Supreme Court rules against start-up Aereo, saying it is violating copyright laws

The Supreme Court ruled that video streaming service provider Aereo is in violation of copyright law when it streams over-the-air TV channels to consumers. The Post's Brian Fung explains what the ruling means and how it will affect you. (Jason Aldag/The Washington Post)

The Supreme Court delivered a major victory to the nation’s television networks on Wednesday, ruling that an upstart Internet company is violating copyright laws by transmitting programs without paying hefty licensing fees.

In a 6-to-3 decision that kept the TV industry’s business model essentially intact, the court said that Aereo — a two-year-old start-up that streams shows to tablets, laptops and other devices — must pay the networks for content, as cable systems do.

“Much of this programming is made up of copyrighted works. Aereo neither owns the copyright in those works nor holds a license . . . to perform those works publicly,’’ Justice Stephen G. Breyer wrote for the majority, joined by Chief Justice John G. Roberts Jr. and Justices Anthony M. Kennedy, Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan.

The decision dealt a potential death blow to Aereo and could discourage millions of consumers who have been increasingly clamoring for the type of service the company provides — sports and other live television programs streamed online, without the cost of a cable television bundle. If the ruling had gone the other way, it could have upended a television industry that has grown fearful of the disruptive force of Internet video.

Aereo chief executive Chet Kanojia called the decision “a massive setback for the American consumer.’’ Although he vowed that the New York-based firm’s “work is not done,’’ media mogul Barry Diller, a major investor in Aereo, signaled that company had probably lost its effort to take on the titans of U.S. broadcasting.

“We did try, but it’s over now,’’ he told CNBC. The immediate effect on Aereo’s subscribers, who live in 11 cities including New York, Baltimore and Atlanta, was unclear. The company had hoped to launch in the District this year and eventually expand nationwide.

Aereo uses dime-sized antennas to grab TV signals out of the air. Those antennas feed the broadcast programming to a digital video recorder, which then plays the programming back to subscribers on demand. Memberships start at $8 a month.

The ruling left uncertain the potential effects on other companies that offer Internet cloud services, as Aereo does. Lawyers for Aereo had warned that a decision favoring the networks could land other services such as Google Drive in court, and Kanojia said Wednesday that the high court had sent “a chilling message to the technology industry.’’

But Breyer, while acknowledging that the case raised difficult questions about technology, said the legal ramifications were limited.

“The court does not believe its decision will discourage the emergence or use of different kinds of technologies,” Breyer wrote.

Justice Antonin Scalia dissented, saying the majority had twisted the federal copyright statute to “produce a just outcome.” He was joined by Justices Clarence Thomas and Samuel A. Alito Jr.

Neal Katyal, a lawyer representing the networks, said “the sweeping victory” only reaffirmed what should have been clear: “that something for nothing is not the American Way, and if people want to transmit and sell other people’s work, they have got to pay for it.”

With fortunes at stake, the case had drawn support and opposition from dozens of groups representing powerful technology and media firms, consumer advocates and even the Obama administration, which weighed in on the side of the broadcasters. ABC, NBC, CBS, Fox and PBS, among others, were all parties to the suit against Aereo. Local broadcasters, the National Football League and Major League Baseball supported the networks, while smaller cable companies backed Aereo.

Both the company and the networks had asked the court to settle the issue, with Aereo saying its plans for future expansion would be hampered by unresolved legal questions.

The retransmission fees that cable and satellite firms are required to pay the networks for airing their programs have been a huge boon to broadcasters, reaching $3.3 billion last year. The fees are expected to more than double over the next five years, growing to $7.6 billion, according to media research firm SNL Kagan. It is unclear how much Aereo will now have to pay in such fees.

If Aereo had won, experts said it could have radically changed the way people watch their favorite programs.

Live sports and other popular shows available only on broadcast TV or cable television could have been accessed more conveniently and cheaply online. That could have led many consumers to cancel cable subscriptions that typically reach well over $100 a month — as 5 million households have done in recent years — in favor of alternatives such as a broadband Internet connection and subscriptions to Aereo and other video service providers such as Netflix and Hulu.

Aereo offers all of the programming that appears on CBS, NBC, Fox, ABC, PBS and about two dozen other channels. Customers can see NCAA basketball tournament games live or the most recent episodes of shows such as “American Idol” or “Dancing With the Stars’’ only a few seconds after they air on the networks.

The networks contended that Aereo violates a part of the copyright law that requires network permission for the right to transmit “public performances” of their work. Because Aereo’s individual antennas are dedicated to individual subscribers, the firm argued that it is not transmitting the program to the public, but only allowing the individual to capture what is available free over the airwaves. A panel of the U.S. Court of Appeals for the 2nd Circuit sided with Aereo.

But Breyer said the lower court decision was wrong. Just because Aereo’s system is activated by the user and records only what that person tells it to does not mean that it can be distinguished from cable providers, he wrote.

“Why should any of these technological differences matter?” Breyer wrote. “They concern the behind-the-scenes way in which Aereo delivers television programming to its viewers’ screens. They do not render Aereo’s commercial objective any different from that of cable companies.”

Congress, he said, made clear that such companies must pay fees to broadcast such material following a Supreme Court decision that went the other way.

In dissent, Scalia belittled the majority’s “looks-like-cable-TV” test.

“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.

He said he shared the majority’s apparent view that Aereo had found a “loophole” that allowed it to show the networks’ copyrighted material without having to pay for it.

“It is not the role of this court to identify and plug loopholes,” Scalia wrote. “It is the role of good lawyers to identify and exploit them, and the role of Congress to eliminate them if it wishes.”

The case is American Broadcasting Co. v. Aereo .

Jerry Markon is a political accountability reporter for the Post’s National Desk, focusing on short-term investigative stories about the Affordable Care Act, lobbying and other topics. He also serves as lead Web writer for major breaking national news.
Robert Barnes has been a Washington Post reporter and editor since 1987. He has covered the Supreme Court since November 2006.
Cecilia Kang is a staff writer covering the business of media and entertainment.
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