The Internet streaming service Aereo is acting illegally when it retransmits television shows that its tiny antennas capture for free, the US Supreme Court ruled Wednesday — a major victory for broadcasters at a time when consumers are rapidly moving away from traditional TV viewing.
By a 6-to-3 vote, the Supreme Court found that Aereo, which was developed in Boston, violates US copyright law when it captures broadcast networks' shows — without permission and without paying for them — and beams them to its customers' computers and mobile devices for a fee.
The ruling, in addition to spelling a likely end to Aereo's service, may stymie other innovative upstarts that are developing technologies to deliver television over the Web without the express approval of broadcasters and cable services, industry specialists said.
"After this decision, it's very hard for me to see how anybody could set up a business offering that kind of service," said Bruce Ewing, an intellectual property lawyer at Dorsey & Whitney in New York. "The networks are not going anywhere anytime soon, especially after this decision."
Aereo had couched its case as a technology upstart challenging an industry dinosaur with an innovative way to make watching TV viewing more convenient. But in its ruling, the high court agreed with the broadcast industry that the case was about a much simpler — and timeless — issue: the theft of intellectual property.
"Aereo characterized our lawsuit as an attack on innovation; that claim is demonstrably false," said Gordon Smith, president of the National Association of Broadcasters, which launched the lawsuit that brought Aereo's business before the Supreme Court.
The court's ruling, Smith added, "sends an unmistakable message that businesses built on the theft of copyrighted material will not be tolerated."
Aereo's founder, Chet Kanojia, said the decision is a "massive setback" for consumers that will stifle innovation by startups.
"This sends a chilling message to the technology industry," Kanojia said in a statement. "When new technology enables consumers to use a smarter, easier-to-use antenna, consumers and the marketplace win. Free-to-air broadcast television should not be available only to those who can afford to pay for the cable or satellite bundle."
The ruling in favor of the broadcast companies comes at a period of tremendous flux for the entertainment industry. A technology innovator such as Netflix, for example, not only offers viewers more convenient ways to watch movies and TV shows but is also shifting into a traditional entertainment business by producing its own original programming.
Meanwhile, mobile technology and on-demand services have liberated viewers from locking themselves down in front of the television set at a pre-programmed time, and consumers have so embraced the proliferation of streaming services that cable providers are rushing to provide them, too.
The Aereo case "is an opening salvo in a pretty intense war about the future of video," said Nicco Mele, who lectures at the Harvard Kennedy School on Internet disruptions. "Consumers want to watch whatever they want to watch, whenever they want to watch it, and on whatever device they want to watch it on."
For now, though, the Supreme Court has made a strong declaration that Aereo essentially functioned liked a cable TV provider and so is subject to the same copyright rules as those companies. Cable companies such as Comcast Corp. pay television networks fees to rebroadcast their programming.
Aereo was not paying retransmission fees. Its service erects arrays of tiny antennas that capture over-the-air broadcasts, high-tech rabbit ears that convert those signals for viewing on computers and mobile devices. Aereo said it merely provides equipment viewers use to watch shows that are already available on the public airwaves, so it does not qualify as a cable service for the purposes of copyright law.
The court was not buying that argument.
Writing for the majority, Justice Stephen Breyer said Congress amended the copyright law in 1976, when the cable industry was first taking root, to clarify that any service retransmitting television content must have permission from the show's creators.
"Congress would as much have intended to protect a copyright holder from the unlicensed activities of Aereo as from those of cable companies," Breyer wrote.
The three dissenters included the Supreme Court's most conservative jurists, Clarence Thomas, Samuel Alito, and Antonin Scalia, who wrote in their opinion that Aereo is no different than a sort of high-tech copy shop or an Internet service provider.
"Internet service providers are a prime example," Scalia wrote. "When one user sends data to another, the provider's equipment facilitates the transfer automatically. Does that mean that the provider is directly liable when the transmission happens to result in the 'reproduc[tion]' of a copyrighted work? It does not."
Aereo's technology was developed in Boston by Kanojia. Though the company is based in New York, most employees are in a large engineering office in Boston's Innovation District. Its service here is available in most of Eastern and Central Massachusetts and in Southern New Hampshire.
Installed in fixtures on the tops of buildings, each tiny Aereo antenna is dedicated to an individual customer. Starting at $8 a month, the service allows customers to watch shows on their own schedules — not those of the cable service or network station.
It's unclear what happens to Aereo next. Kanojia did not address the company's future in his statement on Wednesday. Aereo faces at least several more months of legal proceedings, which means it could be some time before it faces a court order to shut down or alter its service.
Some industry specialists predict that even with Aereo out of the picture, the entertainment industry would have no choice but to innovative to keep up with consumers' changing habits. Yet the court ruling makes it clear the future of streaming entertainment is in the hands of broadcasters and cable companies.
"You're going to get more choice, but you're going to have to pay for it," said Michael Pachter, an entertainment industry analyst with Wedbush Securities in Los Angeles.
He noted the recording industry lost billions after file-sharing services such as Napster made it easy to download music without paying for it. Now that cable and broadcast companies have beaten back Aereo's challenge, it is it unlikely they will suffer the same fate as the music business, he said.
But because consumers will continue to demand easier access, Pachter said, the industry should create its own version of the Aereo — and charge to access it.