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Appellate judge compares Aereo's antennas to tax dodge

Second Circuit Court of Appeals is skeptical of some of the arguments presented by Aereo, the service that provides subscribers with Internet access to over-the-air TV signals without compensating TV broadcasters.

NEW YORK -- A federal appeal's court here sounded highly doubtful of Aereo's claims that by using thousands of tiny Internet-connected antennas to deliver live TV to customers, the company had successfully sidestepped copyright infractions.

Greg Sandoval/CNET

Aereo is the Barry Diller-backed Internet video service that currently provides users in New York with live TV. For $12 a month, Aereo will connect subscribers, via the Web, to a tiny antenna that captures over-the-air TV signals and enables them to watch TV on their PC. Aereo managers don't pay a dime to access these shows.

They should, according to the top television broadcast companies. Fox, ABC, NBC and CBS (parent company of CNET) alleged in a lawsuit earlier this year that Aereo's service violated their copyrights and said the service must pay them retransmission fees. The broadcasters appealed a district-court decision issued in July to allow Aereo to keep operating and were before the U.S. Court of Appeals for the Second Circuit today to argue that Aereo must be shut down immediately.

During arguments, the judges on the panel: Denny Chin, John Gleeson and Christopher Droney, showed very clearly that they found some elements of Aereo's business unsavory. Aereo enables users to watch broadcast signals via their own personal antennas and the company argues that this makes it a private performance, which is legal, and not a public performance.

The judges scoffed at this. Members of the panel compared the antennas to a tax dodge and questioned whether they weren't part of some "fiction" designed to skirt copyright law. One of the hearing's most dramatic moments came when one of the judges noted that Aereo's service would be much more efficient if it used one giant antenna to distribute the signals. He asked David Hosp, Aereo's attorney, whether there existed any legitimate technological or business reason for implementing the scores of tiny antennas.

Hosp seemed surprised by the question but after a few moments composed himself and acknowledged that Aereo did build the antennas for the sake of complying with copyright law and not for business or technological reasons. But he reminded the judges that the antennas did in fact help Aereo's service "follow the law to a T."

Hosp's message was clear: regardless of how the judges felt personally about Aereo, the service obeyed the law.

This is an important case. If live TV is ever going to be accessible online without the requirement of paying for a cable subscription, then the loophole that Aereo is trying to exploit may be the way to make that happen. On the other hand, broadcasters say a win by Aereo would blow up a major part of their business.

They ask which cable company would pay them retransmission fees if some competitors accessed the same content for free?

If the judges are worried about allowing Aereo to squirm through a loophole, their hands may be tied. In tax law, for a loophole to be legal there must be a legitimate business reason for it. In copyright law, there is no requirement to produce a legitimate business or technological reason.

A federal appeals court didn't seem to like that Aereo built its tiny antennas to help the company access broadcast TV without paying for it. Chet Kanojia, Aereo CEO, told CNET in July: 'I read what people said you can do legally and that's what I did, so stop complaining.' Greg Sandoval/CNET

But lawyers arguing for the networks urged the judges not to ignore their gut instincts. They said that if millions of people are watching the same Monday Night Football game on Aereo, then it holds that they're not watching a personal performance. Bruce Keller, an attorney for the networks, told the panel that Aereo says "they're not a re-transmitter because they're not transmitting signals directly [to the customer] but Aereo is a re-transmitter in every sense of the word."

He also attacked Aereo's claim that the Cablevision case, decided by the same appeals court, protected the service. Cablevision, a cable TV provider, began hosting a digital video recorder (DVR) service and it was sued by the same broadcasters suing Aereo. The appeals court found in favor of Cablevision and ruled that the copying of content by individual users was not copyright infringement. The court also decided that replaying shows to an original audience (time shifting) wasn't a public performance.

Keller said that the difference between the two cases was that Cablevision already owned a license to transmit the broadcasters' content. Aereo owns no such license.

Legal experts at the hearing said the judges could take three or four months to make their decision but they expected the panel to issue a decision much sooner. The appeal was filed on an expedited basis.