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But what about the “cloud”? The Aereo argument in Plain English

Before Tuesday’s oral arguments in American Broadcasting Companies v. Aereo, Justice Kennedy announced the Court’s much-anticipated decision in Schuette v. Coalition to Defend Affirmative Action, upholding Michigan’s state constitutional ban on the use of affirmative action by state universities.  Given the palpably tense atmosphere that accompanied Justice Sonia Sotomayor’s dissent from the bench in Schuette, you had the sense that the Justices were relieved to move on to easier – or at least less controversial – topics, like the David-and-Goliath battle that pits Aereo, the start-up that pulls TV programming off the airwaves on thousands of tiny antennas and streams it over the Internet to subscribers for a small fee, against the broadcast television industry, which argues that Aereo’s business model is a blatant violation of federal copyright laws that could sound the death knell for television as we know it.  (My preview of the oral argument is available here.)

The Court seemed to have little love for underdog Aereo.  But that didn’t make the case a slam dunk for the broadcasters, because of the Justices’ concern that a ruling against Aereo might have on an industry that didn’t have a lawyer arguing yesterday:  “the cloud” used to store files remotely on the Internet.  Let’s talk about the argument in Plain English.

First up was former Solicitor General Paul Clement (yes, him again), arguing on behalf of ABC and the other networks.  He tried to portray Aereo as the scofflaw in the room, reminding the Court that “Aereo’s business model is to enable thousands of paying customers to watch live TV online.”  But he didn’t get far before Justice Sotomayor (quickly joined by Justice Breyer) asked whether a simple way to resolve the case might be to say that Aereo is a “cable company.”  That would mean it would have the right to provide programming, but would have to pay a “compulsory license” fee, thereby – or at least those Justices seemed to hope – eliminating the need for the Court to issue a ruling that might affect the very different services involving “the cloud.”

But Clement wouldn’t bite, telling Breyer that, even if Aereo were a cable company, “it doesn’t make all these problems go away.”  So that brought the argument back to the issue that the Justices would focus on for much of the hour:  how can the Court interpret the copyright laws in a way that avoids striking down lots of other businesses, from cloud computing services such as Dropbox to the companies which provide the equipment used to stream content over the Internet?  Clement sought to reassure the Court that there is “a fundamental difference between a service that . . . provides new content to all sorts of end-users, essentially any paying stranger” (Aereo, at least in his view) and “a service that provides a locker, a storage device” (“the cloud”).  But in any event, he argued, the Court doesn’t need to decide questions relating to “the cloud” in this case, because “it can just be confident that they are different.”

But the Justices remained unsatisfied despite Clement’s assurances, as captured by Justice Samuel Alito’s comment that “I need to know how far the rationale that you want us to accept will go, and I need to understand . . . what effect it will have on these other technologies.”  So the Justices also pressed Deputy Solicitor General Malcolm Stewart, who argued on behalf of the United States, to articulate a rule that would spare cloud computing from liability.  Like Clement, Stewart tried to distinguish “between a company [again, like Aereo] . . . that provides content in the first instance” and a “cloud locker” that simply “provides consumers with access to content that they already have.”  But Stewart’s concession – made in response to a question from Justice Elena Kagan about a hypothetical company that aggregates and allows sharing of content uploaded to “the cloud” by individual users – that there may not be “a bright line between providing a service and providing access to equipment” probably did not provide the Justices with the kind of comfort they were seeking.

Representing the upstart Aereo, David Frederick tried to capitalize on the Court’s qualms about the effect of its ruling on “the cloud” right off the bat.  He told the Justices that the rule for which the government and the broadcasters were arguing would “absolutely threaten cloud computing”; in fact, he later added, the cloud computing industry was “freaked out about this case” because it had invested “tens of billions of dollars” in reliance on the legal principles Aereo was defending.  In particular, Frederick pushed back against the government’s assertion that a ruling against Aereo would not affect “the cloud” because – unlike Aereo’s content — the songs and videos that are stored in the cloud were legally acquired.  He told the Justices that cloud providers “can’t tell what is legal or what is not legal.” “Some stuff,” he observed, “could be up there pirated,” but other content “could be up there perfectly licensed.”  And if the Court were to interpret the copyright laws too broadly, he warned, the industry would face “potentially ruinous liability.”

Even if the Justices were worried about the possible impact of a ruling against Aereo, they were still clearly dubious about the legality of Aereo’s business model.  Frederick tried to address these concerns, reiterating that Aereo is merely an “equipment provider” whose subscribers are no different from people who record over-the-air TV programs using their own antennae and a DVR; “nothing happens” until Aereo’s subscribers tell the equipment to start watching or recording a particular channel.  But Frederick faced repeated questions about whether there was any technological reason (as opposed to, say, just trying to get around the copyright laws) for Aereo to use thousands of small antennas instead of a single large one.  Breyer seemed to speak for his colleagues when he told Frederick that “it looks like you are escaping constraints that everyone else has to comply with.”

During his brief rebuttal, Clement rejected the idea that Aereo is just a “hapless bystander” whose subscribers are responsible for directing the antennas, pointing the Court to details in the written record of the case regarding “all of the things that Aereo does after the consumer presses the button and before [the TV program] comes back to them on their home screen.”  And in response to a question by Justice Sotomayor (who accidentally referred to him as another former Solicitor General, Seth Waxman, who argued on Monday), Clement was coolly dismissive of the prospect that a ruling against Aereo would spell the end of the company, telling the Justices that, “if all they have is a gimmick, then they probably will go out of business and nobody should cry a tear over that.”

It’s true that the Justices will probably not spend a lot of time worrying about the effect of their decision on Aereo, but – as yesterday’s oral argument showed – they are clearly concerned about the effect on “the cloud.”  Given their skepticism about whether Aereo’s business model is even legal, my best bet is that the Court will spend the next two months or so drafting an opinion that rules for the networks, but does so in a narrow way that makes clear it does not endanger “the cloud.”  We’ll know by the end of June, and when we do I will be back to cover it in Plain English.

Recommended Citation: Amy Howe, But what about the “cloud”? The Aereo argument in Plain English, SCOTUSblog (Apr. 24, 2014, 2:59 PM),