensing agreements, Cablevision had already compensated the content providers for the right to transmit their programming to the same subscribers who could then access it via an RS-DVR. Aereo, by contrast, has neither entered into a license with nor compensated the content providers for transmitting their content for profit.
Ramifications for the Industry
Aereo's business model arguably places it in direct competition with the plaintiffs, especially due to local broadcasters' reliance on retransmission-consent fees (fees paid by cable and satellite distributors for the right to "re-transmit" the broadcasters' content to their cable and satellite subscribers). Aereo's service, according to the broadcasters, could potentially alter that status quo and disrupt the industry's settled business norms.
Although cable and satellite distributors are not parties in the Aereo lawsuit, they are undoubtedly monitoring developments carefully, as its outcome could potentially impact the way they do business. If Aereo prevails, its service may encourage the growing trend of "cord cutting" (i.e., customers who discontinue cable or satellite subscriptions in favor of less traditional access to television programming such as Hulu and Netflix). Indeed, Aereo's service would enable anyone with a device connected to the Internet to watch local TV stations without the need for an underlying cable or satellite subscription. If Aereo succeeds, however, distributors could attempt to use their own versions of Aereo's technology to deliver local channels to their customers, which could have implications for negotiations with local broadcasters with respect to retransmission-consent fees.
These developments are particularly noteworthy when viewed against the backdrop of recent, acrimonious retransmission-consent negotiations between the largest broadcasters and their distributors. For example, in December 2011, Cordillera Communications, a broadcaster in Corpus Christi, Texas, sought a 300 percent increase in retransmission consent fees from Time Warner Cable and pulled its feeds for NBC affiliate KRIS-TV and three other stations from the cable company, affecting approximately 80,000 Time Warner Cable subscribers. The broadcaster attempted to use NBC's coverage of the Super Bowl in February 2012 as leverage in the negotiations; in response, Time Warner handed out more than 21,000 TV antennas to subscribers who lost local stations because of the dispute.
Asked during a recent earnings call about the practice of integrating antennas with cable equipment in response to such disputes, Time Warner's CEO responded that "there is nothing stopping consumers from having an antenna, but whether we provide that and if it's a part of [our] cable system is a legal matter, it's a very complicated thing. It is something we look at and we deal with…."10
Whether or not the outcome of the broadcasters' dispute with Aereo provides Time Warner and other distributors with a clearer answer to this legal question, there is little doubt that the cable and satellite industry will continue to grapple with complex contractual and intellectual property issues as similar products and services continue to proliferate.
David L. Yohai is a partner and co-head of the complex commercial litigation group at Weil, Gotshal & Manges. David Yolkut is an associate at the firm. Emily E. O'Hern, an associate at the firm, assisted in preparing this article.
1. Viacom Int'l v. Cablevision Systems, 11-04265 (S.D.N.Y.); Viacom Int'l v. Time Warner Cable, 11-02387 (S.D.N.Y.).
2. The cases are: ABC v. Aereo, No. 12-01540 (S.D.N.Y.) and WNET v. Aereo, No. 12-01543 (S.D.N.Y.).
3. Complaint at ¶¶1, 2, WNET v. Aereo, No. 12-01543 (S.D.N.Y.).
4. Copyright Act, 17 U.S.C. §§101, 106(4).
5. Complaint at ¶3, WNET v. Aereo, No. 12-01543 (S.D.N.Y.).
6. Answer and Counterclaim at pp. 1, 7, ABC v. Aereo, No. 12-01540 (S.D.N.Y.).
7. Cartoon Network v. CSC Holdings, 536 F. 3d 121 (2d Cir. 2008).
8. Copyright Act of 1976, 17 U.S.C. §106(1),(4) (2006).
9. Twentieth Century Fox Film v. Cablevision Sys., 478 F.Supp.2d 607 (S.D.N.Y. 2007), rev'd sub nom., Cartoon Network v. CSC Holdings, 536 F.3d 121 (2d Cir. 2008), cert. denied, Cable News Network v. CSC Holdings, 129 S. Ct. 2890 (2009).
10. TWC Q4 2011 Earnings Call Transcript, http://www.morningstar.com/earnings/PrintTranscript.aspx?id=34637817.
Reprinted with permission from the June 13, 2012 edition of the New York Law Journal © 2012 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, firstname.lastname@example.org or visit www.almreprints.com.