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Aereo Online-TV Service Questioned by U.S. Supreme Court

April 21 (Bloomberg) –- On Tuesday the Supreme Court will be hearing oral arguments in the Aereo case. Specifically, whether Aereo, by delivering the over-the-air signal of the broadcasters, infringes the broadcaster's copyright in their television programming. That will hinge on whether the Court believes the service is a "private" or "public" performance. If Aereo's is ruled a public performance then the service violates the law. So far, both the lower and appellate courts have sided with Aereo. Bloomberg Businessweek's Sam Grobart explains. (Source: Bloomberg)

U.S. Supreme Court justices questioned the legality of Aereo Inc., the Barry Diller-backed startup aiming to upend the broadcast industry’s decades-old business model by selling live television programming over the Internet.

Hearing arguments today in Washington, some justices suggested they viewed Aereo as violating broadcaster copyrights by using thousands of dime-sized antennas to get over-the-air signals without paying fees.

“There’s no technological reason for you to have 10,000 dime-sized antennas other than to get around the copyright laws?” Chief Justice John Roberts asked.

At the same time, the hour-long hearing didn’t clearly indicate the likely outcome, as justices including Stephen Breyer repeatedly asked whether a ruling favoring the broadcasters would imperil the cloud computing business.

Aereo would give consumers a new way to watch broadcast television without buying the packages offered by cable and satellite companies. It now lets customers in 11 cities watch live and recorded broadcast programs for as little as $8 a month.

Broadcasters including CBS Corp. (CBS) and Walt Disney Co. (DIS)’s ABC say a legal victory for Aereo would devastate the industry, creating a blueprint that would let cable and satellite providers stop paying billions of dollars in retransmission fees each year to carry local programming.

Justice Ginsburg

The broadcasters drew support from Justice Ruth Bader Ginsburg, who told Aereo’s lawyer, “you are the only player so far that doesn’t pay any royalties at any stage.”

The threat posed by Aereo was magnified last year when a federal appeals court said the company wasn’t infringing the broadcasters’ copyrights. ABC, CBS, Comcast Corp. (CMCSA)’s NBCUniversal, 21st Century Fox Inc. (FOX), Tribune Co. (TRBAA) and the Public Broadcasting Service are asking the Supreme Court to reverse that ruling.

The broadcasters’ lawyer, Paul Clement, met resistance from justices who asked about the implications for other technologies, including cloud computing.

“Are we somehow catching other things that really will change life and shouldn’t, such as the cloud?” Breyer asked.

Off-Premise Storage

Cloud computing is the delivery of content, like video, through the Internet. The information isn’t stored on-site with the user; instead, it is held off-premise in servers managed by a cloud provider.

Online storage services -- including offerings from Dropbox Inc., Box Inc. and Google Inc. (GOOG) -- manage online content for customers through the cloud.

Users can upload photos, videos, personal documents and other information over the Internet to be stored on remote servers, which allow the data to be accessed across customers’ phones, tablets and computers.

Clement argued that a ruling against Aereo wouldn’t impede online storage companies because there is a “fundamental difference” between customers uploading their own content and the dissemination of content that is new to the customer.

Justice Elena Kagan picked up on that argument, asking Aereo’s lawyer whether the court could draw a line to insulate companies that are just “providing the space” so that users can store their own content.

Aereo’s lawyer, David Frederick, said a ruling for the broadcasters “absolutely threatens cloud computing.”

Exclusive Right

The court fight centers on a provision in the federal copyright law that gives owners the exclusive right to perform their works “publicly.” The appeals court said Aereo’s service is legal because the separate antennas let each customer create a distinct copy of a broadcast program for viewing, so no public transmission takes place.

The broadcasters say Aereo is trying to use a technical detail to circumvent well-established legal rights. The Obama administration is backing the broadcasters.

Aereo says it is facilitating thousands of “one-to-one” transmissions from an antenna to a customer’s screen. The company says its system is legally indistinguishable from the antennas homeowners have placed on their own roofs for decades.

Aereo also distributes Bloomberg TV to subscribers. Bloomberg LP is the parent company of Bloomberg News and Bloomberg Television.

With retransmission fees estimated to exceed $4 billion this year, some broadcasters say they may convert to cable channels if Aereo isn’t shut down. Conversion to a cable network would mean that broadcast signals would no longer be freely available over the airwaves.

The court will rule by early July in the case, American Broadcasting Cos. v. Aereo, 13-461.

To contact the reporters on this story: Greg Stohr in Washington at gstohr@bloomberg.net; Alex Barinka in New York at abarinka2@bloomberg.net

To contact the editors responsible for this story: Patrick Oster at poster@bloomberg.net; Sarah Rabil at srabil@bloomberg.net Laurie Asseo, Mark McQuillan

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