June 26 (Bloomberg) -- As Aereo Inc.’s streaming-TV service was dealt a potentially fatal blow yesterday, the cloud- computing industry was more concerned about what the U.S. Supreme Court didn’t say.
The Supreme Court said Aereo violates broadcasters’ copyrights by selling programming online without paying licensing fees, regardless of its technology. Aereo uses cloud computing to let users watch TV shows: It collects over-the-air signals through antennas, stores the video on servers and delivers the live or recorded programs to customers through the Internet.
Instead of fully protecting the burgeoning computer-storage industry, the court took care to sidestep the issue of how copyright laws affect services such as Amazon.com Inc. and Dropbox Inc. when users download videos and documents. The ruling said that questions involving cloud computing -- the business of storing content on remote servers and delivering it over the Internet -- should “await a case in which they are squarely presented.” That leaves technology companies with few clues to guess whether their services would pass legal muster if challenged.
“They wanted to take pains to protect existing cloud computing,” said Clay Brockman, an analyst at investment- research firm Height Analytics. “There is a valid debate as to whether they really did limit it that much. I don’t know how successful that will be, and we won’t know until further down the road when these types of cases get further litigated.”
The court said it couldn’t say how the Copyright Act will apply to technologies not explicitly presented before it in the Aereo case. Questions about cloud computing should be addressed in a future case or concerned parties “are of course free to seek action from Congress,” Justice Stephen Breyer wrote in the court’s majority opinion.
“The Court vows that its ruling will not affect cloud- storage providers and cable-television systems ... but it cannot deliver on that promise given the imprecision of its result- driven rule,” Justice Antonin Scalia wrote in a dissenting opinion.
The 6-3 ruling against Aereo was a triumph for broadcast companies, including Walt Disney Co.’s ABC, 21st Century Fox Inc., Comcast Corp.’s NBC and CBS Corp. They said Aereo was threatening the underpinnings of the industry by selling programming online without paying licensing fees. The court fight centered around a provision in the federal copyright law that gives owners the exclusive right to perform their works “publicly.”
Aereo’s road to transforming the TV business was likely stopped short. While Aereo vowed to keep fighting for its consumers and for innovative technologies, the startup didn’t specify how it plans to continue the battle. Chief Executive Officer Chet Kanojia had previously said the startup had no Plan B in the event of a negative court ruling.
Breyer rejected Aereo’s contention that its use of thousands of its dime-sized antennas -- each sending programming to a single customer -- meant the transmissions on its system were “private” ones. The Supreme Court said Aereo should be viewed as a cable provider because of its “many similarities,” regardless of Aereo’s behind-the-scenes technology.
“Viewed in terms of Congress’ regulatory objectives, why should any of these technological differences matter?” he wrote.
When lawyers argued in front of the Supreme Court in April, justices, including Breyer, questioned whether a ruling against Aereo would more broadly imperil cloud-computing technologies. The worry was that a ruling against Aereo could mean that cloud storage offerings from companies like Google Inc., Dropbox, Apple Inc., Amazon and Box Inc. also would be considered in violation of the law when users download pictures, videos or documents.
The court majority said the ruling was a limited one that wouldn’t affect cloud computing. Breyer noted in his opinion that that cloud-based storage services offer people a way to play material they already received lawfully.
The broadcasters’ lawyer, Paul Clement, had argued in April that cloud-storage companies shouldn’t be affected because those businesses store content that the users upload themselves. Clement argued that there is a “fundamental difference” between customers uploading their own files and the dissemination of information that is new to the customer.
By not giving more specific guidelines on what makes Aereo similar to a cable operator, the court still could create problems for other cloud companies, said Jason Schultz, Associate Professor of Clinical Law and Director of New York University’s Technology Law & Policy Clinic.
“Justice Breyer tried to go out of his way to acknowledge that the issue of cloud computing wasn’t before them, but the rule he tries to lay down is a very ambiguous one,” Schultz said. “This ruling is dangerous because it is saying the providers now have additional responsibilities to think about, which may differ user-by-user and file-by-file.”
Determining whether the person viewing content pulled down from the cloud has any rights to it could be cumbersome for cloud providers to determine, particularly startups, he said.
“It’s going to have a serious impact on innovation in any kind of television Internet startup space because there is too much uncertainty,” Schultz said.
New content-distribution companies may have to consider a higher cost of doing business to avoid a copyright infringement case like Aereo’s. Startups will have to negotiate with creators before distributing their work, said Laura Martin, an analyst at Needham & Co.
“It will now be tougher for the next content-distribution technology to get funding without the costs of content deals in their business plan,” she said in a research note yesterday.
Communicating content from one physical place to another is “at the heart of Internet-based technologies,” the Computer and Communications Industry Association and Internet company Mozilla Corp. wrote in an April 2 amicus brief supporting Aereo.
“The dramatic expansion of the cloud computing sector, bringing with it real benefits previously imagined only in science fiction, depends upon an interpretation of the Copyright Act that allows adequate breathing room for transmissions of content,” the group said.
In not addressing cloud computing, the court left other technology companies in the same position as before the decision -- not worse off, said Craig Whitney, who is Of Counsel in the litigation department of Morrison & Foerster LLP and specializes in copyright law.
“The concern was that the Supreme Court was going to somehow influence cloud computing and make a decision that would have an impact negatively on cloud computing, and for the most part, the court did its best not to do that,” he said. “The court really tried to do the right thing here in terms of not overreaching its decision.”
While the court may have prevailed in its intentions to avoid ruling on cloud computing, companies are still left without guidance on whether their technology is legal.
“The Supreme Court clearly said if we get an Internet case, we’re going to think about it wholly new, wholly differently,” Reed Hundt, a former chairman of the Federal Communications Commission, said in an interview on Bloomberg TV yesterday. “This is a big victory for broadcasters but not on the battleground on the Internet.”
--With assistance from Dina Bass in Seattle and Greg Stohr in Washington.