Blog Post

No, a copyright case didn’t spur cloud investment

Cloud computing startups can thank a federal copyright case for the increased funding they’ve raised in the past few years, according to a Harvard Business School professor. A new study authored by investment-banking professor Josh Lerner, and funded by the Computers and Communication Industry Association, not only finds that U.S. venture-capital investment in cloud computing startups increased after the mid-2008 decision in The Cartoon Network, (s via) et al. v. Cablevision, but that the decision actually spurred investment. I’d say there’s a tenuous connection at best.

It’s impossible to say the decision didn’t have some effect on VCs’ attitudes about cloud computing, but it’s hard to see how it would be anything more than negligible. Sparing everyone an explanation of the intricacies of copyright law, here’s the Cablevision (s cvc) case in a nutshell: Cablevision had a DVR offering that operated exactly like every other DVR, only it stored programming on Cablevision servers rather than on customers’ cable boxes. In March 2007, a U.S. District Court found the device violated content producers’ copyrights. In August 2008, the Second Circuit Court of Appeals reversed.

I don’t question Lerner’s methodology or his finding that cloud computing investments picked up after August 2008 — they most definitely did — but I can’t see the causality. Cablevision didn’t inspire anyone to invest millions in cloud computing startups; it just coincidentally aligned with cloud computing hitting its stride after coming into the IT lexicon a couple years earlier. Here are a few other things that happened in 2008 completely disassociated from the case:

  • We held our first Structure event in June 2008, two months before the Cablevision decision came down. The biggest names in IT were there espousing their plans for cloud computing. Certainly, the VCs in attendance didn’t miss the writing on the wall.
  • Amazon (s amzn) EC2 hit the scene in 2006, but it really started picking up the pace of innovation in 2008. As I point out in new Long View on GigaOM Pro (sub req’d), AWS had a total of 12 significant feature releases in 2006 and 2007. It had 20 in 2008 alone, and 116 total between 2008 and 2010.
  • Google (s goog) launched App Engine in April 2008.
  • Microsoft (s msft) announced Windows Azure in October 2008.
  • A week before Azure was announced, Rackspace (s rax) bought Slicehost and JungleDisk and formed the Rackspace Cloud.

Cloud investor extraordinaire Ping Li of Accel Partners agrees. As he told me via email, “I think it’s totally unrelated (at least for me).” Cloud computing is a technological revolution, he added, investment in which was driven far more by the inherent promise of new platforms such as Amazon Web Services and virtualization, in general, than by any legal considerations.

Nolan Goldberg, an IP attorney in the New York office of international law firm Proskauer Rose, told me that Cablevision was hardly a watershed moment. Everyone realized it affected the cloud, he said, but he noted that the decision was very specific to the facts of the case, and that Cablevision’s technical configuration wasn’t too great to begin with.

Anyone looking for a cloud-era analogy to the famous time-shifting case that paved the way for the home-recording of TV shows on VCRs in the 1980s might instead look to EMI v. MP3tunes, Goldberg said. In that case, a judge held that music lockers like those provided to users by MP3tunes to store files are legal, provided the service providers abide by DMCA safe-harbor rules when made aware of infringing content within users’ lockers. Further, the court expanded upon the Cablevision decision by allowing for deduplication to eliminate redundant data without risking additional copyright liability around the right to public performance.

Only a decision in that case didn’t come until August of this year. Amazon Cloud Drive, Apple (s aapl) iCloud and the U.S. version of Spotify — all arguably directly affected by any decisions about cloud-based storage of copyrighted content — were at least announced before the MP3tunes decision.

That’s because the value proposition is so great that everyone — from IT vendors to VCs — has been getting their cloud stakes in the ground for years with little regard for the law. So much business will take place in the cloud over time that it would be foolish to hold back investment waiting for the slow-moving legal process to catch up. It’s all that investment, in fact, that probably will spur lawmakers to take action and update the rules to accommodate the cloud.

Image courtesy of Flickr user bixentro.

2 Responses to “No, a copyright case didn’t spur cloud investment”

  1. Brian Vaughan

    It might not be about a particular individual copyright case, but much of the appeal of “cloud” based products is related to copyright.

    It’s not just about content… If I want to build a desktop application to sell to end users, I either have to stay off GPL code or give my users the source code. There are fewer revenue opportunities if you’re already required to distribute the source of your product freely. I can sell someone a “cloud” based service that uses GPL code, without showing my changes, while charging money, and without violating copyrights.