Supreme Court hears case challenging Aereo’s right to stream network TV broadcasts to paying consumers

WASHINGTON – Several Supreme Court justices expressed skepticism Tuesday about the business model of Aereo, a startup company with Boston ties that captures free broadcast television signals and then sells them to consumers over the Internet.

If Aereo withstands copyright law challenges from the traditional TV networks, it could transform the way Americans watch network programs. But the comments and questions from justices indicated that Aereo may have a difficult time pursuading the court that its business conforms to law.

“It looks as if somehow you are escaping a constraint that’s imposed upon [other companies.] That’s what disturbs everyone,” said Justice Stephen Breyer, referring to the billions in fees that cable and satellite companies pay for the right to broadcast network TV shows.

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Broadcasters maintain in their Supreme Court challenge that Aereo, a two-year-old streaming video company with its engineering operations in Boston, is illegally hijacking broadcast signals to resell copyrighted content. Aereo contends it is simply providing the equivalent of an antenna-like service for individual consumers.

The case illustrates how technology is outpacing a decades-old federal copyright law written before Internet re-transmission was possible, and raises the question of when broadening consumer access to free television programming amounts to Internet piracy.

The justices also voiced concern over how the court’s decision would impact future digital innovation, and seemed to want to tread narrowly so as not to harm other companies that store users’ personal music collection, photographs and another information in a remote online network.

Several justices grilled the attorney representing Aereo, asking him to justify how the company’s services could possibly be legal when its competitors must pay fees, but also conveyed a sort of grudging admiration.

“All I’m trying to get at, and I’m not saying it’s outcome determinative or necessarily bad, I’m just saying your technological model is based solely on circumventing legal prohibitions that you don’t want to comply with, which is fine. I mean, that’s—you know, lawyers do that,” said Chief Justice John Roberts.

Broadcasters, including ABC, NBC, CBS, Fox, and PBS, are accusing Aereo of blatant theft for competing against cable and satellite television without paying re-transmission fees. The Obama administration has sided with the broadcasters.

Aereo says its method of assigning each customer an individual dime-sized antenna to access over-the-air networks – much like traditional rabbit ear antennas—makes their service comparable to a customer using the antenna in his own home.

The justices – on both ends of the political spectrum—did not seem to buy the company’s argument, casting the array of antennas as clever tools for circumventing copyright laws. Justices Ruth Bader Ginsburg, Antonin Scalia, and Roberts questioned whether Aereo’s tens of thousands of tiny antennas had a technical purpose other than to get around the law.

“Is there any reason you need 10,000 of them?” Roberts said. “I mean, there’s no technological reason for you to have 10,000 dime-sized antennas, other than to get around the copyright laws.”

David Frederick, Aereo’s attorney, said it made financial sense for a fledging company to use this technology because it saves money by adding antennas as their number of customers grow and avoiding permit hassles associated with erecting large antennas atop buildings.

Aereo’s service is available in 11 cities, including Boston, where consumers pay $8 to $12 a month to watch live television over the Internet—on their computers or mobile devices—or have the company store the shows remotely to be played back later. Courts in other states, including California, have barred Aereo from operating its services.

Aereo’s headquarters are in New York, but its engineering office is in Boston near the Fort Point Channel, where 80 employees are based. Backed in part by a Cambridge venture capital firm, Highland Capital Partners, the company has raised $97 million from investors thus far.

The crux of the case will be whether the court determines if Aereo is engaging in a private service or a “public performance,” an exclusive right belonging to a copyright holder as covered by the 1976 Copyright Act.

The court’s 1984 Sony Betamax ruling allowed consumers to record programming for personal use. A lower court ruling in 2008 allowed Cablevision to store consumers’ DVR recordings remotely.

At the end of the hour-long arguments, Justice Sonia Sotomayor asked about the consequences of the court’s decision – whether Aereo would be put out of business or be forced to negotiate licenses with every copyright holder.

“If they actually provide something that is a net benefit technologically, there’s no reason people won’t license them content,” said Paul Clement, the attorney for the broadcasters. “But on the other hand, if all they have is a gimmick, then they probably will go out of business, and nobody should cry a tear over that.”

A decision is expected in June. In a press briefing following the arguments, Frederick, Aereo’s attorney, said he remained “cautiously optimistic” that the company would prevail.

“From our perspective, the issue in the case was whether consumers who have always had a right to have an antenna and a DVR in their home and make copies of local over-the-air broadcast television, if that right should be infringed at all simply by moving the antenna and DVR to the cloud,” Frederick said.