NEW YORK (TheStreet) –– After a long legal battle culminating in a bruising defeat before the Supreme Court, Aereo's attempt at a comeback may constitute a classic longshot, but is legally sound, say legal observers.
On June 25, the U.S. Supreme Court ruled that Aereo, a video-streaming company backed by Barry Diller, violated U.S. copyright law by selling broadcasters' programming through an online subscription service. While that programming is broadcast free over the air, the country's largest broadcasters, including CBS (CBS), Disney's (DIS) ABC, Comcast's (CMCSA) NBC, and 21st Century Fox (FOXA), argued that Aereo should be required to pay broadcasters licensing fees. The Court agreed, ruling 6-3 that Aereo was "substantially similar" to a cable TV system and therefore should have to pay the broadcasters to carry their signal.
Today's news that Time Warner Cable (TWC) rejected an $80 billion offer reinforces the high stakes on both sides: with programming increasingly expensive to produce, the media industry has tended toward consolidation to cut costs, while consumers search for a cheaper alternative to expensive cable and Internet packages.
Three days after the decision was announced, Aereo shut down its operations, describing it as a temporary condition. In a letter to subscribers. Aereo CEO Chet Kanojia wrote that the three-year-old company was pausing to "consult with the court and map out our next steps." Ever defiant, Kanojia took another swing at the highly concentrated monolith that is Big Media.
"The spectrum that the broadcasters use to transmit over the air programming belongs to the American public and we believe you should have the right to access that live programming whether your antenna sits on the roof of your home, on top of your television or in the cloud," wrote Kanojia, an engineer turned entrepreneur.
Despite the SCOTUS decision, Aereo subsequently announced that it was fighting back by, paradoxically, embracing the court's decision. If Aereo is indeed a cable company, as the Supreme Court implied it was, then under the 1976 Copyright Act, the company argued that it should qualify for a "compulsory license," the limited royalties paid in exchange for the right to broadcast content.
Aereo, which had avoided being classified as a cable system in order to avoid paying re-transmission fees, is now arguing that it is just that. According to legal experts, Aereo's strategy may just work, said Henry D. Levine of Levine Blaszak Block & Boothby who argued that the broadcasters' arguments are just as circuitous as Aereo's.
"What's funny about this case is not watching what Aereo does, but watching what the major networks do," he said in an interview. "Speaking as a lawyer, it's fascinating to watch, particularly watching the broadcasting companies twisting, claiming 'You are X,' and after the Supreme Court says 'OK, you're X,' they say 'Wait, you're not X!'"
Of course, if Aereo is successful and qualifies for a compulsory license to distribute programming online, then over-the-top Internet television services like those from Sony (SNE), Apple (AAPL), and Roku could follow suit. Aereo's attorneys wrote as much in a letter to a lower court judge.
"The Supreme Court's holding that Aereo is a cable system under the Copyright Act is significant because, as a cable system, Aereo is now entitled to the benefits of the copyright statutory license pursuant to the Copyright Act," the filing read. "Aereo is proceeding to file the necessary statements of account and royalty fees."
But it may not be so easy to just get a name-change and move on, says John M. Beahn of Skadden Arps.
The broadcasters' lawyers, led by former Solicitor General Paul Clement, argued that Aereo's service was an illegal use of their copyrighted works without permission or payment. Broadcasters charge cable and satellite companies to carry their programming; Aereo circumvented this by capturing those broadcast signals and charging customers to watch them.
In their arguments before the court, the broadcasters' attorneys claimed that services such as Aereo would eliminate a large portion of the broadcasters' revenue stream and significantly undercut their business. Aereo retorted that their service is no different from consumers putting rabbit ears on their television. Rabbit ears are a free means to access the broadcasters' content, but the vast majority of Americans access it from a cable, satellite, or fiber provider, which uses monthly subscription fees in part to pay retransmission fees to the broadcasters.
"It's fair to say they're going to have to change their business model to be able to continue to offer service," Beahn said of Aereo. "The Supreme Court was pretty clear that the current model they use was impermissible under the copyright laws." Beahn is skeptical that the company will be able to refashion itself as a cable company: "I think they've been caught with their hand in the regulatory cookie jar once, and whether they'll be able to do it twice, I don't think so."
Aereo maintains that it is simply trying to allow customers "to watch the live, free-to-air signals broadcast over public spectrum that belongs to them," Kanojia wrote in the company blog post announcing the continued legal action. Aereo has also redoubled its efforts to stir up public support, launching the Web site ProtectMyAntenna.org for supporters to take action.
"Tell your lawmakers how disappointed you are that the nation's highest court issued a decision that could deny you the right to use the antenna of your choice to access live over-the-air broadcast television," Kanojia told supporters in another blog post. "Show them you care about this issue."
The case will be decided by Judge Alison Nathan of the U.S. District Court for the Southern District of New York. If Nathan sides with Aereo, then the company can resume its operations despite the Supreme Court decision.
The broadcasters object to Aereo's shift in strategy and asked that it be prohibited from operating.
"Whatever Aereo may say about its rationale for raising it now, it is astonishing for Aereo to contend the Supreme Court's decision automatically transformed Aereo into a 'cable system' under Section 111 given its prior statements to this Court and the Supreme Court," wrote the plaintiffs' lawyers in response.
--Written by Laura Berman in New York
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