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The U.S. Supreme Court on Wednesday dealt a potentially fatal blow to Aereo, an Internet service that allows customers to watch broadcast TV programs on mobile devices.
Launched a year ago in New York and then extended to 10 other U.S. cities, it allows customers to watch over-the-air TV programs on a smartphone, tablet, or computer for as little as $8 a month. Selections can be viewed live or recorded for later viewing.
The court found that Aereo violates federal copyright law by retransmitting copyrighted programs without paying a copyright fee.
Chet Kanojia, Aereo founder and CEO, said in a statement the ruling is "a massive setback for the American consumer."
"This sends a chilling message to the technology industry," he said.
Media mogul Barry Diller, a major backer of the service, told CNBC, "We did try, but it's over now,”
Shortly after the service was launched, the nation's major broadcast networks filed a lawsuit claiming that Aereo illegally retransmited their programs without paying for them. The court ruled against Aereo by a vote of 6-3.
NBC Universal, the parent company of NBC News, was among the challengers.
The Walt Disney Co., the parent company of ABC, said in a statement: "We're gratified the Court upheld important Copyright principles that help ensure that the high-quality creative content consumers expect and demand is protected and incentivized."
Justice Stephen Breyer, writing for the majority, stressed that it was a limited decision that will not “discourage the emergence or use of different kinds of technologies.”
Lower federal courts issued contradictory rulings on Aereo's legality. At the heart of the case was a provision of federal law that applies to the public performance of copyrighted works.
The law regulates the transmission of a TV program "to the public, by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times."
Aereo argued that it was not covered by the law because of the way its system was designed: when a user chose a program to watch, a single micro antenna, about the size of a penny, was assigned to receive the chosen station. The signal was sent to a sector of a video recorder dedicated to that choice and then streamed to the customer.
For that reason, the company said, it does not create a public performance. Even if thousands of users were watching the same program, Aereo said, it creates thousands of individual performances.
But the broadcasters said the test of the copyright law was "whether an alleged infringer is transmitting a performance to the public, not whether multiple people are capable of receiving each transmission."
The Obama administration sided with the broadcasters but urged the justices to rule narrowly and not "call into question the legitimacy of innovative technologies that allow consumers to use the Internet to store, hear, and view their own lawfully acquired copies of copyrighted works."
Billions of dollars were in play. For Aereo, the future of the company was at stake. Broadcasters feared a ruling in favor of Aereo could undercut the legal foundation requiring cable and satellite services to pay copyright fees to carry network programs.