Broadcasters including ABC, CBS, Fox, NBC and PBS sued Aereo for copyright infringement, saying Aereo should pay for redistributing the programming the same way cable and satellite systems must or risk high-profile blackouts of channels that anger their subscribers. Some networks have said they will consider abandoning free over-the-air broadcasting if they lose at the Supreme Court.
The broadcasters and their backers argue that Aereo's competitive advantage lies not in its product, but in avoiding paying for it.
There are signs people are starting to forgo pay-TV subscriptions by relying on Internet services such as Netflix and Hulu Plus for television shows. A service that offers live television, as Aereo does, could make such cord-cutting even more palatable. A study last year from GfK estimated that 19 percent of TV households had broadcast-only reception, up from 14 percent in 2010.
Broadcasters worry they will be able to charge cable and satellite companies less if they lose subscribers. But Aereo argues that broadcasters would benefit from increased advertising revenue from increased viewership. The company says many of its subscribers are under 30 and have never had cable service.
Aereo founder and CEO Chet Kanojia recently told The Associated Press that broadcasters can't stand in the way of innovation, saying, "the Internet is happening to everybody, whether you like it or not." Aereo plans to more than double the number of cities it serves, although the high court could put a major hurdle in the company's path if it sides with the broadcasters.
The federal appeals court in New York ruled that Aereo did not violate the copyrights of broadcasters with its service, but a similar service has been blocked by judges in Los Angeles and Washington, D.C. A district judge in Utah also ruled against Aereo, saying that Aereo's service is "indistinguishable from a cable company."
The 2nd U.S. Circuit Court of Appeals in New York said its ruling stemmed from a 2008 decision in which it held that Cablevision Systems Corp. could offer a remote digital video recording service without paying additional licensing fees to broadcasters because each playback transmission was made to a single subscriber using a single unique copy produced by that subscriber. The Supreme Court declined to hear the appeal from movie studios, TV networks and cable TV companies.
In the Aereo case, a dissenting judge said his court's decision would eviscerate copyright law. Judge Denny Chin called Aereo's setup a sham and said the individual antennas are a "Rube Goldberg-like contrivance" — an overly complicated device that accomplishes a simple task in a confusing way — that exists for the sole purpose of evading copyright law.
A decision is expected by late June.
The case is ABC v. Aereo, 13-461.
AP Technology Writer Anick Jesdanun contributed to this report from New York.