John P. Falcone/CNET

In another victory for Aereo, the controversial TV-over-the-Web startup, a federal appeals court on Tuesday refused to rehear an earlier decision allowing the service to continue in the New York City area.

The result was widely expected, as success in these kinds of petitions is rare, legal experts and industry watchers told CNET. Attention now turns to the main trial in this case to determine whether Aereo's service oversteps copyright law, as well as other suits elsewhere that the media industry is pitting against Aereo and Aereo-like services.

Aereo, which isbacked by IAC Chairman Barry Diller, uses antenna/DVR technology to let consumers watch live, local, over-the-air television broadcasts on some Internet-connected devices, including the iPad and iPhone. That capability provoked a lawsuit from TV broadcast giants including NBC, ABC, Fox, and CBS (the parent of CNET), which allege that the service violates their copyrights and that Aereo must pay them retransmission fees.

Today's decision lets stand a ruling in April in which the U.S. Court of Appeals for the Second Circuit denied a preliminary injunction (PDF) from the TV networks preventing Aereo from transmitting recorded broadcast television programs to subscribers. The court then found that the networks, had "not demonstrated that they are likely to prevail on the merits of this claim in their copyright infringement action."

The networks followed up by requesting the case be reheard before a full panel of judges, but the majority of judges polled said today (PDF) that they didn't want to rehear the case. However, Circuit Judge Denny Chin, joined by Circuit Judge Richard C. Wesley, wrote a dissent opinion calling Aereo a "sham" that was designed to "solely to avoid the reach of the Copyright Act and to take advantage of a perceived loophole in the law."

Aereo said in a statement that it is "pleased by the further ruling" in its favor.

On the other side, NBCUniversal said it would continue to use the courts to fight "unauthorized services from profiting from local stations' programming without permission" and that it believes that Chin's "cogent" dissenting opinion will become the rationale that leads to a national resolution of the issue.

Neither CBS nor Fox was surprised by the decision, nor were they deterred. Fox said in a statement that the denial "while disappointing was not unexpected." It said it was reviewing its options, which included seeking a hearing in the U.S. Supreme Court and proceeding to the full trial. CBS said the decision came as "no surprise" and all industry lawsuits against Aereo and similar services would go forward as planned.

The networks are ostensibly seeking fees from Aereo for allowing its customers to record their programming. Aereo, however, has argued that the customers actually own the antenna, meaning Aereo is not responsible to pay the fee.

Amid the legal battle, Aereo has been busy expanding its service beyond New York. The startup plans to expand to a total of 22 cities during the course of this year. The service became available in Boston in May and Atlanta last month.

But Aereo already faces a lawsuit over its Boston service. Hearst-owned TV station WCVB filed a lawsuit late last month aiming to stop Aereo from retransmitting its over-the-air signals without a license.

Broadcasters are pinning their hopes on other cases in different parts of the country, including a case against an Aereo copycat on the West Coast that has won broadcasters the kind of preliminary injunction they lost in New York, said David J. Wittenstein, a communications lawyer at Dow Lohnes.

He called Tuesday's denial the last gasp of broadcasters to halt Aereo while their case goes to trial, which now can proceed. "Will people be surprised if Aereo wins that? No, because the court has already signaled what it believes" with the injunction decisions.

Meanwhile, Rich Greenfield, an analyst for BTIG Research, said the ruling increased confidence in the legal basis of Aereo's service. "The broadcasters keep telling you they're going to win, but every time they appeal, they keep losing," he said. "While it drags, Aereo can expand more."

And the longer Aereo exists, it gives distributors like cable companies more leverage to fight back against retransmission fees, he added. Should Aereo be found to be legally legit, it could let pay-TV providers simply shrug next time networks ask them for money to retransmit their over-the-air channels, since they can turn to an Aereo-like technology instead.

With retransmission fees one of the most valuable facets of their business right now, that's what the networks fear most.

Update, 3:34 p.m. PT: Adds comment from companies involved in the case and from legal and industry specialists.

CNET's Joan E. Solsman contributed to this report.