Cloud Copyright, Capital and The Courts

In 2006, Cablevision was developing a service which allowed customers to record, pause and replay their television content on/from servers located at Cablevision’s data center rather than on the customer’s Digital Video Recorder itself – in the cloud rather than on a local hard drive. A consortium of U.S. television and copyright holders challenged Cablevision in court arguing that Cablevision’s Remote Storage Digital Video Recorder (RS-DVR) infringed on copyrighted content laws in that, they were making copies of protected works and infringing on exclusive right of reproduction; briefly buffering/storing that content also infringes on exclusive reproduction rights; and by transmitting the data back to the customer, they were infringing on exclusive rights to public performance. In 2007, a district court found in favor of the copyright owner but in 2008, the decision was reversed by the Second Court of Appeals. The court clarified that Cablevision was not directly infringing copyright by offering a remote DVR service outside the customer’s home. Viewers could now record and save authorized TV content on a device within Cablevision’s infrastructure.

This ruling, according to Josh Lerner, Harvard Business School’s Professor of Investment Banking, had a huge impact on U.S. venture capital moving to cloud computing. A risk was removed. In Europe, where the ruling had no authority, the venture investments in the cloud were much less. This is an important economic topic and ruling due to the relationship between venture, innovation and job growth. The ruling might also be relevant in Australia where Optus is facing the same legal challenge today. They started a service in July called Optus TV Now that does essentially the same thing as Cablevision’s. Allowing customers to record and watch the 15 free-to-air stations that are available. Customers can watch the content directly or over their smartphone or computer via the internet. In their July announcement they even included, ‘it is a breach of copyright to make a copy of a broadcast other than to record it for your private and domestic use. Optus accepts no responsibility for copyright infringement.’ Well, the owners of the copyright material being stored and retrieved are saying breach, especially the AFL and NRL, the football and rugby leagues. Optus is saying it’s no different than people recording on a personal DVR at home. It’ll be interesting to follow this.

Back to the ‘funding the cloud’ story. Lerner’s study, 'The Impact of Copyright Policy Changes on Venture Capital Investment in Cloud Computing Companies,' he examines the impact and effect of the US Second Circuit Court of Appeals decision. The authors found that the decision led to additional incremental investment in U.S. cloud computing companies compared to Europe. Figure 1 of their paper:

The same growth did not occur in Europe and in some cases, these types of services have been blocked from even getting to market. Imagine how much different services from Amazon, Apple and Google would be if the court did not reverse the 2007 ruling.