A federal appeals court on Monday rejected a bid by TV networks to shut down Internet video service Aereo.
The 2-1 decision upheld a lower court's ruling from July not to issue an injunction against the company, which is backed by billionaire Barry Diller.
But the lawsuit, which claims that Aereo infringes on the broadcasters' copyrighted material, will continue as the company expands into new cities.
CBS, NBC, ABC and other broadcasters argue that Aereo must pay for permission to re-broadcast their signals, just like cable and satellite providers already do.
But the U.S. Court of Appeals for the 2nd Circuit ruled that that Aereo's transmissions do not constitute a "public performance" under copyright law, and that the stations are not entitled to temporarily shut the company down as their lawsuit is pending.
Aereo CEO Chet Kanojia said the decision is a "great thing for consumers who want more choice and flexibility in how, when and where they can watch television."
But Dennis Wharton, a spokesman for the National Association of Broadcasters, said his group is "disappointed" with the decision and that they agree with the dissent of Judge Denny Chin, who called Aereo a "sham."
"[T]here is no technologically sound reason to use a multitude of tiny individual antennas rather than one central antenna; indeed, the system is a Rube Goldberg-like contrivance, over-engineered in an attempt to avoid the reach of the Copyright Act and to take advantage of a perceived loophole in the law," Chin wrote in his dissent.
John Bergmayer, an attorney for consumer advocacy group Public Knowledge, argued that Aereo provides the same service as a standard TV antenna, a DVR and a TV streaming device like Slingbox.
"Each of these devices is legal, so it stands to reason that a service that combines them is also legal," Bergmayer said in a statement.
—Updated at 12:47 p.m.