Tag Archives: SaaS

Copyright and Web-DVR Broadcasting: The Latest Aereo and FilmOn X Decisions

Two recent decisions have added more discord among federal courts as to the question of whether technology that allows users to record copies of over-the-air broadcasts on remote servers for later web viewing violates broadcasters’ exclusive public performance rights under the Copyright Act.  On October 8, 2013 the US District Court for the District of Massachusetts aligned itself with the Second Circuit, holding that such services do not violate broadcasters’ performance rights in Hearst Stations v. Aereo (Aereo).  Reaching the exact opposite conclusion back on September 5, 2013, was the US District Court for the District of Columbia in Fox Television v. FilmOn X (FilmOn X).

The split among District Courts on this issue will likely lead to further appeals and decisions by the respective Court of Appeals.  Ultimately, the issue could be heard by the Supreme Court in the coming years, depending on whether the Courts of Appeals continue to be similarly split.

Before going to the current state of the law, this post will describe the technology that is at the heart of these copyright disputes by using Aereo as the example platform.

What is Aereo?

According to Aereo’s website, “Aereo is a technology platform that you can use to watch live broadcast television at home or on the go.” A potential Aereo user purchases a subscription from Aereo, which, in exchange, provides the user with a remote, cloud-based DVR to set and watch recordings.  The benefit to users is that the service only requires a compatible internet-enabled device, without the need to purchase antennas, boxes, or cables.  The concept is extremely simple:

Aereo

Once a potential user becomes an Aereo member, the user logs in and is assigned a miniaturized, private, remote antenna and DVR.  Aereo offers technology to give consumers access to their antenna and DVR via a web browser and supported internet-enabled devices.  Once the user has connected to his remote Aereo antenna, the user can then access the Aereo platform to view all major broadcast networks live in HD.  Alternatively, the user can enable their remote DVR to set recordings and watch the broadcasts later whenever the user wants.

How does Aereo Work?

When Aereo decides to enter a particular geographic region or market, it installs an array of mini antennas.  Each of these mini antennas are no larger than the size of a dime.  A large number of mini antennas are aggregated on a circuit board, which also contains other electronic components essential to Aereo’s Internet broadcast system.Antenna

While the antenna may be assigned to an individual user, they are generally available for dynamic allocation by the tuner server.  Essentially, this means that a specific antenna is assigned to one specific individual user only when that user is watching television via Aereo, but is then assigned to a different user when the first user is done.  Nevertheless, no single antenna is used by more than one user at a single time, and all dynamic antennas are shared. The antennas are networked to a tuner router and server, which in turn link to a video encoder. The encoder converts the signals from the antennas into a digital video format for viewing on computers and mobile devices.

When a user selects a channel to watch through Aereo’s web or mobile app, the user’s request is sent to Aereo’s web server. The server sends a command to the tuner router, which then identifies an available antenna and encoder slot.  Once the antenna begins receiving the signal, data for the requested channel flows from the antenna to the antenna router and then to the video encoder, where it is stored on an Aereo remote hard drive in a unique directory created for the specific user.  The data then goes through the distribution endpoint, over the Internet to the web or mobile app for the user’s consumption.

The Dispute

In the recent Aereo case, Hearst claimed that Aereo’s services violate its exclusive rights under Section 106 of the Copyright Act to: (1) publicly perform, (2) reproduce, (3) distribute, and (4) prepare derivative works based on its copyrighted programming.  The Court’s analysis focused on the first claim relating to public performance, which will be discussed below.

The Court quickly rejected Hearst’s claim that Aereo infringed its exclusive right to reproduce its works, stating that “holding a media company directly liable just because it provides technology that enables users to make copies of programming would be the rough equivalent of holding the owner of a copy machine liable because people use the machine to illegally reproduce copyrighted materials.”  Similarly, with respect to its distribution right, the Court sided with Aereo, relying heavily on the fact that Aereo’s technology does not allow users to download (only stream) the copyrighted content.  Likewise, with respect to Hearst’s exclusive right to make derivative works, the Court quickly disposed of Hearst’s argument that by reformatting intercepted programming Aereo violated the broadcaster’s right to prepare derivative works.  As the Court reasoned, “Hearst has presented no legal authority nor is the Court aware of any for the proposition that Aereo’s technology creates a derivative work merely by converting programs from their original digital format to a different digital format compatible with internet streaming.”

Public Performance Right

Quickly dismissing the above claims, the Court focused its discussion on Hearst’s first claim regarding its exclusive right to publicly perform its copyrighted works.  The Copyright Act gives copyright owners of audiovisual works the exclusive right, among others, to “perform the copyrighted work publicly.”  Section 101 of the Act provides that “to perform” an audiovisual work means “to show its images in any sequence or make the sounds accompanying it audible.”  To make matters more confusing, the statute distinguishes between public and private performances.  Having become known as the “Transmit Clause”, Section 101 provides that “to perform a work publicly” means to transmit a performance of the work to the public, “by means of any device or process, whether the members of the public capable of receiving the performance […] receive it in the same place or in separate places and at the same time or at different times.”  For additional insight – or perhaps more confusion – the House Committee on the Judiciary’s Report to the Copyright Act (revised 1976) provides a discussion on the intended meaning of “perform” and “public performance”:

“Concepts of public performance and public display cover not only the initial rendition or showing, but also any further act by which that rendition or showing is transmitted or communicated to the public. Thus, for example: a singer is performing when he or she sings a song; a broadcasting network is performing when it transmits his or her performance (whether simultaneously or from records); 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; and any individual is performing whenever he or she … communicates the performance by turning on a receiving set.”

The Decision

The District Court for the District of Massachusetts in Aereo relied on the Second Circuit’s holding that similar DVR technology does not infringe a copyright holder’s exclusive right to perform its work publicly.  In the 2008, the Second Circuit decided the Cablevision case, which held RS–DVR technology non-infringing of the original broadcaster’s public performance right because the technology’s manner of transmitting a recorded program to the viewer who recorded it did not constitute a public performance.  The Cablevision opinion concluded:

“In sum, we find that the transmit clause directs us to identify the potential audience of a given transmission, i.e., the persons “capable of receiving” it, to determine whether that transmission is made “to the public.” Because each RS–DVR playback transmission is made to a single subscriber using a single unique copy produced by that subscriber, we conclude that such transmissions are not performances “to the public,” and therefore do not infringe any exclusive right of public performance.”

Likewise, earlier this year, the Second Circuit applied its reasoning from Cablevision in WNET, Thirteen v. Aereo (WNET) to the very Aereo service that was before the District of Massachusetts Court.  In WNET, the Second Circuit affirmed their Cablevision decision and found that Aereo’s transmissions to subscribers also did not infringe.  The court described Cablevision’s holding as resting on two essential facts:

1)      The RS–DVR system created unique copies of each program a customer wished to record; and

2)      A customer could only view the unique copy that was generated on his behalf.

Adopting the Second Circuit’s rationale, the Massachusetts court found that Aereo’s system is consistent with the two key factors above because it (1) employs individually-assigned antennas to create copies unique to each user and (2) only at the user’s request.

The Split: FilmOn X

Not persuaded by the Second Circuit’s Cablevision or WNET decisions, the District Court for the District of Columbia came out the other way in the FilmOn X case.  Quite simply, its decision rested on a different, and not unreasonable, statutory interpretation of the Transmit Clause.  The FilmOn X court reasoned that what makes a transmission public is not the intended audience of any given copy of the program, but the intended audience of the initial broadcast.

At the end of the day, this battle of statutory interpretations may need to be settled by the Supreme Court, or – don’t hold your breath – an Act of Congress.

Sourcing from the Crowd: The Netflix Crowdsource License

To address the flip-side of my previous post, this post looks at “crowdsourcing.”  While eager entrepreneurs attempt to lure funding from accelerators and VC firms, established companies are making open calls to the public in search of the next big idea.  First coined by Jeff Howe nearly 7 years ago, crowdsourcing “represents the act of a company or institution taking a function once performed by employees and outsourcing it to an undefined (and generally large) network of people in the form of an open call.”

With the growth of this relatively new form of outsourcing, this post attempts to inform the would-be participant (i.e., the member of the crowd) of the implications of her participation in such an event.  In particular, I will use the recent Netflix Cloud Prize Contest and its corresponding Terms & Conditions to highlight some of the crucial aspects related to the intellectual property license contained therein.

For starters, software developers should know their work is generally protected under U.S. Copyright Law.  When they develop original code they “own” the underlying work.  That code can then be lawfully used by others, but only to the extent the developer has granted a license to that user.  To put it simply, software licenses are copyright licenses. The key copyright license rights are:

  1. The right to reproduce
  2. The right to modify (also, the right to create derivative works)
  3. The right to distribute
  4. The right to publicly perform (also, the right to publicly display)
  5. The right to use (including install, download, etc.)
  6. The right to sublicense (i.e., the right to pass license rights on to third parties)

Looking now to crowdsourcing, and the Netflix Cloud Prize Official Rules in particular, here is how a software developer’s rights are affected by virtue of their submission to the contest.  The software developer (the “Participant”) grants the below license to Netflix, as the “Sponsor” of this crowdsourced project.  For ease of interpretation, I will address the license in discrete pieces, first, addressing the scope, and then addressing the specific rights licensed.

Participant (and all members of your team, if applicable) grant to Sponsor a non-exclusive, worldwide, royalty-free, perpetual, irrevocable, fully sublicensable (through multiple tiers) and transferable license, without additional consideration to you (or any members of your team, if applicable) or third parties, to […]

This licensing scope is very broad.  The software developer Participant is giving Netflix license rights that have no limitation in geography, volume (no royalty payment based on Netflix exercising its license rights), duration, or revocability.  More interesting, the license is “non-exclusive” and “sublicensable”.

Developers should interpret the non-exclusivity as a benefit to this otherwise one-sided transaction.  This means, that while Netflix has broad license rights, the developer still has the ability to license its software to other entities in the future.  Less appealing to the developer, however, should be the fact that they are agreeing to allow Netflix to sublicense the software.  This will allow Netflix to provide license rights to third parties without further consideration or negotiation with the developer.  Developers who participate in this contest that may wish to commercially exploit their software after participating in the crowdsourcing event, should consider whether a competitor would be able to license its software through Netflix where the developer herself would not enter into such an agreement with that competitor.

Continuing now to the actual rights licensed:

[…] to (a) reproduce, distribute, perform and display (publicly or otherwise), adapt, modify, edit, translate, make available to the public, make, sell, offer to sell, import and otherwise use and exploit (and have others exercise such rights on behalf of Sponsor, through multiple tiers) your Submission (the “Licensed Work”) and any ideas, trademarks, patents and other intellectual property accompanying, related to or embodied in the Licensed Work, and any materials embodying, incorporating or derived from the Licensed Work, in any format or media now known or hereafter developed; [and to] (b) create derivative works from and incorporate the Licensed Work into other works or into Sponsor’s or its designees’ products or services; […]

As subclauses “(a)-(b)” make clear, the software developer, as a condition of submitting her software in the contest, grants Netflix every license right under copyright law.  That is, the rights to use, reproduce, distribute, modify (create derivative works), and publicly display/perform.  Interestingly, albeit understandably, subclause “(a)” casts a wide net in order to remove all ambiguity by including within these rights all other IP rights (i.e., patent, trademark, and “ideas”) that are “related to” the participant’s software.

Like the scope of the license itself, these rights are expansive.  While developers would surely anticipate Netflix’s use and commercialization of their software, they may be less aware of Netflix’s right to create derivative software that leverages the developer’s submitted work.  This is true regardless of the developer’s initial intent for how the software would be used.  Software developers considering this contest must be prepared to relinquish full control over their design, code, and future manipulation of their product, regardless of whether or not they win the contest.

Finally, while somewhat beyond the scope of this post, it’s interesting to point out the final subclauses of this license, which include the following marketing rights and likeness rights:

[…] [to] (c) use the Licensed Work for Sponsor’s advertising and promotional purposes; and (d) except where prohibited by law, use the name, photograph, portrait, picture, voice, likeness, statements, and biographical information of you (and all members of your team, if applicable) for Sponsor’s advertising and promotional purposes, whether or not in connection with your Submission, in each case for the purpose of administering and promoting the Contest, any future Sponsor promotions, and/or Sponsor.

These rights, while not standard for general software licenses (other than distributor licenses), are a product of the crowdsourcing method.  This goes back to the original definition.  Crowdsourcing is a call to the public, a contest of sorts.  As such, the software developer participant grants Netflix the right to use the likeness of the developer to promote not only the software but the fact that the software was the product of a crowdsourcing event.  Most contests contain similar language in their rules of participation, so this should not be too surprising for participants; however, software developers should consider how comfortable they are with privacy matters and their inability to control how Netflix (should it choose to exercise this right) portrays the developer to the public.

Given the lack of restrictions on these rights or in the scope of the license, software developers should weigh the probability of winning the contest prize ($10,000) against the possibility that they could commercialize their software.  While participating in the contest will not preclude the developer from commercializing their software by licensing to other firms in need of SaaS widgets, their market is diminished by virtue of Netflix’s ability to exploit, in all manners, the developer’s software (and to sublicense that exploitation to others without the developer’s consent).  Of course, developers may perceive certain intangible benefits to the contest, such as those often associated with social networking, as tipping the scales in what might otherwise be an unattractive deal.  Certainly, that’s what the crowdsourcing movement has largely depended on.