NEW YORK — A federal appeals court in New York on Monday upheld a ruling in favor of Aereo, the startup Internet service that streams broadcast stations without compensation, a legal decision that sets the stage for a full-blown trial between Aereo and major media companies.
In a 2-1 ruling, the Court of Appeals for the 2nd Circuit found that Aereo’s streams of TV shows to individual subscribers did not constitute “public performances,” and thus the broadcasters’ copyright-infringement lawsuits against the service “are not likely to prevail on the merits.”
The appeals court affirmed an earlier district-court decision that denied the broadcasters a preliminary injunction against Aereo.
The broadcasters, including CBS, Comcast, News Corp. and the Walt Disney Co., filed two suits against Aereo more than a year ago, weeks before the service was made available to residents of New York City last March.
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They asserted that the service was illegal. But courts have now ruled against them on two occasions, giving momentum to Aereo as it tries to expand to other major metropolitan areas.
Aereo said in a statement that the court’s ruling “again validates that Aereo’s technology falls squarely within the law and that’s a great thing for consumers who want more choice and flexibility in how, when and where they can watch television.”
But the broadcasters said they were confident they would prevail, whether through a trial or an appeal to the Supreme Court.
While they have lost in New York’s federal courts so far, they say they are heartened by a victory in December in U.S. District Court in Los Angeles against an Aereo-like service named Aereokiller, backed by billionaire Alkiviades David.
CBS alluded to that ruling when it said in a statement, “As the courts continue to consider this case and others like it, we are confident that the rights of content owners will be recognized, and that we will prevail.”
A group of other broadcasters, including Fox and PBS, said they intended to move toward a trial.
“Today’s decision is a loss for the entire creative community,” the group said in a statement. “The court has ruled that it is OK to steal copyrighted material and retransmit it without compensation. While we are disappointed with this decision, we have and are considering our options to protect our programming.”
Aereo is backed by a number of venture capitalists, chief among them Barry Diller, who created the Fox network for News Corp. 30 years ago.
Diller’s IAC/InterActiveCorp led a $20.5 million round of financing for Aereo after Diller met with its founder, Chet Kanojia, and came away convinced that the legal underpinnings of the service could withstand legal scrutiny.
IAC and the venture-capital firm Highland Capital Partners invested an additional $38 million in the company earlier this year.
Aereo is able to stream broadcast stations by operating an array of tiny antennas that pick up over-the-airwaves signals.
Then it gives subscribers control over one antenna and streams the selected programming over the Internet, essentially turning the subscriber’s phone or tablet into a small television set, but without the rabbit ears that would normally be needed.
The array of antennas has become known as the “Aereo loophole,” for it allows Aereo to avoid paying the retransmission fees that operators like Time Warner Cable and DirecTV pay for access to stations.
Those fees are an increasingly important revenue source for the stations, so it is not surprising their owners have sued to protect them.
Aereo also includes a remote digital videorecorder feature, not unlike the remote DVR system that was operated by Cablevision and was upheld in court several years ago.
Judge Christopher Droney pointed to that decision as he affirmed the previous court ruling in favor of Aereo.
Another appeals-court judge, Denny Chin, dissented Monday, calling Aereo’s antenna workaround “a Rube Goldberg-like contrivance, overengineered in an attempt to avoid the reach of the Copyright Act and to take advantage of a perceived loophole in the law.”
He concluded that the Aereo streams to subscribers were “public performances” and thus violations of copyright.
But the majority’s support for Aereo bolsters its expansion plans.
“We always thought our Aereo platform was permissible and I’m glad the court has denied the injunction — now we’ll build out the rest of the U.S.,” Diller said in a statement Monday afternoon.
In January, Aereo said it planned to make its service available in 22 cities this year. None of the cities are farther west than Salt Lake City — thereby keeping the service safely outside the purview of the federal court where the Aereo-like service was rejected.