Remember the startup Aereo? That's the Boston-based outfit that tried to sell TV over the Internet for $8 a month before it was stymied by the TV networks. The networks argued that Aereo's system infringed their copyrighted programs. After years of legal battles, the Supreme Court sided with the networks in 2014. The court says that Aereo's system of "renting" tiny antennas to each customer didn't protect it from copyright allegations. In a 6-3 opinion, the high court held that Aereo looked like a cable system, so its users weren't entitled to free over-the-air broadcasts.

Aereo went back and argued that if it was so much like a cable system, it should be allowed to pay the same (low) royalty rates that the cable industry pays. The courts rejected that argument, though. Aereo looked too much like a cable system to have access to free OTA transmissions, but apparently not enough like one to get the state-mandated royalty rates that cable providers pay.

FilmOn CEO Alki David brashly created an Aereo competitor with his own tiny antennas in 2012, even calling it AereoKiller at first. But whereas Aereo and its predecessors had lost their battles to be defined as a "cable system," FilmOn managed to pull out a win in a Los Angeles federal court in 2015, when US District Judge George Wu ruled that the company should be allowed to carry on with its business if it paid the compulsory licensing rate. (FilmOn also rebranded as FilmOn X and dropped the small antennas strategy following Aereo's loss.) Wu acknowledged his decision was in conflict with other district courts, as well as the 2nd Circuit appeals court. So he allowed the TV networks fighting FilmOn to immediately appeal to the 9th Circuit.

More than a year later, the 9th Circuit has ruled on the matter, and it has handed another big win to the networks.

No Section 111 for you, Internet

FilmOn had argued that Section 111 of the Copyright Act defined cable systems in a "technology agnostic" and sweeping manner. The company noted that the section allows for "wires, cables, microwave, or other communications channels." Remarkably, the judges who authored today's opinion (PDF) said they weren't sure that the Internet counts as a "communications channel." The opinion, by Senior Circuit Judge Diarmuid F. O’Scannlain, quotes Fox's expert, who argued that a "communications channel" is characterized by "bandwidth, noise, and throughput." Fox's expert denied that the Internet was such a channel.

The judges also looked at the historical context of Section 111, which was written in 1976, when the cable industry "was a fledgling" that needed help with the transaction costs that would result from negotiating with individual copyright owners. Congress wanted "to balance the socially useful role cable systems had come to play, on the one hand, against the property interests and creative incentives of copyright holders, on the other."

Extending Section 111 to the Internet transmissions "would not further, and might in fact jeopardize, the values just described," the judges held. Their rationale is that the Internet has no geographic boundary and "can retransmit works across the globe instantaneously." And Internet signals "are more vulnerable than traditional cable to unauthorized copying and other acts of piracy."

In an e-mailed statement, FilmOn lawyer Ryan Baker told Ars:

FilmOn X is disappointed with the Ninth Circuit’s opinion, which allows the Copyright Office to further its narrow agenda rather than give meaning to the plain language of the relevant statute. FilmOn X continues to believe Congress intended that cable companies could utilize modern communications channels to deliver broadcast television to the American public. Similar issues are currently before the Seventh and D.C. Circuit Courts of Appeal. FilmOn X remains hopeful that those appellate courts will apply the statute as written and shun any attempt to impose extratextual limitations on the compulsory license.

"Wars are won," said FilmOn CEO Alki David in an e-mail to Ars. "Lost battles are an inconvenience."

Public Knowledge, a copyright advocacy group that has supported FilmOn's position, expressed hopes that FilmOn might prevail in another appeal.

"A legal result where online video services have the same copyright liabilities as traditional cable services, but not the same copyright benefits (the compulsory license), is not a good result for consumers or competition," said Public Knowledge lawyer John Bergmayer in an e-mailed statement. "More broadly, it's long overdue for Congress to revisit the outdated and overly complex retransmission consent/compulsory license system that makes new entry into the video marketplace overly burdensome."

Update: This post was updated to add comment from FilmOn's lawyer and from Alki David.