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Monday, February 27, 2012

Copyright Arbitrage in Action

Meet Aereo, a new way to watch TV on the Internet. Aereo plans to capture over-the-air TV signals and stream them to customers in the New York area. Aereo's low, low $12-a-month prices are made possible by the fact that it doesn't pay licensing fees: Aereo insists that everything it's doing is legal under copyright law because Aereo gives each user her own individual TV tuner. That's right, Areeo is filling a Brooklyn office with thousands of TV antennas.

In any sane world, Aereo would not exist. There is no practical reason to use thousands of tiny antennas rather than a few good ones; reencoding the same signals again and again is pure waste. And sending these signals from Aereo's premises to customers' homes over the Internet is intensely silly, given that these customers already have the option of video service from their cable companies.

But our world is demonstrably insane; witness the Copyright Act. One-to-many retransmission are governed by the complex "retransmission consent" rules at the intersection of copyright and communications law. But one-to-one transmissions of the sort Aereo is making are arguably not "public performances" under the Second Circuit's 2008 Cartoon Network decision. More antennas, less risk. Aereo is engaged in copyright arbitrage: it's trying to stitch together a chain of explicitly legal acts until it reaches a result that would be infringing if done directly.

It's hardly alone. ivi tried (and failed) to pull an Aereo by calling itself a "cable system" under Section 111 of the Copyright Act. ReDigi is trying to cobble together Cartoon Network and a few other precedents to make something that looks like digital first sale. Zediva tried to run this one in reverse: it filled a data center with DVD players in an attempt to bootstrap first sale rights (in the DVDs) into streaming video-on-demand. I could go on.

None of these businesses ought to exist. In a world where copyright and communications law worked cleanly, copyright owners would be licensing their works over efficient transmission paths directly to users. These technical workarounds would be unnecessary. Of course, this point can be taken in one of two ways, depending on whether you think these entrepreneurs are a second-best response to a legal system that makes arbitrary distinctions or taking unfair advantage of a legal system that makes arbitrary distinctions. But either way, their proliferation is an indication of just how badly the wheels are coming off the bus of copyright law's conceptual framework.

Posted by James Grimmelmann on February 27, 2012 at 04:15 PM in Intellectual Property | Permalink


I don't see why the incumbents got the extra spectrum for digital TV in the NYC area to begin with (actually anywhere but that's a different argument). The percentage of people who can actually receive a clean signal is the area is vanishingly small. The government would have been better off auctioning those rights off to the telecom companies and subsidizing 'broadcast TV' over coax/optical.

Posted by: Brad | Feb 27, 2012 4:51:05 PM

I don't think this is new. The 20th Century jukebox industry arose to take advantage of a statutory loophole; cable television retransmission became common when the courts' read the "public performance" right narrowly; early satellite television systems claimed unsuccessfully to be entitled to the cable compulsory license (broadcasters and cable systems, formerly copyright foes, united to stop them); the record industry's initial years were spent in the shelter of a copyright exemption articulated by courts. We have a long-standing structural problem because we encourage copyright-affected industries to take the lead in writing new copyright legislation, and they got in the habit more than a century ago of including anticompetitive goodies in the law to protect entrenched businesses from upstarts. That ends up handing an inefficient advantage in the market to upstart businesses who (usually through serendipity) can structure their transactions to fit, at least arguably, within an extant copyright exemption.

Posted by: Jessica Litman | Feb 28, 2012 10:36:57 AM

Jessica's point is exactly right about the history of technology and copyright lawmaking. The one thing I'd add is that the the courts have adopted a highly external, rather than internal perspective on the 106 rights: focusing on specific acts by alleged infringers rather than on the net results for audiences. MAI v. Peak is a prominent example for the reproduction right, but the courts have done very similar things with most of the others. Cartoon Network is squarely within that tradition, and it opened up a pair of very attractive noninfinging acts from which larger services could be cobbled together: non-volitional reproductions and one-to-one transmissions.

Posted by: James Grimmelmann | Feb 28, 2012 4:02:09 PM

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