The underlying lawsuit against Aereo, however, will proceed to a trial in U.S. District Court.
Aereo uses tiny antennas to pick up free over-the-air broadcast television signals, and then transmits the video to its customers over the Internet. Customers pay a monthly fee to buy access to an antenna, which allows them to record and watch major network television on their mobile devices and computers.
Aereo is currently available in New York, Boston and Atlanta and has plans to expand to other cities soon.
CBS, NBC, ABC, Fox and other broadcasters argue that Aereo must pay for permission to rebroadcast their signals, just like cable and satellite providers already do.
If Aereo survives the lawsuit, it could encourage other providers to stop paying to retransmit broadcast TV, threatening a key revenue stream for TV stations. Several broadcasting executives have said they would consider moving their programming to cable if Aereo wins.
Judge Denny Chin, joined by Judge Richard Wesley, issued a dissenting opinion.
He argued that Aereo's transmissions constitute a "public performance" under copyright law and that the service must obtain permission to use the content.
"No matter how Aereo's system functions as a technical matter, because its unlicensed retransmissions reach the public, it is surely engaging in copyright infringement as Congress intended the statute to be interpreted," he wrote.