No, if Aereo is a "Cable System," That Doesn't Mean That Netflix is, Too

Given that the Supreme Court said that Aereo has an “overwhelming likeness” to cable systems, Aereo is now quite reasonably arguing that for copyright purposes it is one–and is therefore entitled to the statutory license that cable systems get. Under this theory, if Aereo pays a relatively small fee to the Copyright Office, it does not infringe copyright by retransmitting broadcast programming. There is caselaw in the Second Circuit that says Aereo can’t do this–a case I think was wrongly decided–but that’s neither here nor there, as the point is that Aereo arguably overrules that decision.

The statutory license in question–17 U.S.C. § 111, is pretty complicated, but it boils down to this: If you’re a cable system, you don’t negotiate for copyright rights for broadcast programming. Instead, you follow FCC rules. If you follow FCC rules, you qualify for the license. If you don’t follow FCC rules, you don’t–which means that if, for example, Time Warner Cable began retransmitting broadcast signals in violation of FCC rules, not only would it be violating those rules, but also copyright, since the license wouldn’t apply. But provided it follows FCC rules, it doesn’t need to negotiate copyright permissions for the programming it carries.

FCC rules right now say that multichannel video programming distributors, a category that includes cable systems, do have to get permission to retransmit TV stations, which means they usually have to pay. But this is not a copyright license. Often, the local stations cable companies negotiate with don’t even have any rights to the programming they carry, beyond the right to air it. They couldn’t grant copyright permission even if they wanted to, but because of the statutory license system, it’s not necessary.

This is all a very complicated system that I’m not a big fan of, but let’s leave that aside for today. Let’s get back to Aereo. Aereo is claiming it’s a cable system for copyright purposes, which means that provided it is following FCC rules, it doesn’t violate copyright law. “But wait a minute,” you might be asking, “aren’t they not following FCC rules, if they’re not getting permission from the stations themselves?” Well, maybe, maybe not.

The FCC’s retransmission rules only apply to cable systems, satellite TV companies and so on–the aforementioned “multichannel video programming distributor” (MVPDs). The statute that first codified the obligation of MVPDs to get consent is clear: “No cable system or other multichannel video programming distributor shall retransmit the signal of a broadcasting station, or any part thereof, except … with the express authority of the originating station [or some other random reasons that are not relevant here].” So if I were to retransmit a TV station without consent I might be violating any number of laws including copyright–but not this particular law. I am not an MVPD.

But here’s the catch–“cable” and “MVPD” are defined in the Communications Act, and it’s the FCC that decides what they mean in a communications context. Even if Aereo is considered to be a cable system for copyright purpose, it might not be one for FCC purposes. What might be a “cable system” for copyright law purposes might not be one for communications law purposes. This is not unusual. Words often mean different things from one law to another–especially when different laws actually provide different definitions! The Copyright Act defines “cable” like this:

A “cable system” is a facility, located in any State, Territory, Trust Territory, or Possession, that in whole or in part receives signals transmitted or programs broadcast by one or more television broadcast stations licensed by the Federal Communications Commission, and makes secondary transmissions of such signals or programs by wires, cables, microwave, or other communications channels to subscribing members of the public who pay for such service.

But the Communications Act says a cable system is

a facility, consisting of a set of closed transmission paths and associated signal generation, reception, and control equipment that is designed to provide cable service which includes video programming and which is provided to multiple subscribers within a community[.]

These definitions are different enough that it is possible for Aereo to be a cable system under one law and not another. To the extent that the Communications Act language is ambiguous, it’s up the the FCC (and not courts) to adopt a reasonable interpretation.

But even that is not the most relevant question. We need to know whether Aereo is an MVPD, because if it’s an MVDP and not a cable system, it still needs to get permission to retransmit a TV station. Well, MVPD

means a person such as, but not limited to, a cable operator, a multichannel multipoint distribution service, a direct broadcast satellite service, or a television receive-only satellite program distributor, who makes available for purchase, by subscribers or customers, multiple channels of video programming[.]

This means that the relevant question should be whether Aereo makes “channels” of programming available. I should stop hiding the ball–I think there’s a very good argument that it does, and I’ve argued (more) that systems such as Aereo (and Sky Angel) should be considered MVPDs by the FCC. (However, they are probably not “cable” for FCC purposes.) But online services are currently not considered MVPDs by the FCC, which means that if Aereo is a cable system for copyright purposes, it’s not violating any FCC rules by retransmitting broadcast signals, which means the statutory license applies. Under this construction, if Aereo pays the small fee associated with the statutory license, its service is legal.

Now, let’s assume that Aereo is considered both the be a cable system for copyright purposes, and also an MVPD (and maybe also a cable operator) for Communications Act purposes. Contrary to a common assumption, I think there would be no implications for most online video operators.

First, cable for copyright purposes. An on-demand system like Netflix does not receive signals from broadcast stations. Thus, it can’t be a cable system for copyright purposes–but Aereo can, since it does.

Second, cable for communications purposes. I don’t think that “a facility, consisting of a set of closed transmission paths and associated signal generation, reception, and control equipment” accurately describes online video services–they don’t have “closed transmission paths,” but share transmission paths with other Internet services. (Which does not mean they are somehow less “secure.”) Furthermore, most online providers offer their service nationwide, not to a “community.” (As Gus Hurwitz notes, Aereo does limit its retransmissions to their original local markets.) Finally, given the structure of the Communications Act, there’s good reason to think that if a service does’t fit the definition of MVPD, it cannot be a cable service. “Cable” is pretty clearly set out as a subcategory of MVPD. Thus, I think it’s unlikely that Netflix could be a cable system for communications act purposes, and still unlikely (though less so) that Aereo-like services could be cable systems for communications act purposes.

Third, multichannel video programming distributor. Here, while I’ve disagreed with the FCC on what a “channel” means, the Communications Act makes at least thing clear: On-demand programming is distinct from “channels.” The Act draws a distinction between “interactive on-demand programming” and “video programming prescheduled by the programming provider.” As PK argued at great length, the word “channel” in the Communications Act means what viewers think it means–a linear stream of prescheduled video programming–in other words, a “TV channel,” whether it’s broadcast (WNBC) or cable (ESPN). The term as used in the definition does not include on-demand services (and, contrary the FCC’s Media Bureau, it shouldn’t only mean “transmission path”). Normal cable systems offer multiple channels of programming, and so does Aereo. Most online video services do not. Thus, classifying Aereo as an MVPD would affect Aereo and Aereo-like services but none of the most popular online services like Netflix, Hulu, and iTunes. In other words, services like Netflix and Hulu and Amazon Instant Video cannot be considered multichannel video programming distributors because they do not offer any “channels” or programming.

I find the legal implications of Aereo #1 (the public performance theory) and Aereo #2 (the cable theory) fascinating: they’re a Lemarchand’s box that open a door to obscure dimensions of copyright law that most practitioners and judges will never see in a lifetime. But the public policy should be clear: We should promote competition and new entry into the video market from new kinds of services. Interpreting the law in ways that would allow this (which also happens to be what Congress intended) will not have dire consequences for existing online video providers or subject them to new forms of regulation. Instead, acknowledging that Aereo ought to be able to follow the same rules as incumbent cable systems will benefit consumers and undo some of the uncertainty the Supreme Court created.