(Reuters) - Remember the video streaming service Aereo, once considered an existential threat to the broadcast and cable industries? Aereo’s business was based on an apparent loophole in copyright law in the 2nd U.S. Circuit Court of Appeals, which had held that if customers record and store a show on their cable company’s digital video recording system and replay the show for their own private use, the cable company is not liable for infringement. Aereo tried to cut out cable companies entirely, setting up thousands of dime-sized antennas to intercept broadcast signals and relay them to subscribers almost instantaneously. It contended that its service stayed within the bounds of copyright law because customers controlled the antennas.
It was a clever argument that found some traction among judges, but it died at the U.S. Supreme Court in 2014. Congress long ago passed a law that said intercepting and reselling television broadcasts violates copyright law, the justices said. According to the Supreme Court majority, Aereo could not evade copyright restrictions via its formalistic argument that it simply sold equipment enabling customers to stream shows.
Today I bring news of another clever legal argument by a video streamer that, at least so far, is also a bust. And this theory has the added interest of relying in part on the Supreme Court’s (mostly forgotten) Aereo opinion.
The Utah company VidAngel bills itself as a family-friendly service that allows subscribers to stream movies with the nasty bits filtered out. VidAngel is structured to comply with a 2005 federal law called the Family Home Movie Act, which allows private DVD owners to play censored versions of movies in their own homes for private purposes. To comply with the law, VidAngel buys DVDs at retail to “sell” to its customers for $20. VidAngel decrypts the DVDs, then invites customers to select from a menu of filters to create a version of the movie stripped of words or scenes they consider objectionable.
Subscribers who “buy” DVDs generally don’t receive physical disks but instead are entitled to stream filtered movies over VidAngel-compatible devices. After watching, they can “resell” the DVDs to the video service, less a fee of $1 per night. VidAngel insists that for every filtered movie it streams to a customer, it owns a corresponding physical DVD, like an old-school video-rental store that can only rent out the videos it physically owns.
The whole sale-and-resale rigamarole, according to VidAngel general counsel David Quinto, was designed to allow the company to qualify for protection under the Family Home Movie Act, which “authorizes for-profit companies to stream lawfully purchased movies for home viewing with objectionable content filtered out pursuant to each customer’s individual choice,” VidAngel said in a Sept. 12 filing in federal court in Los Angeles.
To bolster its copyright argument, VidAngel pointed to the Supreme Court’s Aereo opinion, in which the justices said a transmission of a copyrighted show or movie is not made “to the public” when it is made “to those who act as owners or possessors” of the program. “Because VidAngel streams filtered versions of motion pictures created at the direction of and owned by its customers, it is simply untrue that VidAngel engages in public performances of the relevant product,” the company said.
I bet you can guess what movie studios like Disney think of VidAngel: not much. VidAngel informed the major studios in the summer of 2015 that it was going into business as a filtering service. In August 2016, Disney, 20th Century Fox and Warner Bros. Entertainment sued the company for copyright infringement, claiming that the filtering service’s supposedly family-friendly filters were a screen for streaming unlicensed movies. The three studios also sought a preliminary injunction.
The studios’ lawyers at Munger, Tolles & Olson contended VidAngel’s complicated buy-and-sell-back structure is “an artifice.” The studios’ brief in support of a preliminary injunction quoted VidAngel CEO Neal Harmon, who supposedly told customers that “ the buyback system was the most creative way we could come up with in order to offer you the value of a (streaming service) while staying buttoned up legally.”
The studios also cited the Supreme Court in Aereo, arguing that the opinion means infringers can’t rely on technical “sleight of hand” to get around copyright law. “What matters is whether VidAngel is transmitting performances to the public, not the label that VidAngel uses to describe its transactions,” the Disney brief said.
U.S. District Judge Andre Birotte of Los Angeles agreed with the studios. On Monday, he granted a preliminary injunction to stop VidAngel from copying or streaming copyrighted materials. The judge said the service does not comply with the Family Home Movie Act because the movie versions it streams to customers are not authorized but rather are created by circumventing DVDs’ encryption technology. Even if VidAngel did comply with the Family Home Movie Act, Judge Birotte said, that law is not supposed to be an exemption from copyright infringement law under the Digital Millennium Copyright Act.
“VidAngel’s customers are not lawful ‘owners or possessors’ of the digital content that is streamed via VidAngel’s service,” the judge said. “VidAngel’s argument that Aereo holds that the public performance right is not infringed when the user pays for something other than the transmission of copyrighted works, is unsupported.”
VidAngel GC Quinto said it’s important to remember that Aereo’s streaming service was not the same as his company’s product, which he said provides the service Congress authorized in the Family Home Movie Act. The studios, he said, lobbied against that law before it was enacted and have refused to license their films to any filtering service in the 11 years since.
“We operate under the Family Home Movie Act,” he said. “Congress crafted a model to assure that studios were paid for their content but wouldn’t have veto power over filtering.” So why, I asked, did Judge Birotte enjoin the service? “He bought the studios’ argument that the FHMA doesn’t mean what it says,” Quinto told me.
Quinto said VidAngel will request a stay of the injunction. If it’s not granted, the site will suspend streaming of any content it does not own or has not licensed.
VidAngel is still pursuing antitrust counterclaims against the studios that sued the service for allegedly refusing to license their content. The studios have moved to dismiss those claims. VidAngel has outside counsel from Baker Marquart and Stris & Maher.
Studio counsel Glenn Pomerantz of Munger Tolles did not respond to my phone message.