Aereo's Patent Play

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What’s the real endgame for Aereo? It’s not completely clear, but the startup is definitely placing a bet on patents.

Aereo, the company formerly known as Bamboom Labs whose backers include IAC’s Barry Diller, this spring launched an Internet-based live TV and DVR service in New York City that delivers about two dozen broadcast channels — and was promptly sued by major broadcasters (see Public Knowledge, EFF File Brief Supporting Aereo, Aereo Wait-Lists New Yorkers On Internet TV Service and ‘Aereo’ To Test Copyright Law With Internet-Streaming TV Service).

Aereo argues that its dime-sized individual antennas, although mounted in a massive rooftop array far away from any actual subscriber, represent fair use. The broadcast companies say a service delivered via an operator-controlled antenna is “community antenna television” by any other name, and thus Aereo is subject to retransmission-consent regulations.

Could a broadcast-only over-the-top video service become a huge business? Maybe, especially with zero content costs.

But Aereo’s consumer offering may be just a sideline for the real business model: potentially licensing patents, should the startup prevail with its “fair use” argument in court.

In November 2011, Aereo filed for at least four U.S. patents: Antenna System with Individually Addressable Elements in Dense Array; System and Method for Providing Network Access to Individually Recorded Content; Method and System for Processing Antenna Feeds Using Separate Processing Pipelines and System and Method for Providing Network Access to Antenna Feeds.

If Aereo’s approach is deemed legal, and if its patent applications are OK’d, then the company could be in a position to license its intellectual property to cable and satellite TV operators looking to establish their own “dense arrays” of antennas.

Note that this strategy, while time-consuming and expensive, has worked for TiVo. TiVo reached a $500 million-plus patent-litigation settlement with Dish/EchoStar last year as well as a deal with AT&T worth up to $300 million, and the DVR maker is currently suing Time Warner Cable, Verizon, Motorola and Cisco.

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