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Washington - Several Supreme Court justices appeared skeptical of Internet streaming start-up Aereo during oral arguments Tuesday, questioning if the company was created as a technical workaround of copyright laws to bypass license payments.
But justices also raised concerns that a decision siding with television broadcasters' complaint could have far-reaching effects on new Web cloud technologies, sweeping up services like DropBox and Apple's iCloud into any fresh interpretations of 40-year-old copyright laws.
"What disturbs me on the other side is I don't understand what the decision for you or against you when I write it is going to do to all kinds of other technologies," Justice Stephen Breyer told David Frederick, an attorney for Aereo.
In a little more than an hour of intense questioning, the justices delved into highly technical questions about Aereo's technology and business model. The two-year-old private firm uses thousands of tiny antennas, each the size of a dime, to capture programs off the airwaves and record them for consumers to view on smartphones, tablets and laptops.
But the company doesn't pay broadcasters licensing fees, and the question at the heart of the Supreme Court case is whether the company's use of individually assigned antennas is akin to a consumer's right to use rabbit ear antennas to watch broadcast TV for free.
Aereo, which charges subscribers $8 a month for its service, has used that argument in its legal defense. It says it merely rents antennas and recorders that consumers control remotely from their homes. But every major broadcaster, including ABC, CBS and FOX, say the firm is no different from a cable, satellite or online licensing partner like Hulu or Netflix that is obligated to pay for the right to rebroadcast the networks' copyrighted material.
The case is being closely watched for its potential to redefine the business landscape for video online. If the justices agree with Aereo, cable and satellite TV providers could follow the start-up's business model and stop paying broadcasters the billions of dollars of retransmission fees they do each year - and ultimately unwind the unpopular cable bundle.
Analysts said it was too difficult to sense how the justices will ultimately decide on the broadcasters' two-year legal battle against Aereo. The court is expected to make an announcement near the end of its session in June.
"The court seems torn about what to do," said Bruce Ewing, a partner in the New York office of Dorsey & Whitney law firm. The justices appeared to have a "dim view" of Aereo's service, Ewing said, but they were also concerned about a ripple effect that any decision could have on commonly used Web-based services such as Google Drive and new innovations.
"It seemed to us a majority of justices would shut down Aereo if there were no potential implications on cloud storage," said Paul Gallant, a media and telecom analyst with Guggenheim Securities.
The court asked broadcasters' attorneys how technologies such as the Web TV device Roku or Web music "lockers" for music storage would be affected.
"I really need to know how far the rationale that you want us to accept will go," said Justice Samuel Alito. "And I need to understand what effect it will have on other technologies."
Often interrupting lawyers for the broadcasters and Aereo during the questioning, some justices said they found it difficult to distinguish between Aereo and cable television providers. Aereo, like cable companies, appears to have some control over the programs available to users, Justice Ruth Bader Ginsburg said.
"They give the subscriber a menu, and it says you can get any of these things," Ginsburg said. "It's not as though the subscriber initiates it. You have these choices, and (Aereo is) providing you these choices, and those choices are content."
Justice Elena Kagan suggested that from the consumer's perspective, Aereo does not provide a different experience.
"It's exactly the same as if I'm watching cable, right?" Kagan asked. "Someone is providing you with a menu, and then you pick off that menu."
The justices pressed Aereo's attorney to explain whether the firm's use of thousands of tiny, individually assigned antennas was aimed at getting around copyright law. The law distinguishes between material used for "public" performances, shown to multiple people at once, and "private" performances, shown to an individual. Aereo argues that because each subscriber is assigned an antenna and a storage file, the transmission of shows is private and thus not subject to licensing obligations.
"I'm just saying your technological model is based solely on circumventing legal prohibitions that you don't want to comply with, which is fine. I mean, lawyers do that," said Chief Justice John Roberts. "But I'm just wondering why - whether you can give me any technological reason, apart from compliance with a particular legal issue for your technology."
Ginsburg noted the dissenting opinion of a lower court judge in a ruling that ultimately favored Aereo. Judge Denny Chin of the U.S. Court of Appeals for the Second Circuit called Aereo "a Rube Goldberg-like contrivance."
"You are the only player so far that doesn't pay royalty," Ginsburg said.
An attorney for the broadcasters took note of the skepticism. "If all they have is a gimmick, they will probably go out of business, and no one should cry a tear over that," said the attorney, Paul Clement of Bancroff law firm.
Aereo defended its technology, saying it would cost more to pay for one big antenna with the building and zoning permits required. Frederick, of Kellogg & Huber, said the use of multiple antennas and storage servers was the most cost-effective way for Aereo to launch its service - and expand it by adding more antennas.
Frederick warned the court that its decision could ripple across the Web industry. If the court determines that Aereo's remote recording service is subject to copyright obligations, then Google Drive, Amazon Web Services and other cloud technologies could also find themselves in court, he said.
"That's why the cloud industry is very concerned that if you have too expansive an interpretation of what is the public performance right, you are consigning them to potentially ruinous liability," Frederick said.