The ruling puts the future of Aereo in limbo. Aereo loses copyright fight

The Supreme Court ruled Internet streaming service Aereo illegal Wednesday, handing traditional broadcasters a resounding victory against an upstart that threatened to upend their business model.

In a 6-3 decision, the high court ruled that Aereo is infringing broadcasters’ copyright when it picks up over-the-air TV signals and streams them over the Internet to its subscribers.


The opinion in American Broadcasting Companies Inc. v. Aereo was written by Justice Stephen Breyer. He was joined by Chief Justice John Roberts, Justice Anthony Kennedy and the three liberal justices. Justices Antonin Scalia, Clarence Thomas and Samuel Alito dissented.

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Backed by IAC Chairman Barry Diller, a former Fox and ABC broadcast executive, Aereo launched in February 2012 in New York City. From the get-go, the company drew a legal fight with the broadcast industry, which claimed the service, which doesn’t pay a dime to broadcasters, infringes their copyright.

The ruling keeps in place the broadcast business model of collecting fees from cable and satellite systems that retransmit their programming to paid subscribers.

Aereo, currently in 11 markets, uses dime-sized antennas to capture over-the-air local TV broadcasts and feed them to users via the Internet. Subscribers pay an $8 monthly fee for the service. For an extra $4, users can get 20 hours of DVR storage, or for $12/month, 60 hours of DVR storage.

To the court, Aereo’s system looked a lot like cable. “Aereo’s behind-the-scenes technological differences do not distinguish Aereo’s system from cable systems, which do publicly perform,” Breyer wrote in his majority opinion.

Unless Aereo can figure out how paying broadcast copyright fees fits into its business model, the service will probably have to shut its doors. That seemed to be the opinion of Diller, who after the high court ruled told CNBC: “We did try, but it’s over now.”

For broadcasters, the ruling was a huge relief in that other pay-TV services, particularly cable, will not be able to co-opt Aereo’s technology and avoid paying fees to carry local TV stations.

Both the National Football League and Major League Baseball are no doubt pleased with the decision as well. Both organizations filed amicus briefs with the Court, asking it to shut down Aereo. A win for Aereo, they said, would force the leagues to move sports content to paid cable. Both leagues currently license to the broadcast networks the rights to televise hundreds of games a year.

“What this decision does is affirm the mold we have, that companies that spend billions on content for an expected revenue stream, is going to continue,” said Neal Katyal, a partner with the law firm Hogan Lovells and former acting U.S. solicitor general, who advised broadcasters in the case.

“National Association of Broadcasters is pleased the Supreme Court has upheld the concept of copyright protection that is enshrined in the Constitution by standing with free and local television,” the lobby group said in a statement.

Aereo had long argued that it is simply renting a personal antenna to its subscribers, something that consumers could do themselves if they wanted to go out and put an antenna on their own roof.

Reacting to the ruling, Aereo’s CEO Chet Kanojia called it a “massive setback for the American consumer.” In a statement, he took offense at the Court’s suggestion that those interested in developing such technologies should turn to Congress. “That begs the question: Are we moving towards a permission-based system for technology innovation?” Kanojia asked.

Aereo defined itself as a cloud-based service, and Kanojia raised fears that the ruling, despite the court’s assurances, could damage the broader cloud-computing market — a fast-growing sector for the tech industry. Kanojia specifically pointed to Scalia’s dissent, which questioned the “imprecision” of the court’s ruling.

“The net effect of this ruling casts a pall on investment in any innovation that can be construed to ‘perform’ copyrighted material,” said Ed Black, president of the Computer & Communications Industry Association. “This ruling sends a signal to investors and venture capitalists that their resources in supporting such startups and innovators would be more safely invested elsewhere.”

Diller and other investors had thrown nearly $100 million into Aereo with the goal of expanding to 30 or 40 markets. “It’s not a big (financial) loss for us [IAC], but I do believe blocking this technology is a big loss for consumers, and beyond that I only salute Chet Kanojia and his band of Aereo’lers for fighting the good fight,” Diller said in a statement.

All the major broadcast networks including ABC, CBS, NBC, Fox, and PBS filed suit against Aereo, as have local TV station owners such as Hearst TV and Sinclair Broadcast Group. Aereo has won some court cases, and broadcasters have won some, opening up the opportunity for the Supreme Court decision.

“We think Aereo was on to something filling a need for low cost, flexible viewing options,” said Ellen Bloom, senior director of federal policy for Consumers Union. “As cable prices keep skyrocketing, the consumer demand will continue to grow for more personalized, affordable ways to watch television.”

House Judiciary Committee Chairman Bob Goodlatte (R-Va.) said the Supreme Court’s decision “reinforces the importance” of his plan to launch a comprehensive review of the U.S. copyright law.

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