Harvard Business School professor Josh Lerner (who has done fantastic research in the past on problems with the patent system) appears to have turned his attention to copyright law as well. A new report he has put out shows how the Second Circuit appeals court ruling that said Cablevision’s cloud-based DVR was legal provided some amount of certainty in questions concerning copyright law in the cloud, and that resulted in increased venture capital investment in related cloud offerings (pdf) to the tune of between $728 million to $1.3 billion.
Obviously, at first pass, there are questions about the level of causality here, as opposed to just correlation (or just the general development of the cloud market). However, Lerner tries to control for a variety of external variables in attempting to figure out the direct impact here. And, obviously, you can never tease out all the different factors, but he makes a pretty compelling case that this particular ruling had a massive impact in venture capitalists’ willingness to invest in the space — and further cites additional research that shows a pretty clear direct causal relationship between VC investment and innovation and job creation. He further controls for things like broadband penetration, which could also impact these numbers.
The main key here was comparing investments in the cloud space in the US vs. Europe over the same period, because the US had the legal clarification, while Europe did not. Basically, in the US, after the Cablevision ruling, investments in cloud computing rose by 41%. In Europe, it rose 27%. Obviously, much of that increase is just due to the rise of the space, but the greater increase in the US suggests that the ruling really had an impact — and that impact is pretty massive in terms of investment, and from that innovation and jobs. From there, Lerner does a lot of additional statistical analysis to separate out the direct impact of the Cablevision ruling compared to many other possible factors, and shows a pretty significant impact from the ruling. There’s a lot more in the report, with details of the statistical analysis used for those who want to dig into the specifics, which looks pretty rigorous from my standpoint (though, I haven’t done hard core stats in about a decade, but at one point in the past I taught stats in college). Either way, Lerner clearly approached the question from a variety of different angles, and they all seemed to suggest similar results, which is pretty compelling.
The key conclusion:
Our findings suggest that decisions around copyright scope can have significant impacts on investment and innovation. We have tested a number of models and consistently find that the U.S. Second Circuit Court of Appeals’ decision led to additional incremental investment in U.S. cloud computing companies compared to the EU experience. As shown in the figure in Appendix B, estimates of increased VC investment in U.S. cloud computing from our seven models range from $728 million to approximately $1.3 billion, with an average of $936 million. When paired with the findings of the enhanced effects of VC investment relative to corporate investment, this may be the equivalent of $2 to $5 billion in traditional R&D investment.
This is quite important to think about in the context of SOPA/PIPA, where Hollywood and the US Chamber of Commerce are seeking to massively change the legal framework around cloud computing (effectively killing the Cablevision ruling and much, much more). The clear fear here should be that doing so will massively chill innovation, job creation and investment. This is why top venture capitalists are so worried about SOPA/PIPA. It’ll seriously chill investment in a key area of the innovation ecosystem. Even worse, this is the part of the industry that’s actually helping the entertainment industry move into the 21st century.
- The Stop Online Piracy Act: A Blacklist by Any Other Name Is Still a Blacklist (newsworldwide.wordpress.com)
- Internet Censorship: SOPA: Hollywood Finally Gets A Chance to Break the Internet ” Censorship in America: (trutherator.wordpress.com)