Aereo Ruled Illegal by Supreme Court

Justices Say Aereo Infringes on TV Broadcasters' Copyright

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Aereo CEO Chet Kanojia leaves the Supreme Court following oral arguments.
Aereo CEO Chet Kanojia leaves the Supreme Court following oral arguments. Credit: Andrew Harrer/Bloomberg

Aereo was ruled illegal on Wednesday by the Supreme Court, which held that the company's technology letting subscribers stream and record broadcast TV without the broadcaster's permission infringes on the networks' copyright.

Justices ruled 6 to 3 that Aereo is equivalent to a cable company, not merely an equipment provider. It wasn't clear how the justices' usual ideology would play out in a case about technological innovation and copyright, but in the end it was three of the court's most conservative members who voted in favor of Aereo: Antonin Scalia, Clarence Thomas and Samuel Alito. Stephen Breyer, John Roberts, Anthony Kennedy, Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan ruled against the company.

"Today's decision by the United States Supreme Court is a massive setback for the American consumer," Aereo founder and CEO Chet Kanojia said in a statement provided by a spokesman. "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."

It's a resounding victory for broadcasters such as CBS, NBC, Fox, ABC and allies such as the NFL, which argued that Aereo steals networks' signals and would have forced broadcasters and major sports out of over-the-air transmissions to protect their intellectual property. Like Aereo, they cast the ruling as a victory for consumers.

"Today's decision is a victory for consumers," said Paul Clement, attorney for the broadcasters, in a statement. "The court has sent a clear message that it will uphold the letter and spirit of the law just as Congress intended."

CBS, whose CEO, Leslie Moonves, has been the most vocal about the illegality of Aereo, released a statement following the ruling. "We are pleased with today's decision, which is great news for content creators and their audiences."

The Walt Disney Company echoed that sentiment. "We're gratified the court upheld important copyright principles that help ensure that the high-quality creative content consumers expect and demand is protected and incentivized," it said in a statement.

Aereo had argued that its technology does nothing different than consumers already do with antennas and DVRs of their own, just with dedicated, remote antennas rented individually to subscribers by Aereo.

But the justices found that the serivce was "not simply an equipment provider."

"Aereo sells a service that allows subscribers to watch television programs, many of which are copyrighted, virtually as they are being broadcast," Justice Breyer wrote in his opinion.

"To transmit a performance of an audiovisual work means to communicate contemporaneously visible images and contemporaneously audible sounds of the work," the opinion said elsewhere. "Under the court's assumed definition, Aereo transmits a performance whenever its subscribers watch a program."

Barry Diller, whose IAC/InterActiveCorp backs Aereo, previously said that if the Supreme Court ruled against Aereo, the company would most likely be finished.

"It's not a big (financial) loss for us, but I do believe blocking this technology is a big loss for consumers," Mr. Diller said in a statement provided by IAC after the ruling, "and beyond that I only salute Chet Kanojia and his band of Aereo'lers for fighting the good fight."

It was recently reported that Aereo founder and CEO Chet Kanojia might explore several options in the case of a loss, perhaps even paying retransmission fees to broadcasters in exchange for permission to use their programming. But he has generally said the company had no backup plan.

"We doubt they will continue to exist," Richard Greenfield, analyst at BTIG Research, wrote in a note this week. "The whole purpose of Aereo is to leverage what consumers can legally do by themselves through equipment purchase and shift that upfront investment to a leasing model. If Aereo has to license local broadcast television content within each DMA, the unique consumer value proposition afforded by free over-the-air television evaporates."

One of the biggest worries for Supreme Court justices in deciding the case was the implications a ruling would have on cloud computing. The ruling released Wednesday seemed written to avoid endangering other technologies. "Given the limited nature of this holding, the court does not believe its decision will discourage the emergence or use of different kinds of technology," the ruling said.

An Aereo antenna array.
An Aereo antenna array. Credit: Aereo

Aereo had actually seemed to potentially benefit advertisers in some ways, by expanding the number of people, cord-cutters among them, who saw the commercials in broadcast shows. A legal Aereo that continued to expand subscribers might have brought more eyeballs to broadcast TV, which has seen ratings ebb in recent years. For the broadcasters to capitalize, of course, Aereo and Nielsen would have had to work out a way to include those views in Nielsen's commercial ratings.

And broadcasters valued the retransmission fees they get today from cable and satellite companies more than the theoretical slight expansion of the audience for the ads they carry. Pay-TV companies were watching the Aereo fight closely and considering building their own equivalents to pull in broadcasters' feeds without having to pay fees.

Aereo bowed in 2012 and is currently available in several major cities, including New York, Chicago and Miami. Subscribers pay anywhere from $8 to $12 a month to access a cloud-based digital video recorder. The company has not disclosed its subscriber base.

As Aereo awaited the decision from the Supreme Court, it quietly continued its consumer campaign, releasing several videos to educate consumers on Aereo's offering.

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