The Supreme Court’s Aereo decision could endanger cloud storage services

A lot of people expected Aereo to lose its Supreme Court case. Aereo is a subscription service that allows customers to watch broadcast TV shows using internet-connected services. The startup argued that because it was merely renting a tiny antenna to each of its customers, its service fell outside of laws requiring cable and satellite companies to pay licensing fees to content companies. Many people saw this “tiny antennas” scheme as little more than a gimmick and expected the Supreme Court to side with the content owners.

The real question has always been whether a ruling against Aereo would have implications for other online services. Many of the arguments broadcasters made against Aereo could just as easily be made against conventional cloud storage services such as Google Music and Dropbox, which also transmit copyrighted content to consumers.

In its 6-3 ruling against Aereo, the Supreme Court went out of its way to emphasize that the ruling shouldn’t be seen as a threat to other services that transmit copyrighted content at the request of users. Yet a legal scholar whose work was heavily cited by Justice Antonin Scalia’s dissenting opinion says that the case will have cloud storage and consumer electronics companies “looking over their shoulders.”

“The court is sending a very clear signal that you can’t design a system to be the functional equivalent of cable,” says James Grimmelmann, a legal scholar at the University of Maryland. “The court also emphasizes very strongly that cloud services are different. But when asked how, it says, ‘They’re just different, trust us.’”

The problem is that “trust us” isn’t going to be very reassuring for entrepreneurs and investors building the next generation of media technologies. Silicon Valley needs clear rules about what’s legal and what isn’t. The Supreme Court didn’t just fail to provide such clarity, it blew up the legal principle that has served as the foundation for the cloud storage economy since 2008.

That principle was developed by the Second Circuit Court of Appeals, the same court that ruled for Aereo last year. The cable company Cablevision had developed a “remote storage DVR,” a system located in Cablevision’s server room that allowed customers to record and play back content. Content companies sued, arguing that the system infringed its copyright.

In 2008, the Second Circuit disagreed. The court ruled that because customers, not Cablevision, decided which programs to record or play back, the customer was responsible for copyright issues.

Ever since, cloud storage services have relied on this “volitional conduct” principle to avoid copyright liability. If you upload a pirated movie to your Dropbox account or fill your Google Music account with pirated music, you might be guilty of copyright infringement. But Dropbox and Google don’t have to worry. It’s probably not a coincidence that cloud music services blossomed a couple of years after the Cablevision decision.

Now, Grimmelmann says, “the reasoning of Cablevision is dead.” Aereo built its legal case on Cablevision, arguing that the user, not Aereo, controls which programs to view. Yet the Cablevision case is barely mentioned in the Supreme Court’s majority opinion. Instead, the court adopted what Grimmelmann calls the “if it walks like a cable system and quacks like a cable system” standard to find Aereo liable. The court ruled that because Aereo looks a lot like a traditional cable television service, the company needs to pay the same licensing fees that traditional cable TV providers pay.

The problem is that the court never provides clear criteria for this “looks-like-cable-TV” rule. As Justice Scalia puts it in his dissent, “it will take years, perhaps decades, to determine which automated systems now in existence are governed by the traditional volitional-conduct test and which get the Aereo treatment. (And automated systems now in contemplation will have to take their chances.)”

In the process of ruling against Aereo, the Supreme Court has created a mess that will take lower courts years to clean up. Online services that are similar to Aereo in some respects and different in others are more likely to face lawsuits, and the lower courts will have to sort out which services are similar enough to Aereo to face copyright liability.

The Supreme Court says its ruling shouldn’t dramatically change the legal status of other technologies. “We have not considered whether the public performance right is infringed when the user of a service pays primarily for something other than the transmission of copyrighted works, such as the remote storage of content,” the court said, concluding that those issues should be dealt with in future cases.

But it’s going to take years of litigation — and millions of dollars in legal fees — to figure out exactly how the decision will affect cloud storage services.