Aereo Hits 'Pause' After Losing Supreme Court Showdown

Aereo Hits 'Pause' After Losing Supreme Court Showdown Photo: Aereo Aereo's antennas, dormant for now.

Well that didn’t take long.

On Saturday, less than a week after the U.S. Supreme Court shattered the legal argument underpinning Aereo Inc.’s business model, the online television streaming service told customers that it’s shutting down while its lawyers try to pick up the pieces.

Until the weekend, Aereo used tiny antennas to stream popular TV shows to customers’ smartphones or computers. It charged $8 a month for the service, but it didn’t pay a cent of that money back to broadcasters like NBC and Fox through retransmission fees. Aereo’s lawyers insisted that because customers control the antennas, the company wasn’t “publicly performing” the networks’ copyrighted works and thus wasn’t liable for infringement.

The Supreme Court rejected that argument on June 25, ruling 6-3 that Aereo’s service runs afoul of the Copyright Act. The decision brings closure to a legal standoff that captivated IP lawyers and media industry observers. But for Aereo itself, the litigation may be far from over.

Entertainment lawyers say Aereo could be in for a world of pain. Damages under the Copyright Act are hard to quantify, but they could be massive. Going legit is another option, but that could be both prohibitively expensive and unappealing from a business perspective.

For one thing, paying retransmission fees to the networks would be a pricey proposition. In August 2013, USA Today estimated that cable companies like Comcast Corp. pay about $1 per subscriber per month to show the big networks. Let’s say, for simplicity’s sake, that Aereo also paid a dollar per month per subscriber for the seven major networks it offers. That’s an additional $7 per month per user, which could force Aereo to double its prices.

Some commentators think that’s a smart way to go, pointing out that Aereo would still be way cheaper than cable TV. At least publicly, however, Aereo CEO Chet Kanojia has said that the company had no “plan B” if it lost in court.

Another big question is whether the broadcasters, which sued Aereo in federal court in New York, Massachusetts, and Utah, will continue to litigate. Their cases were stayed while the networks appealed a preliminary ruling by U.S. District Judge Alison Nathan in Manhattan that they aren’t entitled to injunctive relief. Wednesday’s ruling made clear that Nathan should have entered that injunction. But summary judgment and the damages phase are still a long way away.

It’s impossible to pinpoint Aereo’s potential liability, partly because the Copyright Act offers judges a lot of discretion. Under the statute, the broadcasters can seek statutory damages of between $750 and $30,000 per TV program that Aereo streamed to users. The Copyright Act also allows the prevailing party to recover attorneys fees, though judges have considerable discretion over that as well.

If Nathan rules on remand that Aereo’s infringement was willful—i.e. that it knew or should have known it was infringing—then she can put the company on the hook for $150,000 per infringing work. Aereo has won over its share of judges, so it may be hard for the broadcasters to claim that it showed a disregard for copyright laws. But the networks may argue that Aereo acted recklessly by launching a service that it knew would invite major copyright challenges.

Bankruptcy could be in Aereo’s future, Jennifer Elgin of Wiley Rein said in an interview. She likened Aereo to Napster Inc., the free music downloading service that enjoyed great popularity in the late 1990s. Napster went bankrupt in 2002, following a costly settlement to resolve copyright claims by the music industry. “If you get an award in the media context, it can be very large,” Elgin told us. “Whatever happens could be enough to bankrupt a company like Aereo.”

In Saturday’s letter to subscribers, Aereo said it has “decided to pause our operations temporarily,” and that customers would no longer be able to access the company’s cloud-based antennas in order to stream and record network TV programming.

“The spectrum that the broadcasters use to transmit over the air programming belongs to the American public and we believe you should have a 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,” Aereo said.

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