In the Real World, Aereo Is Illegal

The Supreme Court closed a copyright law loophole today and with it shut down Aereo, the cable-television-to-your-computer service that was designed to change the TV industry and save users money.
Chet Kanojia, chief executive officer of Aereo Inc., and a loser at the Supreme Court.

Sometimes the law is an ass -- but not, apparently, when it comes to Aereo, the cable-television-to-your-computer service that was designed to save you money by exploiting a loophole in the copyright laws. The U.S. Supreme Court closed the loophole today -- and with it shut down Aereo. This was a victory for the cable companies, to be sure. But more important, it should send a message to anyone who wants to start a company based on an innovation that means nothing in the real world.

The technology Aereo used was nothing special to an engineer -- but meant everything to a lawyer. The copyright laws prohibit you from performing copyrighted material for the public. To get around this restriction, Aereo created an array of thousands of antennae, each coded to a receiver on your computer. When you asked to watch a particular television show, Aereo activated your personal antenna, captured the program and transmitted it to you at a fractional delay.

As a result, Aereo argued, the company wasn't "performing" copyrighted cable material for the "public." It was just providing technology to help you, the individual, record and watch a program.

As a literal matter, the argument wasn't totally laughable. The lower courts, in fact, agreed with it. And three Supreme Court justices felt the same way, with Justice Antonin Scalia writing in dissent that Aereo wasn't "performing" at all.

Six justices, however, disagreed. In an opinion written by archpragmatist Justice Stephen Breyer, the court held that Aereo was indeed transmitting a performance because it was communicating the copyrighted work's images and sounds. The end-users, Breyer concluded, certainly counted as a "public" to whom the performance was transmitted.

In his punch line, Breyer explained that any differences between Aereo's system and the direct cable providers ordinarily covered by the copyright laws lay "not [in] the nature of the service that Aereo provides so much as the technological manner in which it provides the service." In other words, technology must be subordinate to the actual purpose of what was happening. In this, Breyer was upholding his general approach to statutory interpretation, which focuses on the law's purpose and intent, not simply its literal meaning.

Scalia, of course, claims to care about a statute's text, not the purpose a reasonable reader might attribute to it. His dissent accused the majority of finding Aereo guilty "by resemblance" to the cable systems that are the archetypes of the copyright statute. In his analysis, Aereo never performed the copyrighted material at all -- it really just enabled individuals to make their own copies and view them.

This account required Scalia to offer his description of what Aereo really was. His metaphor was unfortunately convoluted. Aereo was like neither a copy shop nor a video-on-demand service, Scalia asserted. Rather, Aereo was "akin to a copy shop that provides its patrons with a library card." The service gave individuals access to a wide body of legally available material that they could then copy for their individual use.

The trouble with Scalia's account of Aereo is, of course, that there is no existing analogue to an actual library of immediately transmitted cable television programs. Unlike book publishers, who sell physical books to libraries and are willing for them to be borrowed one at a time, cable companies don't want their programming to be immediately borrowable on a potentially infinite scale -- because doing so could easily kill their business. Scalia should have noticed that the metaphor was inapposite.

There are two lessons here. One is that in the increasingly virulent battle between Breyer's statutory focus on purpose and Scalia's on text, the good guys won. The Aereo business model was just so obviously exploitative of legal ambiguity that it helped show the Supreme Court the way to depending on the law's purpose, not its literal meaning.

The second lesson, though, is more important for the real world. Don't think that lawyers are so completely obsessed with technicalities that the legal system will in the end uphold a business idea designed to do nothing more than play on a legal loophole. Sure, some judges will go along. But the Supreme Court does actually know the difference between the world of the real and the world of the law.

Framed in economic terms, Aereo was not adding value or enhancing efficiency. Its technology had no technological edge -- only a legal value. And that value, in the end, has turned out to be zero.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.