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Tuesday, April 2, 2013

Aereo Wins a Court Battle, Dismaying Broadcasters

Aereo Wins a Court Battle, Dismaying Broadcasters

AEREO challenges one of the most basic tenets of the television business. Broadcasters have been trying to sue it out of existence for a year. But after suffering a big setback on Monday, the broadcast world may have to learn to live with it.

The founder of Aereo, Chet Kanojia, left, in 2012 with the company's chief technology officer, Joseph Lipowski, in a Brooklyn warehouse that hosts miniature antennas, each belonging to an Aereo subscriber.

A federal appeals court in New York on Monday upheld a ruling in favor of Aereo, the start-up Internet service that streams stations without compensating them. The decision set the stage for a full-blown trial.

The broadcasters, surprised and disappointed, said they were confident they would prevail eventually. But as the legal battles continue, Aereo, for now available only in New York City, plans to offer its service in nearly two dozen more cities this year.

The service’s triumphant backer, the media mogul Barry Diller, said of the ruling: “We always thought our Aereo platform was permissible and I’m glad the court has denied the injunction. Now we’ll build out the rest of the U.S.”

Aereo is able to stream broadcast stations by operating an array of tiny antennas that pick up over-the-air signals. Subscribers paying about $8 a month receive control over one antenna and can select programming over the Internet. Aereo essentially turns the subscriber’s phone, computer or tablet into a small television set, but without the rabbit ears that would normally be needed.

The array of antennas in Brooklyn allows Aereo to avoid paying the retransmission fees that operators like Time Warner Cable and DirecTV pay for access to stations. Those fees are an increasingly important revenue source for the stations, so it is not surprising their owners have sued to protect them.

The broadcasters, including CBS Corporation, Comcast, News Corporation and the Walt Disney Company, filed two suits against Aereo more than a year ago, weeks before the service was made available in New York. But a district court judge denied the request for a preliminary injunction last summer.

The Court of Appeals for the Second Circuit affirmed the lower court ruling on Monday in a 2-to-1 decision, saying that Aereo’s streams of TV shows to individual subscribers did not constitute “public performances,” and thus the broadcasters’ copyright infringement lawsuits against the service “are not likely to prevail on the merits.”

Aereo also includes a digital video recorder not unlike the remote digital video recorder system that was operated by Cablevision and was upheld in court several years ago. Judge Christopher F. Droney pointed to that decision as he affirmed the previous court ruling in favor of Aereo.

Another appeals court judge, Denny Chin, dissented on Monday, calling Aereo’s antenna system “a Rube Goldberg-like contrivance, overengineered in an attempt to avoid the reach of the Copyright Act and to take advantage of a perceived loophole in the law.” He concluded that Aereo’s streams to subscribers were “public performances” and thus violations of copyright.

But the majority opinion gave momentum to Aereo, which announced a plan to expand to 22 more cities in January. Broadcasters aren’t the only ones affected by the technology. While it doesn’t have many subscribers now, Aereo gives television viewers a new and relatively cheap way to subscribe to a limited diet of TV and gives advertisers yet another way to reach those viewers.

Aereo’s wins in court may make other companies more comfortable in joining forces with the service; prospective partners include cable channels that want carriage (Bloomberg TV signed the first such deal with Aereo last year) and wireless providers. And the mere existence of the service may cause the broadcasters to speed up their own plans for streaming programming to phones and tablets.

After the ruling on Monday, analysts suggested that some cable and satellite providers â€" those that pay billions of dollars in retransmission fees for the right to carry broadcasters’ signals â€" might start to mimic Aereo’s system to get around the fee requirements, or at least improve their position at the bargaining table. Others predicted that the broadcasters might lobby Congress to change the law.

Undeterred, a group of the plaintiffs, including Fox and PBS, said they intended to move to trial. “Today’s decision is a loss for the entire creative community,” they said in a statement. “The court has ruled that it is O.K. to steal copyrighted material and retransmit it without compensation. While we are disappointed with this decision, we have and are considering our options to protect our programming.”

The broadcasters say they are heartened by a victory in December in Federal District Court in Los Angeles against an Aereo-like service named Aereokiller, backed by the billionaire Alkiviades David. CBS alluded to that ruling when it said in a statement on Monday, “As the courts continue to consider this case and others like it, we are confident that the rights of content owners will be recognized, and that we will prevail.”

A version of this article appeared in print on April 2, 2013, on page B3 of the New York edition with the headline: Aereo Wins a Court Battle, Dismaying Broadcasters.