SCOTUS Sides With TV Against Aereo

WASHINGTON (AP) — The Supreme Court ruled Wednesday that a startup Internet company has to pay broadcasters when it takes television programs from the airwaves and allows subscribers to watch them on smartphones and other portable devices.

The justices said by a 6-3 vote that Aereo Inc. is violating the broadcasters’ copyrights by taking the signals for free. The ruling preserves the ability of the television networks to collect fees from cable and satellite systems that transmit their programming.

Aereo looks a lot like a cable system, Justice Stephen Breyer wrote for the court in rejecting the company’s attempts to distinguish itself from cable and satellite TV. “Aereo’s system is, for all practical purposes, identical to a cable system,” he said.

Aereo is available in New York, Boston, Houston and Atlanta among 11 metropolitan areas and uses thousands of dime-size antennas to capture television signals and transmit them to subscribers who pay as little as $8 a month for the service.

Company executives have said their business model would not survive a loss at the Supreme Court. Following the ruling, billionaire Barry Diller, Aereo’s most prominent investor, said, “It’s not a big [financial] loss for us, but I do believe blocking this technology is a big loss for consumers, and beyond that I only salute (Aereo CEO) Chet Kanojia and his band of Aereo’lers for fighting the good fight.”

Some justices worried during arguments in April that a ruling for the broadcasters could also harm the burgeoning world of cloud computing, which gives users access to a vast online computer network that stores and processes information.

But Breyer said the court did not intend to call cloud computing into question.

Justices Antonin Scalia, Samuel Alito and Clarence Thomas dissented. Scalia said he shares the majority’s feeling that what Aereo is doing “ought not to be allowed.” But he said the court has distorted federal copyright law to forbid it.

Congress should decide whether the law “needs an upgrade,” Scalia said.

Broadcasters including ABC, CBS, Fox, NBC and PBS sued Aereo for copyright infringement, saying Aereo should pay for redistributing the programming in the same way cable and satellite systems must or risk high-profile blackouts of channels that anger their subscribers.

In each market, Aereo has a data center with thousands of dime-size antennas. When a subscriber wants to watch a show live or record it, the company temporarily assigns the customer an antenna and transmits the program over the Internet to the subscriber’s laptop, tablet, smartphone or even a big-screen TV with a Roku or Apple TV streaming device.

The antenna is only used by one subscriber at a time, and Aereo says that’s much like the situation at home, where a viewer uses a personal antenna to watch over-the-air broadcasts for free.

The broadcasters and professional sports leagues also feared that nothing in the case would limit Aereo to local service. Major League Baseball and the National Football League have lucrative contracts with the television networks and closely guard the airing of their games. Aereo’s model would pose a threat if, say, a consumer in New York could watch NFL games from anywhere through his Aereo subscription.

The federal appeals court in New York ruled that Aereo did not violate the copyrights of broadcasters with its service, but a similar service has been blocked by judges in Los Angeles and Washington, D.C.

The 2nd U.S. Circuit Court of Appeals said its ruling stemmed from a 2008 decision in which it held that Cablevision Systems Corp. could offer a remote digital video recording service without paying additional licensing fees to broadcasters because each playback transmission was made to a single subscriber using a single unique copy produced by that subscriber. The Supreme Court declined to hear the appeal from movie studios, TV networks and cable TV channels.

In the Aereo case, a dissenting judge said his court’s decision would eviscerate copyright law.

Judge Denny Chin called Aereo’s setup a sham and said the individual antennas are a “Rube Goldberg-like contrivance” — an overly complicated device that accomplishes a simple task in a confusing way — that exists for the sole purpose of evading copyright law.

Smaller cable companies, independent broadcasters and consumer groups backed Aereo, warning the court not to try to predict the future of television.

Indeed, Scalia himself noted that the high court came within a vote of declaring videocassette recorders “contraband” when it ruled for Sony Corp. in a case over recordings of television programs 30 years ago.

INDUSTRY REACTION TO THE DECISION

Les Moonves, president-CEO of CBS (to Bloomberg Television’s Trish Regan): “We are very pleased. Justice was served. We expected to win, but it certainly feels good to win as decisively as we did…. It’s a very good day for our future.”

Aereo CEO-Founder Chet Kanojia: “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.

“Justice Scalia’s dissent gets its right. He calls out the majority’s opinion as ‘built on the shakiest of foundations.’ Justice Scalia goes on to say that ‘The court vows that its ruling will not affect cloud-storage providers and cable television systems …, but it cannot deliver on that promise given the imprecision of its results-driven rule.’

“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.”

FCC Chairman Tom Wheeler is declining comment on the Aereo decision, according to a spokesman. (One broadcast industry source said: “If Tom Wheeler was banking on an Aereo win at the Supreme Court to help drive more TV stations into the [spectrum] auction, he needs a plan B.”)

NAB President-CEO Gordon Smith: “NAB is pleased the Supreme Court has upheld the concept of copyright protection that is enshrined in the Constitution by standing with free and local television. Aereo characterized our lawsuit as an attack on innovation; that claim is demonstrably false. Broadcasters embrace innovation every day, as evidenced by our leadership in HDTV, social media, mobile apps, user-generated content, along with network TV backed ventures like Hulu.

“Television broadcasters will always welcome partnerships with companies who respect copyright law. Today’s decision sends an unmistakable message that businesses built on the theft of copyrighted material will not be tolerated.”

Marci Ryvicker,Wells Fargo senior analyst: “The opinion makes it clear that this ruling will NOT endanger other technologies. Recall that during oral arguments, several justices expressed concern about the potential implications of their ruling against Aereo to other technologies, namely cloud computing. The opinion seems to be very specific to Aereo. Bottom line: Clearly a positive, and what we had been expecting according to our legal contacts. We continue to like the broadcast group and diversifieds (with emphasis on CBS given near-term catalysts and inexpensive valuation relative to peers).”

Rep. Fred Upton (R-Mich.): “While the court ruled that Aereo had overstepped, invention and innovation are at the heart of America’s global leadership in communications and technology development. This case underscores the mounting need to modernize the 80-year-old Communications Act, which serves as an important, yet outdated, framework for the communications industry. We will continue laying the groundwork toward [an update] to bring our laws into the innovation era so that the United States can  continue leading the world in developing groundbreaking technologies that drive job creation and support consumer choice, economic growth, and social  discourse.”

Rep. Greg Walden (R-Ore.): “The court’s decision reminds us that the complex communications and technology marketplace is constantly innovating and rapidly changing, and that nuances in the law can have a profound effect on content providers and consumers. Providing consumers with a vibrant and innovative content delivery system in the 21st century is an important objective of our [update]. In that effort, we will carefully balance the competing marketplace interests to make sure that this industry continues to innovate, localism is preserved, and consumers ultimately come out on top.”

Washington communications attorney Michael Berg: “This is a big win for broadcasters, sports leagues and other creators of televised programming, and ultimately for viewers. Free over-the-air broadcasts will continue. The court majority reviewed Aereo’s complex technology, concluding that for Copyright Act and Congressional intent for its practical implementation, Aereo is a ‘traditional cable system.’ The majority also rightly limited today’s ruling to ‘Aereo-like’ technology, leaving the door open to different results for other technologies in future cases.”

One of the first reactions to the court’s decision came from Alki David, whose FilmOn service also offered live streaming of some TV stations in addition to other programming, which broadcasters sued to stop. In January, an appeals court said it wouldn’t lift an injunction against FilmOn until the Supreme Court made its ruling.

“This huge blow to net neutrality and consumer rights proves my mistrust of the courts is well founded and that the policies and agencies that are supposed to protect the public interest have failed. They are indeed mere tools of a handful of corporations intent on keeping the people in a stranglehold of bad cable service at extortionist fees. The effects on values the U.S. supposedly takes pride in — from innovation to free markets to freedom of speech itself — are truly scary. But the ruling against the use of remote antennas to serve consumers the free channels they have a right to will not effect FilmOn’s overall business. Aereo, in their own words, is dead. More roadkill on the long road we’ve been on. My condolences to Barry Diller and Chet Kinojia — you fought a good fight. Call me if you need work.”

In response to today’s decision that protected also cloud-based technologies such as Cablevision’s RS-DVR., Cablevision said: “We are gratified that the court’s decision adopted a sensible middle ground, holding that unlicensed retransmission services like Aereo violate the copyright law, while protecting consumer-friendly, cloud-based technologies, such as RS-DVR. The real winner today is the consumer who will continue to benefit from future innovation.”

Tim Winter, president of the Parents Television Council: “We are greatly disappointed with today’s Aereo ruling and we believe that the majority’s opinion failed to reflect the reality of today’s media landscape. This is a ruling for the status quo that hurts consumers. Aereo had the potential to break up the bundled-channel cable TV model that is forcing Americans to pay higher cable bills year after year for channels they don’t want or don’t watch.”

Gannett Co. “is pleased that the Supreme Court has upheld the well-established copyright laws of this country. Like others in the content creating community, Gannett believes that when it provides content, appropriate payment for that content should be made. We are gratified that the Court refused to sanction Aereo’s attempt to circumvent the law.”

Gene Kimmelman, president-CEO, Public Knowledge: “It is very unfortunate for consumers that the Supreme Court has ruled against Aereo, which has provided an innovative service that brings consumers more choices, more control over their programming, and lower prices. We’re concerned that the court’s misreading of the law leaves consumers beholden to dominant entertainment and cable companies that constantly raise prices and gouge consumers. This decision, endangering a competitive choice for consumers, makes it all the more important for the Department of Justice and Federal Communications Commission to guard against anti-competitive consolidation, such as the Comcast/Time Warner Cable merger.”

Media Institute President Patrick Maines: “Aereo was using technology, in this case thousands of dime-sized antennas, in a blatant attempt to circumvent copyright law and to profit from broadcasters’ content without compensating them. The Supreme Court has struck a strong blow in support of our copyright system. The Court has affirmed that technological schemes cannot be used as loopholes to avoid paying for copyrighted content.”

The American Television Alliance: “Today’s Supreme Court ruling means that retransmission consent reform is needed now more than ever. The decision is a reminder that broadcasters are interested in only one thing – protecting their government-sanctioned monopolies. The broadcasters’ business model, which places blackouts ahead of consumers, is devoid of competition or incentive to innovate. We encourage Congress to take advantage of the opportunity that the Satellite Television Extension and Localism Act (STELA) provides to update our video rules to the 21st Century, starting with retransmission consent.”

Gary Shapiro, president-CEO, Consumer Electronics Association: “We are disappointed that the Supreme Court today ruled against innovator Aereo, but are pleased the court said it favored future innovation and specifically referred to the Sony Betamax principles of fair use as a safety valve for new services and technologies. We especially appreciate Justice Scalia’s powerful dissent describing how innovation is often opposed by incumbents who make false, ‘the sky is falling’ predictions about the future. The decision raises issues on the future of broadcasting. Given that consumers are increasingly choosing to view content ‘anytime/anywhere’ on smartphones and tablets, and only 6% of Americans rely exclusively on over-the-air television, we question how much longer broadcasters can claim to justify their use of public spectrum when they oppose innovative services like Aereo which expand their viewing audience.”

Matthew M. Polka, American Cable Association president-CEO: “ACA is concerned because it appears that the Supreme Court’s Aereo ruling negatively affects the rights of small cable operators to utilize individual antenna-based delivery of broadcast services. Although the court attempts to preserve the ability of consumers to enjoy accessing a range of time-shifted programming in the convenient manner enabled by Aereo, the decision drew lines that are not clear as to what is acceptable and what is not and, as a result, will likely have a chilling effect on technology innovators. Although ACA is disappointed that bold, forward-thinking Aereo lost the direct infringement fight in this case, we are hopeful that the court has not slammed the door entirely on Aereo and other related pioneering technologies that enable online consumers to access freely available content.”

Univision Communications said it is “pleased with the Supreme Court’s decision to uphold our country’s well-established and critically important copyright laws. This is a major victory for all consumers and content creators.”

The case is ABC v. Aereo, 13-461. Read the full decision here.