Aereo’s Wins Send Networks on Hunt to Stop Streaming TV

Broadcasters stymied by court losses in New York are turning to judges in California and Massachusetts in their campaign to shut down the Aereo Inc. online streaming TV service backed by Barry Diller.

Aereo, which relays broadcast TV to subscribers over the Internet, continues to expand its service to more U.S. cities even as CBS Corp. (CBS), Comcast Corp. (CMCSA)’s NBC, Walt Disney Co. (DIS)’s ABC and Twenty-First Century Fox Inc. (FOXA)’s Fox pursue copyright litigation that may wind up before the U.S. Supreme Court.

A federal court in Los Angeles granted Fox’s motion to close a similar service run by FilmOn.TV Networks Inc. and lawyers argued over that decision today before the U.S. Court of Appeals in Pasadena, California. A victory by Fox would create a split between federal appeals courts in California and New York, which could propel the case to the nation’s highest court.

Related: Streaming TV Doesn’t Infringe Copyrights, Court Told

“We’re going to ultimately win this,” Dennis Wharton, a spokesman for the National Association of Broadcasters, said in a phone interview. “They’re retransmitting content they don’t own and charging a fee for it without the permission of the content owners. This case has united the broadcast industry like no other.”

Retransmission Fees

While broadcasters reaped $2.36 billion in retransmission fees in 2012 from services including Time Warner Cable Inc. (TWC) and DirecTV (DTV), the annual rate of increase in retransmission revenue declined to 34 percent last year from 42 percent in 2011, according to researcher SNL Kagan, which projects another decline this year.

Fox said its retransmission revenue almost doubled last quarter from a year earlier, without providing a specific figure, and Disney projected $400 million to $500 million in fees for ABC in fiscal 2015.

The broadcasters say they’re fighting to preserve the business model that generates revenue to produce television programs. Cable and satellite services might balk at paying to carry their channels if Aereo can legally get the signal for nothing, they said.

Other streaming services, including Hulu LLC, Netflix Inc. (NFLX) and Amazon.com Inc. (AMZN), pay licensing fees to the broadcasters.

The only cable channel New York-based Aereo offers is Bloomberg TV, which like Bloomberg News is a unit of New York-based Bloomberg LP.

Aereo scored early victories against the networks in New York, where an appeals panel affirmed a lower-court ruling that its transmissions are private performances under copyright law and don’t require licenses. The broadcasters’ bid for a review by the full appeals court was rejected.

‘Road Ahead’

“We are pleased that the federal district court in New York looked in depth at our technology and rejected the broadcasters’ assertions that it violated copyright law,” Chet Kanojia, Aereo’s founder and chief executive officer, said yesterday in an e-mail. “The road ahead is long, but we remain confident that we will continue to prevail.”

In July, TV-station owner Hearst Corp. sued Aereo in Boston, the market Aereo targeted after New York. Aereo, expecting CBS to sue there, had already filed a complaint against that network in New York seeking a declaration that it wasn’t an infringer.

Aereo plans to operate in 22 cities by the fourth quarter. Broadcasters may take legal action in markets where they anticipate decisions banning the service, said David Wittenstein, who leads the media and information-technology practice at the law firm of Dow Lohnes PLLC.

‘Not Favorable’

“One of the reasons you won’t see broadcasters file a lot of suits is they don’t want to tip the scales and have them consolidate all in the same place, such as New York, which is not favorable to them,” Wittenstein said.

Aereo’s strategy may be to expand where courts share its view of copyright law, he said.

“Their rollout is dictated not by business decisions but by legal decisions,” Wittenstein said.

The judge in Boston might rule on an injunction without being bound by legal precedents in New York, resulting in “a patchwork of decisions,” said Jonathan Handel, who teaches entertainment and technology law at the University of Southern California. “A court could shut this down.”

The outcome may depend on the appeal of the FilmOn case, in which Fox Broadcasting won the order ending service in California and several other states for the online TV streaming company once known as Aereokiller.

Shower Singing

“When someone inserts themselves as a middleman and tries to make a profit, licenses should be obtained,” Robert Garrett, a lawyer for NBC, told the appeals panel today. “Singing in the shower is a private performance. Sending transmissions to 50,000 customers is not singing in the shower.”

The appeals court judges said today they would rule later.

The federal courts in New York and Southern California are “two of the most copyright-savvy” in the U.S., Wittenstein said. “And they’ve come to opposite conclusions.”

If the appeals court in Pasadena upholds the lower court’s order, the Supreme Court might step in to resolve the split.

“There are pretty good odds the Supreme Court will hear it,” said Corynne McSherry, a lawyer with the Electronic Frontier Foundation, the digital rights group supporting Aereo and FilmOn. “You don’t want the same technology you can get in New York not available in California because two courts have gone in the opposite direction.”

In July 2012, U.S. District Judge Alison Nathan in Manhattan rejected an attempt to shut Aereo, and the appeals court affirmed that ruling. Aereo has asked Nathan to dismiss the entire case, arguing that because she found its transmissions are private performances, they couldn’t have violated network copyrights.

Other Grounds

The networks can still try to persuade Nathan to find infringement on other grounds, including their exclusive right to make copies of their programming. If she rejects Aereo’s motion to dismiss the case, a non-jury trial could follow.

“It’s more likely the judge will not dispose of this on summary judgment,” Wittenstein said. “It’s more likely the judge will give the broadcast plaintiffs a chance to present the facts. In the end, I think the judge may hold Aereo is not an infringer.”

Aereo contends its service is a simply a technologically advanced version of the rabbit-ear antennas viewers once used to pull in free over-the-air TV signals. Before introducing its service, Aereo received support from Diller’s digital media company, IAC/InterActive Corp. (IACI), which led a $20.5 million round of financing. Diller, who is on Aereo’s board, helped start and managed Fox’s broadcasting company before going off on his own.

Dime-Size Antenna

The company signs up subscribers online for at least $8 a month. A customer can choose which broadcast programs to watch or record and is assigned an individual dime-size antenna in an Aereo facility that transmits programs to a smartphone, tablet, computer or Internet-enabled television. A remotely located digital video recorder can record programs.

“Consumers should still have the choice to use an antenna -- whether an in-home or remote Aereo antenna -- to access over-the-air broadcast television,” Kanojia said.

Aereo has argued that the Supreme Court already ruled in its 1984 decision on the Sony Betamax video recorder that consumers have the right to record TV shows and play them back at will without being liable for infringement. The question now is whether the recording is being done by Aereo or the viewer.

That issue surfaced in a related case in California in which Fox sued satellite provider Dish Network Corp. (DISH) for letting subscribers automatically skip commercials when they play back recorded programs. A federal appeals court in July upheld a lower-court ruling that allowed Dish to continue offering the service, saying Fox hadn’t demonstrated copyrights were infringed.

Cablevision Ruling

The New York courts, in refusing to shut down Aereo, relied on a prior ruling in a case involving Cablevision Systems Corp. (CVC), a Bethpage, New York-based cable-TV provider. Cablevision offered subscribers remotely located digital video recorders. The appeals court, overturning a lower-court ruling, said that because each copy of a program recorded remotely was intended for only one viewer, it was a private performance that didn’t infringe copyrights.

In New York, the broadcasters argued -- and one of three appeals judges agreed -- that Aereo’s antennas are a gimmick to circumvent copyright laws and that making thousands of copies of programs and transmitting them to thousands of viewers constitutes public performances of their content.

Los Angeles Judge

In Los Angeles, U.S. District Judge George Wu, not bound by the Cablevision opinion, looked to a case in which a court ruled that a hotel video service infringed copyrights by providing guests with unauthorized playbacks of TV shows.

The federal appeals court in Pasadena may find the Cablevision precedent more compelling than the hotel case, said Handel, the USC professor.

“It’s a 22-year-old case that predates the Internet,” he said.

The appeals panel also may be mindful that affirming Wu’s decision could send the case to the Supreme Court, said the EFF’s McSherry. A Supreme Court review might clarify what constitutes a public performance, “a right that was designed for a different era,” she said.

Wittenstein said the high court could determine whether thousands of one-to-one transmissions constitute a public performance.

“I think it is a public performance if you’re facilitating large numbers of people seeing the same performance at the same time,” he said.

Technological Evolution

Congress might also get involved, if it decides to overhaul the 37-year-old Copyright Act. Eleanor Lackman, a Cowan, DeBaets, Abrahams & Sheppard LLP lawyer who drafted a brief supporting the networks, said there’s “a serious disagreement” about the meaning of public performance.

“If the Supreme Court thinks the evolution of technology is outpacing the law, they may make the recommendation that Congress pick it up,” she said, adding that she didn’t think it would be a top priority for lawmakers.

Even if Aereo prevails in court, it may wind up subject to the same market forces now buffeting broadcasters, said Anthony Lupo, a copyright lawyer with Arent Fox LLP who said he agrees with the broadcasters’ argument. Similar services could charge less, and the broadcasters themselves or the cable and satellite operators might offer streaming services, he said.

The CEO of New York-based Time Warner Cable told the Washington Post in May that he might consider introducing an Aereo-like service if it’s found to be legal. Fox has said it’s considering taking its programming off the public airwaves and converting to a cable network to combat the potential loss of revenue.

‘New Model’

“We’re on the cusp of a new model,” Lupo said. If Aereo wins, “it’s going to make broadcasters think of new ways to distribute their content.”

The cases in New York are American Broadcasting Cos. v. Aereo Inc., 12-cv-01540, WNET v. Aereo Inc., 12-cv-01543, and Aereo Inc. v. CBS Broadcasting Inc., 13-cv-03013, U.S. District Court, Southern District of New York (Manhattan). The case in Boston is Hearst Stations Inc. v. Aereo Inc., 13-cv-11649, U.S. District Court, District of Massachusetts (Boston). The California case is Fox Television Stations Inc. v. Aereokiller, 12-cv-06921, U.S. District Court, Central District of California, and Fox Television Stations Inc. v. FilmOn X LLC, 13-55156, U.S. Court of Appeals for the Ninth Circuit (Pasadena).

To contact the reporter on this story: Don Jeffrey in New York at djeffrey1@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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