The U.S. Court of Appeals for the Second Circuit yesterday barred a company that streams live TV shows over the Internet from continuing to transmit the programming, finding that to hold otherwise would “destabilize [an] entire industry” and inflict irreparable damage on the networks.

In a unanimous decision, the court upheld Southern District Judge Naomi Reice Buchwald (See Profile) and sustained a preliminary injunction barring ivi Inc. of Seattle from transmitting copyrighted material belonging to media powerhouses such as ABC, CBS, NBC, Fox Television and Major League Baseball.

“The absence of a preliminary injunction would encourage current and prospective retransmission rights holders, as well as other Internet services, to follow ivi’s lead in retransmitting plaintiffs’ copyrighted programming without their consent,” Judge Denny Chin (See Profile) wrote in WPIX v. ivi, 11-788-cv. He was joined by Judges Ralph Winter (See Profile) and Christopher Droney (See Profile).

Yesterday’s 38-page decision hinged on the court’s interpretation of the Copyright Act and turned on whether streaming companies are “cable systems” under the act. The circuit found they are not.

The appeal involved a West Coast firm and its CEO, Todd Weaver, who for the past two years has streamed the plaintiffs’ copyrighted programming without consent.

Initially, ivi began retransmitting signals from about 30 New York and Seattle stations in 2010. But it quickly expanded, retransmitting signals from Los Angeles and Chicago and offering several thousand copyrighted programs to its subscribers. For about $5 per month, subscribers could access content owned by and distributed through major networks.

Broadcasters immediately objected, but ivi claimed it was a “cable system” entitled to a compulsory license under §111 of the Copyright Act.

Under §111, cable systems are permitted to retransmit signals of copyrighted programs as long as they pay royalties at a rate set by the government. The act defines cable “system” as a “facility” that receives signals from TV broadcast stations and retransmits the signals. The Second Circuit said streamers are not systems.

Chin noted that §111 stemmed from a 1974 U.S. Supreme Court opinion—Teleprompter v. CBS, 415 U.S. 394—in which the justices held that the retransmitting of programs by cable systems did not violate the Copyright Act of 1909 since the materials did not qualify as “performances.”

In response, Congress in 1976 enacted §111 to “balance two societal benefits”—encouraging cable systems to provide television access to rural areas without discouraging broadcasters from creating programs.

Chin said that while the statute is unclear on whether online retransmission services constitute cable systems, the intent of Congress is clear: to address reception issues in remote areas and heighten access to over-the-air TV signals. He said the interpretation of the agency which oversees the compulsory licensing scheme, the federal Copyright Office, eliminates any question.

“The Copyright Office has maintained that §111′s compulsory license for cable systems is intended for localized retransmission services; under this interpretation, Internet retransmission services are not entitled to a §111 license,” Chin wrote. “Internet retransmission services cannot constitute cable systems under §111 because they provide nationwide—and arguably global —services.”

Chin said that without an injunction, broadcasters would sustain severe damage.

“The strength of plaintiffs’ negotiating platform and business model would decline,” Chin wrote. “The quantity and quality of efforts put into creating television programming, retransmission and advertising revenues, distribution models and schedules—all would be adversely affected.”

Chin also said the public would ultimately be ill-served by permitting ivi to continue streaming the programs.

“The public has a compelling interest in protecting copyright owners’ marketable rights to their work and the economic incentive to continue creating television programming,” Chin wrote. “Inadequate protections for copyright owners can threaten the very store of knowledge to be accessed; encouraging the production of creative work thus ultimately serves the public’s interest in promoting the accessibility of such works.”

He added that “plaintiffs’ desire to create original television programming surely would be dampened if their creative works could be copied and streamed over the Internet in derogation of their exclusive property rights.”

Lawrence Graham of Black Lowe & Graham in Seattle argued the appeal for the defendants.

“Frankly I am stunned they decided this the way they did,” he said. “It is a baffling opinion.”

Robert Alan Garrett of Arnold & Porter in Washington, D.C., who argued for the plaintiffs, was not available for comment.

Yesterday’s victory for the industry follows a setback earlier this summer in ABC v. Aereo, 12 Civ. 1540, and WNET v. Aereo, 12 Civ. 1543. In July, Southern District Judge Alison Nathan (See Profile) held that Aereo, a company funded by media mogul Barry Diller, did not violate the Copyright Act by providing access to broadcast TV signals (NYLJ, July 12).

Aereo uses millions of tiny antennas to grab signals for diversion to customers.