* Appeals court hears arguments over Internet start-up
* Judges consider technology used in streaming service
* Aereo launched in March for New York-area customers
By Basil Katz
NEW YORK, Nov 30 (Reuters) - Aereo Inc, an online television venture backed by billionaire Barry Diller, was scrutinized on Friday by U.S. appeals court judges who questioned whether the service was stealing U.S. broadcasters' copyrighted programming.
Broadcasters are challenging a July decision by a U.S. district court that rejected a request for a preliminary injunction against Aereo, a service that lets subscribers stream live broadcasts on phones, tablet computers and other devices.
Aereo was launched in March to New York-area subscribers for $12 per month. The TV industry sees the service as a threat to its ability to control subscription fees and generate advertising income, its two main sources of revenue.
David Hosp, a lawyer for Aereo, told a three-judge panel of the 2nd U.S. Circuit Court of Appeals on Friday that the start-up did not violate broadcasters' rights because it was simply a technology that allows individual consumers to decide what to watch.
"Supplying the technology to accomplish this does not ... constitute the direct infringement of any copyright," Hosp said.
The judges, however, asked whether the technology, a system of miniature antennas each assigned to one subscriber, was devised in part as a sly way to comply with copyright laws.
"It's kind of like building your business to avoid paying taxes," said judge John Gleeson, calling Aereo a "belt and suspenders approach" to avoid violating copyright laws.
Hosp responded that Aereo had been conceived to fall within a 2008 decision by the 2nd Circuit in favor of Cablevision Systems Corp for its remote-storage digital video recorder (RS-DVR) system. The system also allowed consumers to record programs on remote servers.
"This court decided what the law is and Aereo is following it to a T," Hosp said.
Before Aereo's launch, broadcasters including Walt Disney Co's ABC, CBS Corp, Comcast Corp's NBCUniversal and News Corp's Fox filed lawsuits accusing it of copyright violations.
In rejecting their bid for a preliminary injunction several months ago, a federal judge said that a temporary ban "may quickly mean the end of Aereo as a business."
The broadcasters disagree with Aereo's claims that its use of individual antennas make the broadcasts private, since they are available to anyone who wants to use the service. They also say that Aereo amounts to a service that retransmits their copyrighted programming without paying any fees.
Paul Smith, representing one group of the broadcasters, said that if the appeals court were to allow Aereo to operate unfettered, "everybody could engage in license free retransmitting."
The cases are CBS Broadcasting Inc., et al v. AEREO, Inc. and WNET, et al v. AEREO, Inc, 2nd U.S. Circuit Court of Appeals, Nos. 12-2807 and 12-2786.