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Appeals Court Refuses to Shut Down Aereo

Service transmits broadcast signals

In a blow to broadcasters, a federal appellate court on Monday refused to block Aereo from delivering TV streams over the Internet.

The 2nd Circuit Court of Appeals  said that Aereo’s transmissions of broadcast programs, through a system of thousands of dime-sized remote antennas, were not “public performances,” and therefore not an infringement on broadcasters’ copyrights. The vote of the court was 2-1, with Judge Denny Chin dissenting. The majority also concluded that the broadcasters “have not demonstrated that they are likely to prevail on the merits.”

The networks have argued that Aereo, launched in Manhattan last year, undercuts their lucrative retransmission fees collected from cable and satellite providers, as it opens the door for new technology startups to deliver broadcast signals to consumers without paying stations.

In a statement, a group of plaintiffs in the case, including Fox Television Stations and PBS, said that the ruling was “a loss for the entire creative community. The court has ruled that it is OK 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 appellate decision came after U.S. District Judge Alison Nathan refused last year to issue an injunction to prevent Aereo from delivering the broadcast streams.

Stations had argued that Aereo’s service fell within the transmit clause of the 1976 Copyright Act, in which the authors viewed the retransmissions of network programming by cable systems as public performances.

Yet in the majority opinion, Circuit Judge Christopher Droney relied on a 2008 2nd Circuit opinion that upheld Cablevision’s offering of a remote DVR. It found that the transmissions did not create a public performance, as the DVR system created unique copies of every program that a Cablevision customer wished to record, and no other customer could view a transmission from that copy.

“The same two features are present in Aereo’s system,” Droney wrote. “When an Aereo customer elects to watch or record a program using either the ‘Watch’ or ‘Record’ features, Aereo’s system creates a unique copy of that program on a portion of a hard drive assigned only to that Aereo user. And when an Aereo user chooses to watch the recorded program, whether (nearly) live or days after the program has aired, the transmission sent by Aereo and received by that user is generated from that unique copy. No other Aereo user can ever receive a transmission from that copy.”

Chin, however, argued that Aereo’s system is distinct from Cablevision’s remote DVR, as Aereo “does not exist only, or even primarily, to make copies; it exists to stream live television through the Internet.”

“Today’s decision does not merely dent the broadcasters a licensing fee for Aereo’s activity; it provides a blueprint for others to avoid the Copyright Act’s licensing regime altogether,” he wrote. He called Aereo’s “technology platform” a “sham,” and its system of antennas :a Rube Goldberg-like contrivance, over-engineered in an attempt to avoid the reach of the Copyright Act and to take advantage of a perceived loophole in the law.”

Stations have been developing their own Internet and mobile streams, but, ironically, the are limited by their own obligations to content copyright holders as well as the possibility of undercutting the hefty fees they collect from cable and satellite systems to run their signals.

Aereo’s CEO, Chet Kanojia, said in a statement that “we may be a small start-up, but we’ve always believed in standing up and fighting for our consumers. We are grateful for the court’s thoughtful analysis and decision and we look forward to continuing to build a successful business that puts consumers first.”

Other start-ups, like ivi and FilmOn, have tried to provide broadcast streaming signals to the Internet and mobile devices, only to be stopped in the courts. The difference with Aereo is that it set up its service to try to get around those barriers, via the remote and antennas and the individual copies, and it included among its investors Barry Diller, who has made little secret of his attraction to the company’s potential for disruption.

The case is by no means over. The broadcasters can ask for a rehearing or appeal, and the full issues of the case remain to be resolved in a district court trial.

In a research note, David Bank of RBC Capital Markets wrote that there is a “very long way to go in the litigation process” and that “the ecosystem will absorb any outcome without major disruption to the business model, despite some recent headlines.” He added that broadcast networks could “simply become cable networks over time,” or federal regulators could place limitations on what cable and satellite operators could do as an “end run” around retransmission consent payments.

Aereo currently is based in the New York market, but is planning to expand across the country.

Alki David, the founder of FilmOn, congratulated Aereo’s legal team. He is appealing a federal district court ruling in Los Angeles that has prevented a similar broadcast streaming service, with the provocative name Aereokiller. David said that FilmOn.TV has been advertising its own “micro antenna farm service” in the New York area, but unlike Aereo, the network affiliate channels are offered for free. David said that they are offering to pay the networks for the streams.

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