Could Aereo come back from the dead?

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Can Aereo Survive as a Cable System?
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Aereo, the online video company that was widely expected to go out of business after losing a high-stakes Supreme Court case in June, signaled Wednesday that it sees a path to survival if it is classified in legal terms as a cable system.

Controversial online television service Aereo is trying to make a comeback, after the Supreme Court ruled last month it was violating copyright laws by transmitting local channels over the Internet.

Now Aereo says in a new court filing that it wants to be treated just like cable TV carriers, which are entitled to carry local broadcast channels if they pay a government-set compulsory license fee. That’s the opposite of what the Barry Diller-backed startup had argued for the past two years, when it claimed to be providing customers with individual service via thousands of tiny TV antennas.

Under court precedents prior to the Supreme Court decision, “Aereo was a provider of technology and equipment with respect to the near-live transmissions at issue," the company said in a letter to U.S. District Judge Alison Nathan on Wednesday. "After the Supreme Court’s decision, Aereo is a cable system with respect to those transmissions."

Before losing in the Supreme Court, Aereo provided customers in almost a dozen cities, including New York and Dallas, with a menu of their local broadcast channels via the internet for $8 to $12 a month. The company shut down the service a few days after the June 25 Supreme Court case, but urged customers to press Congress to legalize the offering.

Broadcasters, who sued to bring Aereo down, not surprisingly opposed the company’s new tack.

“It is astonishing for Aereo to contend the Supreme Court’s decision automatically transformed Aereo into a 'cable system' under Section 111 (of the Copyright Act of 1976) given its prior statements to this Court and the Supreme Court,” the group, which includes Walt Disney’s (DIS) ABC, CBS (CBS), Twenty First Century Fox (FOXA) and Comcast’s (CMCSA) NBC, wrote in response.

Lawyers specializing in broadcast and copyright law said it would be a long shot for Aereo to pull off the 180 degree turn in legal strategy, even though the Supreme Court found that the company did resemble cable TV systems.

An "overwhelming likeness"

Aereo’s technical setup was somewhat different from cable, Justice Stephen Breyer wrote for the high court. “But given Aereo's overwhelming likeness to the cable companies … this sole technological difference between Aereo and traditional cable companies does not make a critical difference here,” he concluded.

“Aereo is making an interesting argument and the Supreme Court invited it,” says Jason Bloom, an intellectual-property specialist and partner at the law firm Haynes & Boone in Dallas. “But I doubt the court will go for it. Internet transmission was definitely not contemplated in 1976 when the compulsory license was added to the law.”

If Aereo did win the case and agreed to pay the compulsory license, the amount it would owe would likely be modest – perhaps 1% of revenue, says David Wittenstein, a broadcast law expert and partner at Cooley LLP in Washington, D.C.

However, broadcasters would then seek to have Aereo considered a cable carrier under a different part of the law that requires such systems to negotiate additional licensing fees for what’s known as retransmission consent. And fees for retransmission are much higher – cable companies pay billions a year overall – and have to be agreed on with the local broadcasters.

“The compulsory license would not be a big burden,” says Wittenstein. “But asking for permission and paying the retransmission fee would be incompatible with a low- cost service."

Aereo may also owe huge penalties for its prior copyright violations, notes Scott Flick, a partner at Pillsbury Winthrop Shaw Pittman who works on broadcasting cases.

"Aereo's copyright infringement up to this point carries potential damages awards to broadcasters in the multi-billions of dollars, making any rescue effort by Aereo likely too little, too late," says Flick. "Aereo is rearranging deck chairs on the Titanic not as it sinks, but as it sits on the bottom of the ocean."

”In the end, the courts have left Aereo in a legal black hole," Bloom says. “Right now, they can’t work without a license but they also can’t get a license. It really is up to Congress now.”

And that means that, for many cord-cutting hopefuls, the perfect system remains out of reach.

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