Aereo suffers huge blow after Supreme Court rules streaming-TV service violates copyright

Aereo CEO Chet Kanojia leaves the U.S. Supreme Court after oral arguments April 22, 2014 in Washington, DC. (Photo by Alex Wong/Getty Images)

The Supreme Court declared on Wednesday that internet TV service Aereo violates copyright law, in a closely-watched case that may have long-term implications for both the TV and cloud computer industries.

In a 6-3 opinion, Justice Stephen Breyer wrote that Aereo infringed on broadcasters’ exclusive right to transmit their programs over-the-air, and that the startup engaged in an unlicensed public performance. Breyer concluded that Aereo was more similar to a cable company and not, as Aereo claimed, like a modern day antenna and VCR service that let consumers carry out private viewing (my annotation):

In sum, having considered the details of Aereo’s practices, we find them highly similar to [early cable TV services] .. Insofar as there are differences, those differences concern not the nature of the service that Aereo provides so much as the technological manner in which it provides the service. We conclude that those differences are not adequate to place Aereo’s activities outside the scope of the Act.

Aereo, which launched in 2012, rattled broadcasters with its service, which let subscribers pay $8 a month to capture and record free over-the-air TV signals and play them on their computers or on mobile devices. The big broadcasters — ABC, CBS, NBC and Fox — sued Aereo almost immediately after it opened.

This week’s ruling means that Aereo, which operates in about a dozen cities, will have to wind down its operations almost immediately, and its investors, led by media mogul Barry Diller, will have to walk away from the nearly $100 million they have put into the company.

However, Aereo CEO Chet Kanojia vowed in a statement that the company would “continue to fight:”

“Today’s decision by the United States Supreme Court is a massive setback for the American consumer. 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. This sends a chilling message to the technology industry. … We are disappointed in the outcome, but our work is not done. We will continue to fight for our consumers and fight to create innovative technologies that have a meaningful and positive impact on our world.”

In deciding to shutter Aereo, the court took up the broadcasters’ suggestion to look at the service in the context of the history of cable TV. Specifically, the court looked at changes to the Copyright Act in 1976 that granted the broadcasters expanded rights in publicly “performing” their works.

Based on those changes, the court found that Aereo, despite its one-antenna-per-subscriber policy, was not just renting equipment that allowed customers to enjoy a private performance — that private right is what allows people to reproduce shows with a VCR or a DVR. The single antenna did not matter because:

the many similarities between Aereo and cable companies, considered in light of Congress’ basic purposes in amending the Copyright Act, convince us that this difference is not critical here. We conclude that Aereo is not just an equipment supplier and that Aereo “perform[s].”

The court also blew off concerns expressed in the courtroom that granting copyright owners public performance rights in cloud-based transmission could have unintended consequences.

“We do not believe that our limited holding today will have that effect,” the court wrote as part of a brief explanation.

The conservatives on the court, however, complained that the majority had mangled the plain and commonsense meaning of the law, and specifically what it means to “perform.”

Writing in dissent, Justice Antonin Scalia argued that Aereo did not “perform” at all — an interpretation of the law that enjoyed considerable support by many law professors. Scalia argued that the majority ruling did not reflect what Aereo’s service actually did, and warned that other companies and services would struggle to navigate a “guilt-by-resemblance regime” and complained of “an improvised standard (“looks-like-cable-TV”) that will sow confusion for years to come.”

Barry Diller was philosophic over the ruling, telling CNBC: “We did try, but it’s over now .. It’s not a big [financial] loss for us, but I do believe blocking this technology is a big loss for consumers.”

The head of the National Association of Broadcasters, Gordon Smith, crowed over the ruling:

“Today’s decision sends an unmistakable message that businesses built on the theft of copyrighted material will not be tolerated.”

The question at the heart of the case turned on the tiny antennas that Aereo rented to each subscriber. The company argued that they were like a private rooftop antenna attached to a VCR, while broadcasters described the setup as a “Rube Goldberg” device to mask copyright infringement.

Broadcasters and sports leagues feared that a win by Aereo would lead cable companies to rejigger their services in an attempt to avoid paying so-called retransmission frees. Meanwhile, many big tech and internet companies supported Aereo, warning that an adverse ruling could threaten the legal status of popular consumer cloud services like Dropbox and Google Drive.

When the Supreme Court heard the case in April, the Justices appeared to be struggling with how to take account of the interests of content owners without threatening the emerging cloud computer industry.

The entire ruling follows below:

Aereo

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