Supreme Court deals severe blow to Aereo

The U.S. Supreme Court on Wednesday ruled that Aereo, a service that lets users watch broadcast television on Internet-connected devices with dime-sized digital antennas, is effectively stealing content from the media companies.

In a 6-to-3 decision (pdf), the justices rejected Aereo's argument that it is only a provider of equipment and decided that, for purposes of copyright law, the service should effectively be treated like a cable company. The ruling states, "given Aereo's overwhelming likeness to the cable companies targeted by the 1976 amendments, this sole technological difference between Aereo and traditional cable companies does not make a critical difference here."

"The Supreme Court today found that Aereo is similar to cable companies and publicly performs copyrighted works when it re-transmits over-the-air signals to its customers," said University of Notre Dame law professor Mark McKenna.

At issue in the case is what constitutes a "public performance" of copyrighted material, a key standard under the law. Broadcasters involved in the case -- CBS (CBS), the parent company of CBSNews.com; Comcast (CMCSA), 21st Century Fox (FOXA); and Walt Disney (DIS) -- argued that Aereo is illegally taking their content.

Aereo launched in 2012, immediately gaining attention for its method of letting consumers access broadcast TV over the Internet. The company assigns customers an individual, remote antenna that lets consumers pick up broadcast, cable or satellite signals. Programs can also be recorded to a DVR.

Aereo maintains that it merely provides technology to view video content privately, much as someone would use a roof-top antenna to watch TV at home. As a result, the company argues, it isn't airing a public performance; rather, it is enabling many private performances. In its defense, Aereo cites a 2008 Cablevision case in which a federal court ruled that remote DVR storage systems don't infringe copyright protections.

Aereo founder and CEO Chaitnaya "Chet" Kanojia expressed disappointment with the Supreme Court's ruling, calling it a "massive setback" for consumers.

"We've said all along that we worked diligently to create a technology that complies with the law, but today's decision clearly states that how the technology works does not matter," he said in a statement. "This sends a chilling message to the technology industry."

Broadcasters had claimed that Aereo is more like a cable subscription than a DVR service, arguing that the company goes beyond simply providing equipment for watching TV.

"We are pleased with today's decision which is great news for content creators and their audiences," CBS said in a statement.

The National Association of Broadcasters (NAB) said that "Today's decision sends an unmistakable message that businesses built on the theft of copyrighted material will not be tolerated."

The stakes in the case were high not only for the litigants, but also for consumers. Top media executives, including CBS chief executive Les Moonves, had raised the possibility of moving their networks online and to cable if they lost in court. That would take a particular toll on networks' local TV affiliates, which would no longer have access to popular programming.

Chase Carey, chief operating officer of 21st Century Fox, had hinted at even stronger action, saying the company wouldn't "sit idle and allow our content to be stolen."

The battle between Aereo and the broadcasters had been brewing for some time. Kanojia has said that the media companies threatened legal action after he first told them about the service several years ago.

Aereo, which had been rolling out its service to cities across the nation, charges $8 a month for access to an antenna that in turn gives users access to the content of ABC, CBS, Fox and NBC over their computers and smartphones, bypassing traditional pay TV operators such as cable and satellite providers.

Also worrisome for the broadcasters was that Aereo didn't pay fees to re-transmit their programming, an increasingly lucrative part of the companies' business that research firm SNL Kagan expects to hit $7.15 billion by 2019.

"The stakes are potentially enormous, and the Supreme Court is aware of that," said Andy Baum, a partner at Foley & Lardner.

Aereo supporters, including Barry Diller, Chairman of IAC/InterActiveCorp. (IACI), contended that a ruling against the service would have an adverse impact on a range of important new technologies, including "cloud" computing. Following the decision, Diller said in a statement, "It's not a big [financial] loss for us, 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."

Kanojia said in a news release earlier this year, "They are asking the Court to confine consumers to outdated equipment and limit their access to lawful technology in order to protect a legacy business model, the success of which is built on eliminating consumer choice and competition in the marketplace."

That view didn't sway the court. During oral arguments, Chief Justice John Roberts seemed to drill straight to the heart of the broadcasters' claims by asking whether Aereo created its system to circumvent copyright law.

The Supreme Court said in the ruling that it believed its decision was limited and would not imperil emerging technologies. The NAB concurred in its statement: "Aereo characterized our lawsuit as an attack on innovation; that claim is demonstrably false."

McKenna is less sure that the ruling might not curb innovation. "Despite the Court's assurances that this is a narrow decision, it made no meaningful distinction between Aereo and other cloud computing services," he said. "The decision could therefore have enormous effect [beyond] its particular context."

Where Aereo goes from here is unclear, although Kanojia had previously suggested that losing the case could effectively shut the company down. But he vowed Wednesday to "fight on for our consumers," saying Aereo would carry on trying to "create innovative technologies that have a meaningful and positive impact on our world."

Some legal experts also expect some fundamental changes in copyright law in the years ahead.

"There is a large-scale revision of the Copyright Act that is in the offing," said Jacqueline Lipton, co-director of the University of Houston Law Center's Institute for Intellectual Property and Information Law. "Congress is going to have to take a look at it, but that's not going to be fast enough to help Aereo."