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Rent-A-PC Fails to Enforce Restrictive Covenants Against Former Employees

In this May 28th, 2013 decision by Massachusetts Federal District Court Judge George O’Toole, Rent-A-PC unsuccessfully sought to obtain a preliminary injunction against two former employees, and to enforce a confidentiality agreement against a third.

As to two of the employees, Rent-A-PC attempted to enforce a one year covenant not to compete. Judge O’Toole denied that motion, finding that the employees underwent several material changes to their employment, making it likely that their agreements had been abrogated. In analyzing this issue Judge O’Toole relied heavily on F.A. Bartlett Tree Expert Co. v. Barrington, a hallowed chestnut in Massachusetts noncompete case law dating back to 1968, but one that had been largely ignored until it was revived by a series of Superior Court cases in 2004.* Judge O’Toole’s reliance on F.A. Bartlett reinforces the impression that this doctrine has come full circle.

*These cases held that when the employment itself was the consideration for a noncompetition provision but the employee’s job had substantially changed, the provision was no longer enforceable.

The third employee had only a confidentiality/non-disclosure agreement, and the court found there was insufficient evidence to show he had violated it.

Rent-A-PC, Inc. v. Robert March, et al. (D. Mass., May 28, 2013)

 

 

Aereo, Antenna Farms and Copyright Law: Creative Destruction Comes to Broadcast TV (Part 3)

Aereo, Antenna Farms and Copyright Law: Creative Destruction Comes to Broadcast TV (Part 3)

Click here for Part 1 in this series of posts, here for Part 2.

In Parts 1 and 2 of this series of posts I discussed how Aereo designed its broadcast-TV-to-Internet system to fit within the ruling established by the Second Circuit in the Cablevision case anticipating that it would be sued for copyright infringement by a group of broadcasters.

Innocence Abroad

INNOCENCE ABROAD
(IN SEARCH OF A COPYRIGHT)
Thomas Nast’s illustration in Harper’s Weekly
January 21, 1882, p. 37.

The broadcasters did file suit against Aereo, and in the Second Circuit, the very circuit in which Cablevision is controlling law and the circuit in which Aereo, not coincidentally, first offered its service. Home territory, in a manner of speaking. As expected, Aereo wrapped itself in Cablevision, and the district court ruled that Aereo’s “one antenna-one viewer” system did not violate the broadcasters’ public performance right under the Copyright Act. On this basis the district court denied the broadcasters’ request for a preliminary injunction that would have forced Aereo to stop operations in the Second Circuit, at the very least.

The broadcasters appealed this ruling to the Second Circuit, which upheld the district court. The Second Circuit held that its holding in Cablevision controlled the outcome in Aereo, and set out four conditions that needed to be considered in evaluating a challenge to a rebroadcast system such as Aereo’s based on the copyright public performance right:

First and most important, the Transmit Clause [of the statutory definition of public performance] directs courts to consider the potential audience of the individual transmission. If that transmission is “capable of being received by the public” the transmission is a public performance; if the potential audience of the transmission is only one subscriber, the transmission is not a public performance, except as discussed below. Second and following from the first, private transmissions – that is those not capable of being received by the public – should not be aggregated. It is therefore irrelevant to the Transmit Clause analysis whether the public is capable of receiving the same underlying work or original performance of the work by means of many transmissions. Third, there is an exception to this no-aggregation rule when private transmissions are generated from the same copy of the work. In such cases, these private transmissions should be aggregated, and if these aggregated transmissions from a single copy enable the public to view that copy, the transmissions are public performances. Fourth and finally, “any factor that limits the potential audience of a transmission is relevant” to the Transmit Clause analysis.

Aereo satisfied this four-factor test. Its system relies on individual transmissions that can be received by only one subscriber. These individual or “private” transmissions are not generated from the same copy of the work, but rather from the “unique copies” that are created for each subscriber. The transmission of these separate copies should not be aggregated for purposes of determining whether Aereo was violating the broadcasters’ public performance rights. Thus, the fact that Aereo might be transmitting 50,000 individual copies of the Super Bowl at the same time does not turn its rebroadcast system into a public performance.

The broadcasters fought valiantly, but without success, to distinguish Aereo from Cablevision: 

  • The court rejected Aereo’s argument that Cablevision should be distinguished because Cablevision had a license to retransmit programs and Aereo had no license. The presence or absence of a license was irrelevant to the rationale of the Second Circuit in Cablevision.
  • It refused to accept the broadcasters’ argument that Aereo should be distinguished because Aereo’s system was analogous to a cable system, whereas the Cablevision system was more like a VCR. The Cablevision decision was not influenced by the fact that the system was comparable to a stand-alone VCR.
  • The broadcasters’ argument that Cablevision engaged in time-shifting that broke the chain of transmission, while Aereo facilitated near-real time retransmission, likewise failed to provide a basis for distinguishing the Aereo system from Cablevision’s network-DVR.

As the Second Circuit noted, the broadcasters’ arguments boiled down to an attempt to persuade the court to overrule Cablevision, something the Aero court lacked the authority to do.* The broadcasters have filed a request for en banc review of the case which, as of the time of this post, has not been acted on. Cablevision remains the law of the Second Circuit, and it controlled the outcome of the broadcasters’ suit against Aereo, at least at this stage of the case.

*The circumstances under which a federal appeals court panel may overrule a decision of an earlier panel are sharply limited.

Fox Television Stations v. BarryDriller

While the Aereo case has come to at least a temporary conclusion in the Second Circuit (pending a ruling on en banc review), a similar case is pending in the Ninth Circuit. In Fox Television Stations v. BarryDriller (C.D. Cal. Dec. 27, 2012),* the California district court rejected the rationale of Cablevision and Aereo, and enjoined a “technologically analogous” broadcast system on the very grounds rejected by the New York federal courts. Like Aereo, the system at issue used mini-antennas, a transient buffer copy and unique copies of programs.

*For an explanation of why the defendant company named itself “BarryDriller” see this article on paidcontent.com.

However, after reviewing Cablevision, the district court found that Cablevision “is not the only possible reading of the statute.” The court found that the copyright statute does not, by its terms, require that a public performance be received from the same transmission, the central holding in Cablevision: “the concern is with the performance of the copyrighted work, irrespective of which copy of the work the transmission is made from. … Cablevision’s focus on the uniqueness of the individual copy from which a transmission is made is misplaced.”

Will the Supreme Court Take This Case?

BarryDriller case is on appeal to the Ninth Circuit Court of Appeals. If that court upholds the district court and the Second Circuit either declines to review Aereo en banc or upholds the Second Circuit panel decision, there will be a split of authority between the two circuits, making these cases strong candidates for Supreme Court review. While the Supreme Court accepts only about 1% of cases appealed to it, and infrequently reviews copyright matters, the importance of this issue,* and a clear circuit split, would give the cases a good chance for Supreme Court review.

*As the broadcasters said in the first sentence of their en banc petition, “A recent … decision of this Court raises a question of exceptional importance; it effectively overturns a congressional mandate that is the foundation for much of the current system for delivery of television programming.”

And, there a prospect of additional circuit splits over the Cablevision issue as Aereo introduces its service in Screen Shot 2013-05-29 at 8.19.48 AMadditional markets throughout the United States and is sued in one or more of those circuits, which would only increase the likelihood of Supreme Court review. The imminent release of Aereo in Boston would give the broadcasters a chance to present their arguments to the Massachusetts federal courts. 

In the next, and last, post in this series, I’ll discuss the widespread criticism of Cablevision and Aereo, which will be presented to additional circuits should Aereo be sued in other circuits. And ultimately, perhaps, before the Supreme Court. 

Click here to go to Part 4 in this series of posts.

Aereo, Antenna Farms and Copyright Law: Creative Destruction Comes to Broadcast TV (Part 2)

Aereo, Antenna Farms and Copyright Law: Creative Destruction Comes to Broadcast TV (Part 2)

Only one thing is impossible for God: to find any sense in any copyright law on the planet.

– Mark Twain’s Notebook, 1902-1903

__________________

Click here to see Part 1 of this series of posts.

In part 1 of this series I described how Aereo’s technology allows users to watch, record and access broadcast TV over the Internet. At the heart of this system is the use of a set of dime-sized antennas assigned to each subscriber, short buffering in RAM for retransmission and the creation of a unique per-subscriber copy of each broadcast the user wants to record for later viewing.

Why did Aereo construct its system this way?  Why not one antenna and one copy of each broadcast? Aren’t the thousands of antennas and thousands of personal copies expensive and unnecessary? The answer is that they may be expensive and technically unnecessary, but they are essential to Aereo’s ability to avoid broadcaster claims of copyright infringement. In fact, this Rube Goldberg system was designed to fit the legal parameters of a case decided by the Second Circuit in 2008. And, it is no accident that Aereo first released its service in New York, which falls in the Second Circuit, drawing a lawsuit by the broadcasters in the same circuit that had decided the 2008 case.

The case that Aereo based its design on is the Second Circuit’s famous (or, to the broadcast industry, infamous) decision in Cartoon Network v. CSC Holdings, usually referred to as the Cablevision case. In Cablevision the broadcasters tried to enjoin Cablevision—a cable operator with a license to retransmit cable programming to its paying subscribers—from introducing a remote storage digital video recorder (network-DVR) that would allow Cablevision customers who did not have a TiVo-like set-top DVR to record cable programming and receive playback through the cable system itself, or from “the cloud.”

Cablevision’s network-DVR system is itself something of a Rube Goldberg creation. Cablevision’s network-DVR utilizes a complex buffering and storage technology that splits a licensed cable broadcast feed into two streams, one of which includes a “buffer” copy directed to a router where it is stored in RAM for no more than 1.2 seconds as the router looks to see if any customers have asked that the program be recorded for them. If a customer has asked for the program to be recorded, the data is stored on a Cablevision hard drive storage area maintained by Cablevision and assigned solely to that customer, where it is available for later replay, much as it would be if it had been stored on a set-top DVR. If there is no “record” request from a subscriber, the data in the revolving buffer is not retained.remote dvr

For example, if 50,000 Cablevision customers recorded the Super Bowl, Cablevision would create 50,000 copies, one for each customer. If a customer wanted to play back the program, Cablevision would transmit the specific copy created for that customer. No one else could access that copy.

The broadcasters filed suit in federal court in the Southern District of New York, claiming copyright infringement. In 2007 the district court judge, Denny Chin, enjoined Cablevision, but the Second Circuit issued a controversial decision reversing Judge Chin and rejecting the the broadcasters’ copyright challenge based on  some highly technical interpretations of copyright law.*

*Ironically, Denny Chin, the district court judge reversed by the Second Circuit in Cablevision, was later elevated  to the Second Circuit, and became a dissenting judge on the 3-judge panel that decided Aereo in 2013.

Cablevision’s Buffered Copies Do Not Meet Copyright Law’s Fixation Requirement

First, the Second Circuit held that the 1.2 second buffered copy was not an infringing copy because it was not embodied “for more than a transitory duration.” A 1.2 second copy does not, the court held, satisfy copyright law’s “fixation” requirement,* and therefore the buffered copy did not qualify as a “copy” under the Copyright Act’s definition of that term. However, the court did not state how long a copy wold have to be embodied to be more than transitory, and its holding arguably conflicts with the 9th Circuit’s 1993 ruling in MAI Systems v. Peak Computer, which held that copying, for purposes of determining copyright infringement, includes the transfer from a permanent storage device (such as a hard drive) to RAM.

*”A work is ‘fixed’ in a tangible medium of expression when its embodiment in a copy or phonorecord, by or under the authority of the author, is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration.” 17  U.S.C. §101.

Transmission of a Unique Copy to a Single Subscriber Is Not a “Public Performance”

In addition to making a copy, one of the exclusive rights of a copyright owner is the right to authorize a “public performance” of a work. This right is found in a section of the copyright statute that includes a provision known as the “transmit clause,” which states that to perform a work “publicly” includes:

to transmit … a performance or display of the work … to the public, by means of any device or process, whether the members of the public capable of receiving the performance … receive it in the same place or in separate places…, at the same time or at different times. 17  U.S.C. §101.

The most controversial holding in Cablevision was the Second Circuit’s conclusion that the word “performance” did not refer to the performance of the underlying work being transmitted but rather the transmission itself. The court held that “the transmit clause directs us to examine who precisely is capable of receiving a particular transmission of a performance.” The court concluded that because Cablevision’s network-DVR required each transmission to be made to a single subscriber using a unique copy saved by that subscriber, the potential audience for a network-DVR playback transmission is limited to the single subscriber, and therefore the transmissions are not performances to the public.

In other words, for purposes of the “public performance” right the 50,000 copies of the Super Bowl (each of which has been “saved” to a separate directory by a single subscriber) should not be aggregated for purposes of determining whether Cablevision is engaged in a “public performance” of the Super Bowl.*

*Making individual copies for each subscriber in this manner requires thousands of terabytes of hard disk storage. The ability to provide this storage at low cost is a consequence of “Kryder’s Law,” which holds that magnetic disk storage density doubles every 13 months, a rate faster than the doubling of semiconductor chip performance according to Moore’s law.

It is this “unique copy” test that became critical when the broadcasters challenged Aereo in the Second Circuit.

Subscribers, Not Cablevision, Exercise the Volitional Conduct Necessary to Make a Stored Copy For Later Viewing 

Third, the Cablevision network-DVR does save a copy for each subscriber that requests it, and these copies clearly do meet the copyright statute’s fixation requirement. However, the Second Circuit focused on the “volitional conduct” that caused the copy to be made, and held that while Cablevision created and maintained a system that allowed a copy to be made, it is the customer’s conduct in ordering the system to make a copy—”the person who actually presses the button to make the recording”—that causes the copy to be made. The Second Circuit analogized Cablevision to a store proprietor who charges customers to use a photocopy machine on the store’s premises, in which case (in most circumstances) it is the customer, not the store owner, who makes the copy for purposes of determining direct liability under the Copyright Act.*

*The court emphasized that the conduct Cablevision engaged in would better be analyzed under principles of contributory infringement. However, Cablevision had not pursued that theory of liability.

.     .     .

Clearly, the Cablevision network-DVR was designed to avoid copyright liability, not to achieve technical efficiency. And, if the Second Circuit’s three legal holdings strike you as threading the needle through some very tight legal loopholes, you are not alone. The case has its supporters, but their support is mostly based on copyright policy – why shouldn’t people who are paying for cable service that is being transmitted to them by the cable company under license be able to “time shift” their viewing of cable shows using a network-DVR, just as they can using a set-top DVR? However, strictly as a matter of copyright law each of the three conclusions has suffered scathing criticism by copyright law scholars—particularly the public performance and the “volitional conduct” holdings.

Nevertheless, this decision remains the law in the Second Circuit – copyright law’s most influential circuit. And, it didn’t take long for enterprising entrepreneurs to see how they could stretch this precedent even further, leading to the Second Circuit’s April 1, 2013 decision in WNET V. Aereo. In fact, Cablevision may have opened the door to creative destruction in the television industry. I will discuss Aereo in Part 3 of this series of posts.

Click here to continue to Part 3.

Aereo, Antenna Farms and Copyright Law: Creative Destruction Comes to Broadcast TV (Part 1)

Aereo, Antenna Farms and Copyright Law: Creative Destruction Comes to Broadcast TV (Part 1)

Whenever a copyright law is to be made or altered, then the idiots assemble.

Mark Twain’s Notebook, 1902-1903

______________________

Aereo is coming to Boston, and to 20 other cities before the end of the year.

Screen Shot 2013-05-17 at 8.30.36 AMAereo is a company that has developed a system that captures over-the-air television (broadcast TV) and retransmits it to subscribers over the Internet. Subscribers are able to watch broadcast TV on their computers, tablets and smart phones. Even better, Aereo acts as a remote digital video recorder (a remote DVR) so subscribers can record programs and stream them at another time. Aereo launched in New York City in early 2012, but it has announced that it is expanding to 21 other cities in 2013.

Is this a problem for broadcasters? You bet it is. Cable companies pay broadcasters such as CBS, ABC, NBC and FOX for the right to retransmit their shows to cable subscribers. If people can access broadcast TV at Aereo’s rates (which are far less costly than cable rates), it may mean fewer cable subscribers and reduced network revenues. According to the New York Times, the use of Aereo and copycat services has the potential to cost the networks retransmission fee revenues of more than $2 billion/year, an amount projected to grow to $6 billion/year by 2018.

The broadcasters are not taking this lying down. Claiming copyright infringement they sued Aereo in federal district court in New York. However Aereo successfully defended against the broadcasters motion for a preliminary injunction before the district court and the influential Court of Appeals for the Second Circuit.* CBS has threatened to sue Aereo anywhere it offers its service, and the broadcasters are almost certain to appeal the Second Circuit decision to the Supreme Court. Simply put, this has the potential to be a nation-wide litigation free-for-all.

*The case may not be over in the Second Circuit. Aereo has petitioned for the case to be heard en banc.  

In order to understand the copyright issues involved in Aereo’s service we need to step back and look at three cases, one of which is an important copyright law precedent from the Second Circuit, and two of which involve Aereo’s or Aereo-like technology. First, however, it is important to understand how Aereo provides its service.

Aereo: Thousands of Tiny Antennas, and a Separate Copy of Recorded Programs for Each Subscriber

Imagine, for a moment, that you captured TV broadcast signals that are transmitted through the airwaves, transcoded them to make them available over the Internet, stored them on a server and streamed the shows to people who accessed a website you created for this purpose. Limited only by bandwidth, thousands of people could watch broadcast TV on their computers, tablets or smartphones by accessing your site. You would have allowed viewers to bypass cable service. And, you could allow users to watch the television shows at times convenient to them. Screen Shot 2013-05-17 at 7.46.42 AM

Would this violate copyright law? You bet it would. Copyright owners have the exclusive right to public performances of their works, and you would be violating this right. The federal courts have made clear that retransmission of copyrighted television programming by streaming it over the Internet constitutes a “public performance” in violation of the Copyright Act. The broadcasters woud be able to shut you down in a New York minute.

Aereo, however, makes broadcast TV available to its subscribers. And, to make matters even worse (for broadcasters), it allows them to “record” programs and watch them later – in other words, to “time shift” TV broadcasts using Aereo’s remote DVR.

tiny antennas

tiny antennas on circuit boards

Exactly how it implements this is important to the legality of its service, so here goes.

The technical features of Aereo’s service are unusual, to say the least. One Second Circuit judge described them as “a  sham . . . a Rube Goldberg-like contrivance, over-engineered in an attempt to avoid the reach of the Copyright Act and to take advantage of a perceived loophole in the law.” (Aereo Dissent).

First, rather than have one antenna to capture over-the-air broadcasts, its system allocates two “unbelievably small” (Aereo’s description) antennas, attached to antenna boards, to each customer. Each of the antennas is able to receive TV broadcast signals. Every Aereo subscriber is assigned a pair of these dime-sized antennas to handle that subscriber’s live feeds and recordings. One antenna is used to receive a show that can be streamed to the customer  in near-real time. If the customer chooses to watch the show as it is broadcast it is stored for six or seven seconds on Aereo’s servers before it is digitized and streamed to the user, so the user is watching the broadcast with a slight delay. The second antenna is used to receive broadcasts that are recorded for later viewing.

Screen Shot 2013-05-17 at 8.05.25 AM

Aereo’s “Unbelievably Small” Antenna

Massive cloud-based storage handles the storage of TV programs for subscribers who wish to “record” broadcasts for later viewing. However, Aereo does not store a single copy of a particular broadcast. It creates a unique copy of the program for each subscriber, which is saved on Aereo’s hard drives; only the subscriber assigned that disk space or directory can access that specific copy of the program for later viewing.

For example, if 50,000 Aereo subscribers are watching the Super Bowl as it is broadcast on CBS the broadcast is received by 50,000 personal so-called “watch” antennas and stored for several seconds individually on Aereo’s servers before being transmitted to subscribers. If these 50,000 Aereo subscribers choose to record the game as well, it is received by the 50,000 “record” antennas and stored on Aereo’s servers in 50,000 separate directories, each directory and recording being assigned to an individual Aereo subscriber and available for replay at the request of the subscriber.

**For a more detailed explanation of Aereo’s technology, with pictures of the components, see Inside Aereo: new photos of the tech that’s changing how we watch TV  (Gigaom.com).

As discussed later in this series of posts, these features—the use of massive “antenna farms” utilizing small antennas and duplicative, individualized storage on Aereo’s servers—are what allowed Aereo to persuade the Second Circuit that its system was not being used to infringe the broadcasters’ copyrights. The extent to which other courts around the country, and perhaps the Supreme Court, will agree remains to be seen.

My next post will discuss the Cablevision case, which gave Aereo the legal protection it needed to create this “Rube Goldberg” system, and how it used its design to claim that its service does not violate broadcaster copyright rights.

Click here to go to Part 2.

Aereo, Antenna Farms and Copyright Law: Creative Destruction Comes to Broadcast TV (Part 1)

Does Second Circuit Decision Determine Copyright Legality of Aereo “Antenna-Farm” System Nationwide?

Aereo captures over-the-air television broadcasts and streams them to Aereo subscribers over the Internet. While the broadcasters claim this is copyright infringement (unauthorized public performance), Aereo has created an “antenna-farm” system designed to avoid allegations that its rebroadcast is a public performance under U.S. copyright law. CBS Broadcasting and other broadcasters brought suit for copyright infringement in federal court in New York.  However, Aereo convinced both the federal district court and the Second Circuit Court of Appeals that Aereo does not violate copyrights in the broadcasts. (Aereo shows “how it works” here).

Aereo rolled out its first implementation in New York, and the Second Circuit “test case” was decided there. Now, Aereo plans to launch its service in 22 cities before year end. Boston is scheduled to launch on May 30th. Apart from the legalities of the underlying copyright claim, this raises the question whether the broadcasters can re-challenge the Aereo service as it launches in new locations outside the Second Circuit (which is comprised of New York, Connecticut and Vermont). Unfortunately, federal law in the U.S. is not always uniform. For example, Aereo may have prevailed in the Second Circuit (i.e., New York), but the broadcasters may be able to successfully challenge Aereo in the First Circuit (Boston) when it launches here, and perhaps get a different result. In fact, according to Aereo CBS has threatened to do just that, stating  (after losing in New York), “we will sue in Boston.”

Aereo, whose legal acumen should not be underestimated, does not want to wait to be sued in Boston (or anywhere else in the U.S.), at least not by CBS Broadcasting or CBS’s affiliates. On May 6th it filed a preemptive suit in the Southern District of New York, asking that court to enjoin CBS from filing what Aereo calls “duplicative follow-on suits” or “do overs.” Its new lawsuit was assigned to the same federal district court judge that refused to enjoin Aereo’s system in the first place.

After reviewing Aereo’s complaint, it seems that this suit is tactical rather than strategic.

The suit names 12 defendants in cities where Aereo intends to offer its service, but they are all owned by or are affiliates of CBS Broadcasting. Aereo asserts that CBS’s New York lawsuit sought a nationwide injunction against Aereo, and therefore the outcome of the New York suit governs the nationwide legal relationship between Aereo and CBS, including CBS subsidiaries and affiliates. CBS should not, Aereo argues, be entitled to relitigate the same issue in another federal court.

CBS may be the most aggressive Aereo plaintiff, and it is possible that Aereo believes that by excluding CBS from follow-on cases it will weaken the plaintiff side of the case. But even if CBS is precluded from filing suits outside the Second Circuit (not a foregone conclusion), that will leave several large broadcasters free to file suit in those districts. For example, even though NBC, ABC, PBS and Fox were parties to the New York case, they are not named in Aereo’s declaratory judgment suit. Even if they were added to the suit, it should not be difficult for the broadcasters to find a broadcaster that was not a party to the New York case to carry the flag for them outside of New York. The broadcasters’ strategy may be to challenge Aereo in every federal circuit that Aereo enters, obtain at least one favorable decision (which shouldn’t be hard to do — the Second Circuit’s Aereo decision is controversial and vulnerable to a different interpretation of the law),* and seek Supreme Court review when a split in the circuits develops.

*A federal district court in California has already ruled that an Aereo-like system violates broadcaster copyrights. (Fox v. BarryDiller, CD Cal. 2012). 

The bottom line is that the Second Circuit decision favoring Aereo was, as far as the broadcasters are concerned, a battle, not the war. I anticipate that the broadcasters will ultimately prevail, and that Aereo’s attempt to block additional suits by CBS will turn out to be a minor impediment in the broadcasters’ campaign to have Aereo’s “antenna farm” system of rebroadcast declared illegal under U.S. copyright law.