Supreme Court rules against Internet startup Aereo, likening it to cable TV

The US Supreme Court ruled Wednesday that Aereo, Inc. was violating federal copyright law by offering network television programming broadcast over the public airwaves to its paid subscribers via the Internet.

In a 6-to-3 decision, the high court concluded that the startup company, armed with innovative cloud computing technology, had a business model that was “highly similar” to cable television firms that are required to pay transmission fees to the major broadcast companies.

As a result of that similarity, the majority justices decided that Aereo, also, fell within the bounds of federal copyright law.

“Having considered the details of Aereo’s practices, we find them highly similar to those of the CATV systems [that must pay transmission fees under federal copyright law],” Justice Stephen Breyer wrote for the court.

“Insofar as there are any 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,” he said.

“We conclude that those differences are not adequate to place Aereo’s activities outside the scope of the [Copyright] Act,” Justice Breyer said.

In a dissent, Justice Antonin Scalia said the majority was adopting “an improvised standard (‘looks-like-cable-TV’) that will sow confusion for years to come.”

“I share the Court’s evident feeling that what Aereo is doing (or enabling to be done) to the Networks’ copyrighted programming ought not to be allowed,” Justice Scalia said. “But perhaps we need not distort the Copyright Act to forbid it.”

The decision marks a significant victory for the nation’s leading broadcast companies, shoring up their economic clout and power to demand fees from cable systems and others seeking to distribute programming that is originally offered free over the public airwaves.

At the same time, the decision will short-circuit what some analysts had viewed as a potential revolution in how Americans watch television.

The decision stems from a lawsuit filed by a group of major broadcasting companies seeking to shut down Aereo. The companies, including ABC, CBS, NBC, FOX, PBS, and others, argued that Aereo was stealing their copyright-protected programming by intercepting it on the public airwaves and re-broadcasting it to Aereo subscribers via the Internet.

The company denied the theft charge. Company lawyers argued that Aereo’s innovation allowed the firm to offer subscribers the ability to watch broadcast television on their computer, tablet, or cell phone via the Internet. The service cost $8 per month.

Aereo’s technology was designed to take advantage of the original arrangement between the major broadcast companies and the federal government under which the companies were given access to the limited spectrum of public airwaves in return for providing their programming free of charge.

The broadcast companies make money by showing advertisements with their programs. The business model has proven highly lucrative.

But with the advent of cable television, the broadcast companies developed a second major source of revenue. They began to charge cable firms a fee for access to the programs the broadcast companies were offering free to anyone with a television and an antenna.

Aereo sought to exploit this business arrangement by using cloud computing technology to permit its subscribers to access an array of antennas and cloud-based digital video recorders to make a copy of any broadcast program and watch it almost immediately or at any time later.

The key question in the case was whether this innovation was an extension of public access to broadcasting or an attempt to steal copyright-protected programming from the broadcasters.

Aereo maintained it was simply an equipment provider, allowing its subscribers to decide which of the freely-available programming on the public airwaves they would like to watch or record.

The majority justices rejected this contention. “Aereo is not simply an equipment provider,” Breyer said.

It was the company itself, not the subscribers, that was transmitting the networks’ programming, he said.

In his dissent, Scalia said there was an important difference between Aereo’s operations and those of cable television firms involved in re-transmitting network programs.

Under Aereo’s system, it was up to the subscriber to decide which program to watch. The Aereo system only began collecting the broadcast signals from public airwaves after receiving a request from a subscriber.

Scalia said that Aereo is like a copy shop that provides patrons with a library card.

“Aereo offers access to an automated system consisting of routers, servers, transcoders, and dime-sized antennae,” he said. “Like a photocopier or VCR, that system lies dormant until a subscriber activates it. When a subscriber selects a program, Aereo’s system picks up the relevant broadcast signal, translates its audio and video components into digital data, stores the data in a user-specific file, and transmits that file’s contents to the subscriber via the Internet – at which point the subscriber’s laptop, tablet, or other device displays the broadcast just as an ordinary television would.”

Unlike video-on-demand services, Aereo does not have a pre-stored selection of movies or programs.

“The key point is that subscribers call all the shots: Aereo’s automated system does not relay any program, copyrighted or not, until a subscriber selects the program and tells Aereo to relay it,” Scalia said.

Scalia said that Aereo might be secondarily liable under the Copyright Act, but that it was not directly liable as claimed by the majority justices.

Breyer dismissed Scalia’s example. “The dissent’s copy shop argument, in whatever form, makes too much out of too little,” he said.

“Given Aereo’s overwhelming likeness to the cable companies targeted by the 1976 amendments [to the Copyright Act], this sole technological difference between Aereo and traditional cable companies does not make a critical difference here,” he said.

Joining Breyer’s majority opinion were Chief Justice John Roberts and Justices Anthony Kennedy, Ruth Bader Ginsburg, Sonia Sotomayor, and Elena Kagan.

Justices Clarence Thomas and Samuel Alito joined Scalia’s dissent.

The case was ABC v. Aereo (13-461).