Chet Kanojia Faces a Founder's Worst Fear as Supreme Court Rules Against Aereo
It's exactly what Aero founder Chet Kanojia most feared.
The U.S. Supreme Court decided 6-3 in favor of the broadcast TV establishment in the much-anticipated decision of American Broadcasting Companies Inc. v. Aereo. The court determined that the two-year-old company is violating the Copyright Act. It's unclear how soon Aereo might shut down services, but the ruling appears to leave the company very little room to maneuver.
The court went out of its way to make clear that its ruling does not endanger other technologies, but Alki David, the CEO of Aereo competitor FilmOn, issued a statement saying: "This huge blow to Net neutrality and consumer rights proves my mistrust of the courts is well founded and that the policies and agencies that are supposed to protect the public interest have failed."
In a statement, Kanojia slammed the Court's ruling as "a massive setback for the American consumer."
"We've said all along that we worked diligently to create a technology that complies with the law, but today's decision clearly states that how the technology works does not matter. This sends a chilling message to the technology industry."
He then implied--without offering any specifics--that Aereo may continue in some form.
"We are disappointed in the outcome, but our work is not done. We will continue to fight for our consumers and fight to create innovative technologies that have a meaningful and positive impact on our world." (Read the full statement here.)
The decision appears to treat Aereo more like a cable company than a technology-equipment provider and thus is consistent with the Supreme Court's history with cable companies. In 1976, the Copyright Act ruled the rebroadcast of airwave-based television on cable was a performance. That meant cable companies had to pay broadcast networks for access to content.
"Aereo's activities are substantially similar to those of the [cable television] companies that Congress amended the Act to reach," Justice Stephen Breyer wrote.
The giant broadcasting companies--ABC, CBS, NBC, and Fox--had long complained that the 115-person startup, which is based in New York City, was engaging in copyright theft by capturing their programming from airwaves and streaming it to its customers in a dozen metropolitan areas over their Internet connections.
Whether that act of online streaming, and using a DVR-like storage device for pausing and watching programming later, constituted an act of "public performance" of copyrighted material was at the core of the arguments before the Supreme Court in April.
The Supreme Court clearly found Aereo's arguments unconvincing. Justice Antonin Scalia dissented, however, saying he did not believe the service's online streaming constituted "public performance." Justices Clarence Thomas and Samuel Alito joined in the dissent.
Had the decision gone the other way, it could have changed the way Americans watch television. But now, it seems the biggest impact will be on cloud computing, both for individuals and for companies that rely on storing information in the cloud. Use of services such as Google Drive or Dropbox, which allow users to store their data on remote servers and access it on the Internet, could be heavily restricted or regulated.
It's been nearly two months since the Supreme Court hearing for the case spurred nervous nail biting within both New York media circles and the San Francisco tech scene. The large broadcasting companies faced an upending of their business model from Aereo, which intercepts programming from public airwaves and transmits it for $8 to $12 online, without paying the broadcasters the "retransmission rights" they receive from cable companies. Broadcasters and pundits sympathetic to the current media establishment believed ABC's case would find favor from the Justices. Tech companies, along with high-profile investors like Barry Diller, were rooting for Aereo--in part in the spirit of mutual self-interest, and in part because techies feared an overly broad ruling could stunt file storage in the cloud.
It's unclear precisely when Aereo will shut down operations in the 11 markets it serves, but the last time it was halted--a Denver court in February denied Aereo's request to delay a preliminary injunction--the service promptly notified customers of the shutoff and issued them refunds. Aereo has an estimated customer base of more than 300,000, though the company does not disclose customer or revenue numbers.
There's been plenty of speculation over whether Aereo--a company with nearly $100 million in backing from its investors--would live on in an alternative form after a Supreme Court ruling forbidding it to operate as usual.
Kanojia told me earlier this year he was not willing to think beyond the Supreme Court decision or make a backup plan for the company. He also told Bloomberg: "The mission of this company was to try to create an open platform, to try to wedge the system open a little bit. And if we don’t succeed in that despite our best efforts, good law on our side, and the merits of our case, it will be a tragedy, but it is what it is.”
Still, the company holds 19 patents, opening it up to plenty of potential pivots.
Earlier this year, for a feature on Aereo in which Inc. named Aereo one of 2014's Most Audacious Companies, Kanojia told me that, as Aereo's CEO, faced with numerous legal and regulatory challenges in multiple markets across the country, he was left with no choice but to actively pursue the broadcasters' appeal of their case to the Supreme Court:
If it sounds a bit unhinged to risk the fate of the company on a single day in court, consider the alternative: litigating lawsuit after lawsuit in every new place Aereo launches. "We can't do death by a thousand cuts," says Kanojia. Now, he's in the unenviable position of pursuing the very decision that could instantly bring down his company. Remarkably, he's not outwardly rattled. "He's a steady hand on the tiller," says Aereo investor Dan Nova of Highland Capital Partners. "Very calm under pressure."
Kanojia, who grew up in Bhopal, India, learned early that life can change in an instant. When Kanojia was 10, his father suffered a heart attack that left him unable to work for years, crippling the family's finances. Kanojia says this informed his thinking, to always have a "Plan B and Plan C. And D."
We will soon see if Kanojia does.
CHRISTINE LAGORIO-CHAFKIN | Staff Writer | Senior Writer
Christine Lagorio-Chafkin is a writer, editor, and reporter whose work has appeared in The New York Times, The Washington Post, The San Francisco Chronicle, The Village Voice, and The Believer, among other publications. She is a senior writer at Inc.