Tuesday, April 22, 2014

What Rents May Broadcasters Charge?

By Bob Hockett

When I first moved to Ithaca some years ago, I was relieved by something that some people told me about television in this town – something that I suspect few would have counted as good news.  This was that it is impossible to receive television broadcasts by air in this region, such that one must seek cable or satellite service to see any television at all.

This came as a relief rather as Ulysses' being bound to the mast of his ship on approaching the Sirens is said to have relieved him.  I didn’t want to be tempted by television into wasting time, and feared that I would be thus tempted were I able simply to turn on the television unthinkingly when tired and then receive eye-catching and ultimately addictive broadcasts.  The fact that cable or satellite access would require one’s affirmatively seeking it out and then waiting for weeks before installation, I figured, meant that I wouldn’t end up getting cable or satellite service, hence wouldn’t end up turning on television unthinkingly and then being captivated by bad programs that wasted good time.

As it happens, I have since acquired cable service – just seven months ago, in fact – but happily I don't think it stems from akrasia.  It is, rather, because certain cable network programs, which I had occasion to see while on sabbatical last year when renting an apartment that came with cable, proved to be brilliant.  (I doubt that I am alone in suspecting that much of the world's best creative talent is presently engaged in the writing and producing of, as well as acting in, cable television programs.  A televisual 'golden age' appears to be underway.)  It is likely in part this new status, as one who views (alas, now too much!) cable but seldom views broadcast programs, that has me interested in the lawsuit I’d like to discuss in this post.  But that’s far from the only reason, as I’ll explain in due course.

So here is the suit:  The Supreme Court today hears arguments in a case brought by network broadcasting firms.  The case concerns yet another new communications technology’s implications for intellectual property law.  The technology this time combines cloud computing with ultrasensitive radio antennae.  With these technologies an innovative Brooklyn firm, Aereo, Inc., enables individuals who pay an $8/month fee to ‘receive,’ via antennae assigned to them on a one-person-one-antenna basis, television programs that are broadcast over the airwaves.  Customers then store these programs in ‘the cloud,’ and can download them either much later or immediately after storage, even while the programs are still airing, for viewing over the internet. 

Broadcasting networks including ABC, CBS, NBC, and Fox object to Aereo’s business model, as it appears to threaten to undercut the substantial fees that they charge cable and satellite television providers when the latter offer the broadcasters’ programs in their program packages.  The professed worry is that, if Aereo is legally able to avoid paying royalties to the broadcasters in virtue of the way its technology works, then cable and satellite firms will be emboldened to develop counterpart means of capturing broadcast programs and offering them to their customers, without having any longer to pay royalties to the broadcasters.  (Intriguingly, the leading cable and satellite firms are actually siding with the broadcasters in this suit, perhaps out of fear that some of the channels they bundle will be less compelling to no-longer-captive viewers able to access broadcast programs independently and inexpensively.)

In light of their objections, the broadcasters have brought suit against Aereo under color of the Copyright Code, demanding that Aereo be enjoined from offering its service while programs are still being aired.  As ever under the Code’s relevant language, the key question is whether Aereo is effectively transmitting network-owned ‘performances’ to ‘the public’ without having received prior permission from the owners.  The Southern District of New York effectively found that it is not, and the Second Circuit agreed in a split decision.

Cutting against the broadcaster plaintiffs is, among other things, the Supreme Court’s holding in 1984 that Sony did not transmit ‘performances’ in marketing Betamax video-recorders to customers who might subsequently use those devices to infringe television broadcasters’ copyrights in their programs (by transmitting ‘performances’).  Since Aereo customers decide whether to receive particular programs via the antennae assigned to them and then whether to record and download those programs, Aero can straightforwardly analogize their antennae-renters to Sony’s Betamax-purchasers and invite the Court to hold Aereo non-liable for much the same reasons as led it to find Sony non-liable.

Possibly cutting against Aereo, on the other hand, is the Court’s 2005 decision concerning ‘peer-to-peer’ file-sharing companies’ business model.  In that decision the Court held that, although it was the individual file-sharers who were directly violating the rights of those who held copyrights in the music and films shared as files, the marketers of file-sharing software also partook of those violations as enablers in virtue of their actively encouraging people to acquire the software whose principal purpose was to render their predicate copyright violations possible.

My own provisional view is that the Betamax decision is probably more directly on point than is the file-sharing software decision, precisely because the latter rested the indirect-infringement conclusion on the likely – and indeed encouraged – direct infringements made by purchasers of the software.  In the Aereo case, there is no claim that users of the service will be violating copyright, hence there is nothing illicit for Aereo to be ‘enabling’ by renting out antennae to its customers.  The programs in question are all broadcast gratis already over the public airwaves, and anyone with a sufficiently powerful antenna can access those programs without violating anyone’s copyright.  All Aereo does is to rent out antennae that are sufficiently powerful to do the trick.

In a certain sense, however, my own provisional read on the merits of the two sides’ copyright arguments is neither here nor there for present purposes.  I am no expert on copyright or intellectual property law more broadly, and accordingly leave full evaluation of the merits of the case qua copyright case to people like Mike’s, Sherry’s, and my colleague, Oskar Liivak.  My interest in this case is instead rooted in a distinct policy interest that dovetails with, but is not identical to the copyright interest.

The interest I have in mind has to do with certain rents that we as a public permit certain private parties to extract while using our – public – resources, and with the consequent right that we as a public have to condition extraction of such rents upon their compatibility with the public good.  I am interested in this phenomenon because it seems to me we’re not exercising that public right as we should.  We are failing to do so in a number of distinct contexts that I plan to discuss in a subsequent post, while here I’ll discuss only the broadcasting context.

The Aereo case, as it happens, involves not just one salient rent for my purposes, but two.

There is, on the one hand, that rent which is copyright itself.  Through the institution of copyright we – the public, through our laws – confer a temporary monopoly right in a particular work of art upon someone who either creates that work of art or purchases the monopoly right from the work’s originator.  The primary reason we do this seems to be that we think the work of art in question something whose creation is good, in the long run, for the broader public, but which might be under-produced in the absence of a temporary monopoly right.  The key background question in any copyright case, then, is accordingly whether the temporary monopoly rent is ultimately good not merely for the rentier, but also for us, the public, through its incenting more creating.  (I ignore for present purposes the absolutist, ‘natural right’ or ‘moral right’ justification that some advocates proffer for copyright.)

In addition to copyright rent, the Aereo case also involves what we might call sub-lessors’ rents.  As most of us have heard since our childhoods, it is ‘the public’ that owns broadcast spectrum.  ‘The airwaves’ are ‘ours’ – the general public’s – just as are public lands and waterways, and just as is the full faith and credit of the United States that ultimately backs up the liabilities of many financial institutions.  We lease exclusive rights to use specific intervals of the airwaves to particular broadcasters, in turn, and allow them to extract rents from others – others who wish to advertise – so long as they generally use their rented intervals of the spectrum for the good of the public.  Over time, the ‘good of the public’ in this context has come to be understood as free public access to that which the radio and television networks broadcast, with the broadcasters accordingly left to earn revenues by offering advertising space to other firms rather than by charging the public.

Both of these contingent rent-right conferrals upon broadcast firms, it seems to me, bear policy implications not only for the Aereo case, but also for other issues with which we as a polity have recently been confronted and will continue to be confronted.

To begin with Aereo, as just noted, the rents that we allow broadcasters to extract while using our spectrum resource are to be extracted from advertisers, not from the public.  That suggests that a service, like Aereo’s, which merely enables viewers to view more easily what they are already ‘entitled’ to view per the public’s arrangement with users of the public’s broadcast spectrum, might be expected to enjoy some presumption in its favor when a broadcaster seeks public (in this case, court) recognition of a right to charge rents to the provider of that service (in this case, Aereo).  For any such rent would be, indirectly at least, a rent charged the public – a rent charged by the tenant to the landlord, as it were.

By much the same token, because that rent-right which is copyright is conferred only insofar as it is thought necessary to encourage creative activity that we the public wish to see encouraged, there is at least some reason to presume that broadcasters’ copyrights are not infringed by Aereo.  For pursuant to our American model of broadcasting it is advertising revenue, not viewer subscription fees, which incent the production of materials that are broadcast over the radio-television spectrum.  And there seems no reason to suppose that Aereo’s service will do anything to dampen advertisers’ rental payments to broadcasters.  Indeed, quite the contrary, inasmuch as Aero will facilitate their reaching a broader audience.  (The broadcasters have apparently admitted in proceedings below that at least 90% of their revenues continue to come from advertisers.)

Broadening out from Aereo to other contexts in which publicly conferred rent-rights are salient, it seems to me worth noting an interesting connection between Aereo on the one hand, and the McCutcheon decision that Mike discussed a couple of weeks ago on the other.  It seems to me that that which occasions not only McCutcheon, but indeed all of the Supreme Court’s best-known campaign finance jurisprudence from Buckley through Austin through Citizens United on down, is precisely the fact that we permit our ‘tenants,’ so to speak – the broadcasters – in effect to charge illegitimate rents to us, the ‘landlord,’ for use of what’s properly ours.  For by far the greater part of all campaign expenditures goes to pay broadcasting firms for precious brief moments of airtime, during which insipid and downright mendacious ‘soundbites’ are tiresomely broadcast in the interest of getting candidates elected to office or ballot initiatives passed.

But if the radio-television spectrum is properly ours, the public’s, and if we as a public need frequent and sustained exposure to candidates and issue-advocates in order to form intelligent decisions as to how we should vote, then why do we permit these sub-lessor rents to be charged?  Why not instead condition our leasing out of our spectrum to lessees upon their turning the premises back over to us for specific intervals during campaign seasons, since we need those airwaves in order to function as a deliberatively democratic polity?

We might of course also wish to condition use of that spectrum by candidates and issue-advocates upon their meeting certain voting thresholds, in order to ensure that all candidates and advocates are ‘serious’ and stand reasonable chances of persuading large swathes of the public.  Presumably we also would wish to develop formatting norms to ensure that use of the spectrum by candidates and other advocates be done in an orderly manner that actually facilitates bona fide public deliberation.  But surely all of this could be managed with relative ease.  And the real point for present purposes is at any rate simply to remind us all that the spectrum is ours, that we lease it to broadcasters conditionally, and that there is no reason we could not include among the relevant conditions our right to reclaim it during specific timeslots during political campaign seasons.

It would be lovely, I think, were considerations such as these to figure into the Court’s thinking as it decides what to do with the Aereo case.  It would be lovelier still were the Congress and Court alike to think along such lines in future in a serious effort to salvage our now broken electoral campaign system.  I doubt this will happen, however, unless and until we first revive a robust and rich understanding of what resources are properly the public’s, and what that designation entails where law and policy are concerned.  I’ll offer more suggestions along these lines in a subsequent post that I’m titling ‘Public Resources, Private Rents.’  Please stay tuned (pun intended).