Archive | April 2014

American Broadcasting Companies v. Aero, Inc.

Yesterday, the Supreme Court heard oral arguments for American Broadcasting Co. v Aero, Inc., a case that requires the court to address protecting the property rights of owners and the policy of encouraging invention and innovation for the public good. An outcome in favor of Aero, Inc. would definitely open the door for tech startups to create and push the limits of how live television reaches the public. During oral arguments, the Court was concerned over the effect that their decision would have on Cloud services and other technology services that have been protected by the legislature. They also challenged Aero’s contention that the transmit clause is geographical and whether it matters if the public is acting in their capacity as a group of individuals acting privately  or a group acting as the public.

 

BACKGROUND

On January 10th, 2014 the Supreme Court granted certiorari to review the decision by the United States Court of Appeals for the Second Circuit which held that AERO, Inc.’s (Aero) broadcast television technology did not infringe on copyright owner’s right because Aero’s transmission was not a public performance under the “transmit clause” of the Copyright Act, 17 U.S.C. §§ 101 and 106. This case began on March 1, 2012, when plaintiffs, a group of corporate entities engaged in the production, marketing, distribution, and transmission of broadcast television programs, filed complaints against Aero.  The complaint alleged that Aero’s service unlawfully captures broadcast television signals in the New York City area and provides them to Aero subscribers over the Internet, including at least some corresponding to television programs on which plaintiffs hold the copyright.  The plaintiffs’ complaint’s main theory of liability is infringement of the right of public performance. On March 13, 2012, plaintiffs moved for a preliminary injunction, asserting that Aero was directly liable for copyright infringement by publicly performing the copyrighted works. That motion specifically challenged aspects of Aero’s service that allow subscribers to view plaintiffs’ copyrighted television programs at the same time as over-the-air broadcast of the programs. Relying on its previous decision in Cartoon Network LP, LLLP v. CSC Holdings, Inc.(“Cablevision”), the United States Court of Appeals for the Second Circuit concluded that Aero’s conduct did not violate copyright law. Plaintiffs promptly appealed and were granted certiorari by the Supreme Court of the United States.

 

COPYRIGHT ACT

Copyright Act §106 states that a Copyright owner has the exclusive right to perform the copyrighted work publicly. “To perform a work is to recite, render, play, dance, or act it, either directly or by means of any device or process or, in the case of a motion picture or other audiovisual work, to show its images in any sequence or make sounds accompanying it audible.” The provision referred to as the “Transmit Clause” states, “to perform or display a work publicly means…to transmit or otherwise communicate a performance or display of the work to a [public place] or the public, by means of any device or process, whether the members of the public are capable of receiving the performance or display in the same place or in separate places and at the same time or at different times.” Transmit is defined as to “communicate [something] by any device or process whereby images or sounds are received beyond the place from which they are sent.” “Device or process” is defined broadly to include “one now known or later developed.”

 

DISCUSSION

At issue in this case is the applicability of the transmit clause and the Second Circuit’s decision in Cablevision which held that Cablevision’s technology, a Remote Storage Digital Video Recorder (“RS–DVR”) system, did not infringe the plaintiffs’ public performance right under the Copyright Act. Although mostly undisputed, the characterization of the facts by each party differed regarding the similarities of Aero’s technology system to Cablevision’s RS-DVR system.

One of Aero’s practical arguments is that it would be perfectly legal for someone to install their own antenna and run a wire to their own TV set. Thus, Aero argues, it simply allows people to rent this antenna from them directly rather than purchasing it. Aero also argues that granting the injunction would go against the policy of encouraging innovation. Technology startup companies like Aero, or its direct competitor FilmOn.com, would be deterred from improving the TV viewer’s experience.

Petitioners strongly contend that the Cablevision decision was erroneous because the language of the Copyright Act is clear on its face stating that a copyright owner has the exclusive right to perform their work via “any device or process,” whether “now known or later developed.” Furthermore, petitioners purport that the purpose of the “transmit” clause is to prevent creations of technological advances from undermining the basic policy judgment that third parties should not be able to build a business model where performances of copyrighted works of others are distributed to the public without authorization.

Petitioners rely heavily on the legislative intent of the transmit clause which the Second Circuit discussed in their opinion. The Second Circuit acknowledges that there seemed to be congressional intervention after the legislature was dissatisfied with the supreme court’s rulings in Fortnightly Corp. v. United Artists Television, Inc. and Teleprompter Corp. v Columbia Broadcasting Systems, Inc. These two decisions had held that a cable television system that received broadcast television signals via antenna and retransmitted them to its subscribers “did not ‘perform’ the copyrighted works and therefore did not infringe copyright holders’ public performance right.”The “transmit” clause was then designed to clarify that nearly any method by which signals are picked up and conveyed is a “performance.” While some would argue that the purpose of the “transmit” clause was then to abrogate the Supreme Court cases, even if Aero’s transmission constitutes a “performance,” the next inquiry is whether the performance was “public” under the meaning of the Copyright Act.

 

A. AERO Contends that transmissions are not “public” performance.

“The basic purpose of copyright is the public interest to make sure that the wellsprings of creation do not dry up through lack of incentive, and to provide an alternative to the evils of an authorship dependent upon private or public patronage. – Former Register of Copyrights Abraham Kaminstein, 1965 Congressional Testimony.

 

According to Aero, each transmission or copy is a private performance. Aero asks the court to determine whether by supplying remote equipment that allows a consumer to tune an individual remotely located antenna to a publicly accessible over-the-air broadcast-television signal, use a remote digital video recorder to make a personal recording from that signal, and then watch that recording was a violation of the “transmit” clause of the Copyright Act. Aero argued and convinced the Second Circuit Court of Appeals that its activities are the same as the Cablevision reasoning. First, the court found that Cablevision precedent is that the “transmit” Clause requires courts to consider whether the potential audience of the individual transmission is the public or just one subscriber.The only members of the public capable of receiving the performance are the individual subscribers who directed the program to be recorded. The court also found that subscribers have individual control of the transmission.  Second, in determining whether a performance is “public,” transmissions of the “same underlying work” or original performance of the work should not be aggregated.

The district court which was overruled by the Second Circuit focused on the fact that each of Cablevision’s RS–DVR subscribers were being transmitted by the same underlying program and found that this resulted in a “public” performance. It made no difference that the subscribers may have viewed the programs at different times and in different places. To the district court, the relevant transmission was not each playback copy to each particular user but the underlying, original copy of the work that all of these performances stemmed from. The Second Circuit disagreed with this type aggregation of the underlying work because no matter how many devices Aero rented to the public, the potential audience of each individual transmission of the underlying work is one person.

Still, Aero had a strong counterargument against the aggregation principle and simultaneously to plaintiffs’ reliance on legislative intent. The Second Circuit court had cited a 1976 House Report which stated that “… a local broadcaster is performing when it transmits the network broadcast; a cable television system is performing when it retransmits the broadcast to its subscribers…” Therefore, there was legislative intent that retransmission is a distinct performance from the underlying performance of the copyright owner. However, reliance on this House Report may implicate Aero and force it to concede their argument of the “performance” definition.

Lastly, “any factor that limits the potential audience of a transmission is relevant” to the “transmit” clause analysis. Essentially, the Second Circuit agreedwith Aero that it’s system was the same as putting up a rooftop antenna directly connected to a TV, where each of these copies could be played back to only the subscriber that requested the specific copy be made. Thus, the playback performances were private, not public.

If the Supreme Court has the same interpretation that the Second Circuit had, then Aero has a strong argument for claiming that their technology is like Cablevision’s RS-DVR recorder, rendering it a private performance. However, the problem with Aero’s comparison to the Cablevision case is that the Supreme Court is not bound by the Second Circuit’s decision. The Supreme Court could rely on it’s own interpretation of the plain language of transmit clause, disregarding the legislative history or intent of the clause.

B. American Broadcasters contend that Aero’s transmissions are public performances.

“Congress…shall have Power to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and inventors the exclusive Right to their respective Writings and Discoveries.” 1789 Constitutional mandate: Art, I, Section 8 clause 8.

 

Plaintiffs will likely claim that the Cablevision decision was completely erroneous and that the Supreme Court should analyze the “transmit” clause of the Copyright Act with deference to legislative intent. Taking language from Judge Chin’s dissent from the Second Circuit’s decision, the Plaintiffs argued in their briefs that Aero’s platform is a “sham” and a “Rube Goldberg device.” Plaintiffs will likely contend that Aero’s conduct fits squarely within the plain meaning of “transmit” clause and the clause’s purpose, which is to protect copyright owners from infringement of their performance rights as technology advances beyond the scope of what the original drafters of the Copyright Act could imagine in their time.

Further, plaintiffs argue that even if a user receives a “unique” copy, it still constitutes transmitting to the “public.” Legislative history shows “transmit” clause intent to cover “all conceivable forms and combinations of wired and wireless communications media” and to reach new technologies that are designed solely to exploit someone else’s copyrighted work. All users are paying strangers, which means that they are the public. Judge Chin’s dissent also argues that Aero’s technology is no different than the Community Antenna Television (CATV) Systems found as not infringing upon the public performance right in Teleprompter and Fortnightly but later abrogated by Congress with the passage of the “transmit” clause. CATV systems “captured live television broadcasts with antennas set on hills and retransmitted the signals to viewers unable to receive the original signals.” However, one of the differences is that the subscribers did not own the antenna system, as is the case with Aero, but rather the system was owned by one entrepreneur. Additionally, the CATV system was not found to be “performing” the work at all because the act of the transmission from the CATV device to the viewer was not considered a “performance.” Only the program sent by the broadcasters through the airwaves was the “performance.” Therefore, the protection to the copyright owner was that no other broadcaster could distribute the work but programs floating in the airwaves for free were fair game to capture and retransmit.

The Second Circuit was in line with this view because it found that when Congress spoke of transmitting a performance to the public, it referred to the performance created by the act of transmission not the underlying work. Plaintiffs brought forth a Third Circuit case, Columbia Pictures Industries v. Redd Inc., where defendant, a video store owner, would transmit a copy of a video tape movie to customers in his store using a VCR hardwired to a booth. Customers would sit in the booth and watch the rented movie. The Third Circuit found that this was a “public performance” because “the same copy of the work, namely the individual video cassette was repeatedly performed to different members of the public at different times.Thus, the question still remains as to whether Teleprompter and Fortnightly would have had a different outcome even after the transmit clause was added to the Copyright Act. The Second Circuit got around that argument by stating that in Cablevision, each customer created and received their own copy. “No other Cablevision customer could receive a transmission generated from that particular copy. Therefore the video store owner is more like a TV broadcaster retransmitting copyrighted work without a license rather than a company who figured out a way to capture signals generated by the broadcasters.

Lastly, plaintiffs argue that there will likely be a reduction in broadcast revenues through elimination of retransmission fees on which broadcasters now rely more heavily than advertising revenues. Plaintiffs seek that the Court finds that Aero’s transmissions are “very much public performances.”

CONCLUSION

As stated above, the facts are mostly undisputed but extremely open for interpretation by the Supreme Court.  That something is a “performance” answers only part of the question. The performance must also be a “public” to infringe on a copyright owner’s right. The performance was the focus of the Second Circuit’s ruling in Cablevision. The question for the Supreme Court will now be whether Aero’s transmissions were a performance and if so, whether the performances were public.

Prince Regains Ownership of Catalog in Deal with Warner Bros.

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Few people that remember the nasty split between Prince and Warner Bros. Records in the mid-1990s would have thought any reconciliation would be possible. However, a new contract announced Friday, April 18th reunites the superstar recording artist with his former record label.

 

Prince famously spoke out against the recording industry in the 1990s, calling himself a “slave” to Warner Bros., and decrying the way the music industry operated. He ultimately split from the label in 1996 and changed his name to a symbol, subsequently being referred to as “The Artist Formerly Known as Prince.”

 

Now, 18 years later, the two sides have struck a landmark deal that has major impact on the future of copyright ownership. As part of the deal, the albums “Dirty Mind,” “Controversy,” and “1999” that were released by Warner Bros. will continue to be licensed through the record label worldwide. Additionally, “Purple Rain” will be re-mastered and re-released in a deluxe version for the 30th anniversary of the original release of the classic album and movie. Other Prince material will also be re-issued as part of the deal. Since the inception of Nielsen SoundScan in 1991, Prince albums have scanned 18.5 million units in the United States, with his Warner Bros. catalog accounting for 14.3 million units sold. In addition to the re-release of old Prince material, the artist also announced that he will be releasing a new studio album, although it is not clear if the new album is part of the new deal with Warners.

 

The deal takes on special significance because of the potential copyright issues it appears to solve. The Copyright Revision Act of 1976, which became effective in 1978, provided for the ability to terminate the master recording copyright 35 years after it was initially granted. Under standard recording contracts, artists are bound by “work-for-hire” clauses, which means that the work created under these contracts are not eligible for copyright reversion. Previously, industry insiders expected artists to challenge these clauses in court, and were unsure how the issue would be decided until a judge ruled on the matter. An alternative to potentially lengthy and expensive court cases would be for artists and labels to negotiate the reversions and ownership of catalogs.

 

Prince has elected to go with the latter option. Prince’s deal sees him not only re-sign with Warner Bros., but also regain ownership of his catalog, while licensing the music to the label. Neither the financial terms of the contract, nor other specific terms were disclosed at the time of the announcement, so it remains unclear whether Prince will regain ownership of his music immediately or as the music becomes eligible for copyright termination. His first album, released in 1978, is already eligible for copyright termination under the Copyright Revision Act, with subsequent releases becoming eligible in the near future.

Pandora v. Publishing Companies

 

Pandora1

 

 

A recent court decision has finally lain to rest an uneasy battle between the American Society of Composers, Authors and Publishers (ASCAP), a not for profit performance rights organization (PRO), and Pandora, an online radio station.  Companies like ASCAP protect their members’ musical copyrights by monitoring their performances, broadcasts, radio spins, etc. They then collect the licensing fees on behalf of their members and distribute the royalties back to them.  In 2012 ASCAP collected over $941 million in licensing fees and distributed $828.7 million to their members, retaining the other 11.6% for their operating expenses.

On March 14, 2014, a U.S. Federal Judge, presiding over the Southern District of New York, rendered a decision setting Pandora’s royalty rate to ASCAP at 1.85% through 2015. The judge rejected the PRO’s argument that the royalty rate should be set at 3%. Moreover, the judge noted that the 3% rate is appropriate for interactive music services like Rhapsody or Spotify, but not services like Pandora, which are considered non-interactive music services, and traditionally pay a lower royalty rate.

The judge rejected the argument that because Pandora’s revenue was growing at a steady rate, PRO’s and companies like Sony and Universal were entitled to a higher percentage of royalties. The judge countered that the rate itself guarantees that the licensee gets larger payments as Pandora grows, as larger revenues will by definition garner larger royalties. The judge also considered Pandora’s perspective: Having a single rate throughout the term of the license allows the company to facilitate more effective business planning. As it stands, Pandora is slated to grow 54% from the $600 million it made within an 11-month period last year, with current projections at $1 billion by the end of 2014.

Lastly, the judge highlighted the disparity between the higher royalties Pandora must pay to record labels and the lower rates Pandora pays to large publishers. The judge suggested that the large publishers’ motives to acquire higher rates were driven by envy. As can be expected, publishers are not happy with the decision and feel slighted by the courts recent judgment.  The U.S music publishing industry is now looking to the Dept. of Justice with the goal of negotiating a change in the consent decree laws. For more on consent decree laws and the implication this law suit might have on this see:

http://www.nytimes.com/2014/02/14/business/media/pandora-suit-may-upend-century-old-royalty-plan.html?_r=0

The Legal Resolution of the NYC Bottomless Brunch Scare

Boozy Brunch

 

A little-known New York law caused quite the stir over the Internet last week, as New Yorkers were dismayed that bottomless brunches were considered illegal! Some of New York’s most notable venues use bottomless brunches to attract business, and the patrons have grown quite fond of it, making this shocking revelation headline news. The New York State law (N.Y. 117-A) prohibits “selling, serving, delivering or offering to patrons an unlimited number of drinks during any set period of time for a fixed price,” according to the New York State Liquor Authority’s (SLA) website. This law was created 5 years ago to address complaints of over-serving and intoxication at bars.

Recently, the New York City Hospitality Alliance posted a reminder on its website stating, “NYC restaurant and nightlife operators should familiarize themselves with the law.” This was a direct response to the flood of calls from owners who were unsure whether bottomless brunches were legal. The SLA responded by releasing a statement assuring proprietors that bottomless brunches fell under an exception to N.Y. 117-A, because they are considered “events.”

The SLA stated that although these “events” fall under the exception to the law, establishments with liquor licenses still have a legal obligation not to over serve patrons. The SLA is attempting to take a balanced approach to enforcing the law: allowing alcohol as an accompaniment to brunch, while at the same time taking a hard stance against venues promoting excessive drinking.

In short, bottomless brunch is legal, but there’s a thin line between unlimited drinks and what the SLA might consider the promotion of excessive drinking. While it is still legal to offer bottomless brunch in New York, restaurants have to put forth sensible brunch policies that don’t allow patrons to become excessively drunk.  For now, bottomless brunch is here to stay and New Yorkers can breathe a sigh of relief.