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 huge fees from cable and satellite systems that transmit their programming.
Had services such as Aereo been allowed to operate without paying for the programming, more people might have ditched their cable services, meaning broadcasters would have been able to charge less for the right to transmit their programs.
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. Because each subscriber is temporarily assigned a dime-sized, individual antenna, Aereo had made the case that it wasn't like a cable company and wasn't doing anything customers couldn't do on their own at home.
Breyer seemed to suggest the company was too-cute-by-half as he announced the opinion.
He laid out the company's argument that its tiny antennae don't really transmit to the public and then said, "Hmmm," followed by a long pause. Then he added: "Well, we think that this argument makes too fine a point."
Company executives and prominent investor Barry Diller have said their business model would not survive a loss at the Supreme Court.
Aereo chief executive Chet Kanojia called the decision "a massive setback for the American consumer" and said the company would continue to fight, without being specific.
"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," Kanojia said in a statement.
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.
The National Association of Broadcasters praised the court for rejecting Aereo's argument that the lawsuit was an attack on innovation. "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," NAB president Gordon Smith said.
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 review that ruling.
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 5-4 for Sony Corp. in a case over recordings of television programs 30 years ago.
Associated Press writers Nancy Benac and Anick Jesdanun in New York contributed to this report.
This article was originally published on June 25, 2014.