Copyhype

“Innovation” is one of the Internet’s favorite words (along with “disruption”). ¹Its overuse by some borders on unintentional parody; for example, this recent article on Techdirt features an amazing four instances of some form of “disrupt” and three instances of some form of “innovate” in the first paragraph alone.  It’s a glittery word — who can be against innovation! — and seems to be used to express just about any concept that is needed. The word was once a pejorative; “A spirit of innovation is generally the result of a selfish temper, and confined views,” wrote Edmund Burke. Its normative meaning has since flipped. ²A 2009 literature review found that only 1 in 1,000 social science articles discussing innovation studied the undesirable consequences of innovation, suggesting a strong pro-innovation bias in recent decades.

On April 1st, the Second Circuit affirmed the denial of an injunction against Aereo. The company had been sued by several television broadcasters alleging copyright infringement for retransmitting programs without permission. Last year, a district court refused to grant a preliminary injunction after finding that the broadcasters had been unable to distinguish Aereo’s system from a system held not infringing in the earlier Second Circuit decision in Cartoon Network v. CSC Holdings (“Cablevision“). On appeal, the Second Circuit agreed with the lower court, holding “Plaintiffs have provided us with no adequate basis to distinguish Cablevision from the Aereo system.”

Technology advocates celebrated the decision. The Disruptive Competition Project wrote that it considers Aereo a perfect example of the type of “disruptive innovation” it champions. Consumer Electronics Association CEO Gary Shapiro called the decision a “big victory for innovation.” Public Knowledge hailed the decision as a victory for “video innovation.” The EFF proclaimed the court decision as a Victory for Aereo, TV Watchers, and Innovation Without Permission ³One might find it telling how consistently internet focused civil society groups are aligned with the consumer electronics industry. Even Aereo itself has proudly proclaimed that it is on the side of innovation, progress, and consumer choice.

But how innovative is Aereo? From a viewer’s perspective, the system is largely indistinguishable from cable TV, which has been around for decades. Pay a monthly fee, watch television.

At least one of the Second Circuit judges didn’t see anything particularly innovative about the company. In a dissenting opinion, Judge Chin called Aereo’s “technology platform” a “sham”, describing it as “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.”

Aereo is doing precisely what cable companies, satellite television companies, and authorized Internet streaming companies do — they capture over-the-air broadcasts and retransmit them to customers — except that those entities are doing it legally, pursuant to statutory or negotiated licenses, for a fee. By accepting Aereo’s argument that it may do so without authorization and without paying a fee, the majority elevates form over substance. Its decision, in my view, conflicts with the text of the Copyright Act, its legislative history, and our case law.

The decision also seems to conflict with the idea, as expressed above, that Aereo is innovative.

To put it another way: imagine the reaction to Aereo if it was in all respects identical — e.g., same channel lineup, same price — except it was licensed to retransmit programming. Would we still be hearing about how innovative the service is? I don’t think it would be too far off to imagine such a service being greeted by yawns, or even derided as outdated. That is, it seems plausible that the primary feature that makes Aereo lauded as an innovation is the fact that it is unlicensed.

It is heartening to see that others besides Judge Chin recognize this. In When copyright leads to wasted innovation, Alex Hern observes, “All of this innovation – the tiny antennas, better transcoding technology, and office placed with line-of-sight to the Empire State Building for perfect reception – isn’t being focused towards making life better for customers, or even just making money for Aereo. Instead, it’s just being used to get around the law.” I disagree with Hern, however, when he concludes that “The government could render all that effort useless overnight by just allowing Aereo to stream signal from one aerial to all its users at once.” Aereo is allowed to do this under current law, it just doesn’t want to bother seeking the necessary permission from the owners of the programs it wants to retransmit or pay the necessary licenses.

So how is it that so many celebrate this type of free-riding as innovation?

Part of the blame may be the vague definition of “innovation” itself by those who employ it the most. Author Evgeny Morozov recently wrote of this phenomenon

While the brightest minds of Silicon Valley are “disrupting” whatever industry is too crippled to fend off their advances, something odd is happening to our language. Old, trusted words no longer mean what they used to mean; often, they don’t mean anything at all. Our language, much like everything these days, has been hacked. Fuzzy, contentious, and complex ideas have been stripped of their subversive connotations and replaced by cleaner, shinier, and emptier alternatives; long-running debates about politics, rights, and freedoms have been recast in the seemingly natural language of economics, innovation, and efficiency. Complexity, as it turns out, is not particularly viral.

Part may also be the embrace of “permissionless innovation” as a norm. The idea was once defined rather narrowly, referring to the fact that one could deploy an online service or website without needing any sort of prior approval by any central governing body. ⁴See, for example, Vint Cerf in 2009: “Many now-successful companies have deployed their services on the Internet without the need to negotiate special arrangements with Internet Service Providers, and it’s crucial that future innovators have the same opportunity. We are advocates for “permissionless innovation” that does not impede entrepreneurial enterprise.” Since then it has been expanded to include an absence any sort of obstacles to Innovation, both online and off.

An unqualified endorsement of such a broad definition of permissionless innovation is troublesome, not least of which because it contradicts the centrality of consent and rule of law in any free society. But to the concept’s proponents, permission is simply an obstacle to Innovation that must be torn down. “Permission” can be required by governments in the form of regulations and laws. These are often described solely as rent-seeking by incumbent firms, holding no legitimate purpose on their own and existing only to keep “disruptive innovators” out of the market. ⁵Larry Downes, for example, said in a recent article, Ready to Innovate? Get a Lawyer, “But more often the imposition of legal constraints comes indirectly, the maneuverings of incumbents caught off-guard by something dramatically better and often cheaper than their core products and services. Performing a bit of regulatory judo, they often respond to such threats by pressuring regulators who oversee their own activities to declare the innovator illegal or otherwise in violation of rules that were never designed to cover it.” But permission can also be required from other individuals. Copyright and other forms of intellectual property, held by individuals or other entities, are characterized as the quintessential obstacle to innovation. This is essentially the core thesis in Lawrence Lessig’s 2003 book, Free Culture: The Nature and Future of Creativity: copyright is a restriction that creates a “permission culture“, as opposed to a free one.

Is copyright a restriction that blocks innovation? I say no. As Ronald Cass and Keith Hylton note in their new book, Laws of Creation: Property Rights in the World of Ideas this view is premised on the erroneous “zero sum” view of intellectual property that has become engrained in copyright skeptic thinking.

[T]he modern academic view treats intellectual property law as a set of rules determined in a zero-sum conflict between rights-holders and members of the public. Beyond some modest realm, for one side to gain, the other side must lose. The individual is encouraged y this view to choose a side: either you are with the public or with the rights-holders. For some writers, the choice is put in even more loaded terms: either you side with those who are rooted in the past or line up with the vanguard of the future, freed of entangling rights. ⁶Pp. 209-10.

But copyright is not a zero sum game. Cass and Hylton explain that IP protection, including copyright, comes with static costs, but it produces dynamic benefits. IP protection benefits society when those dynamic benefits are greater than the static costs, leading Cass and Hylton to conclude that, while not perfect, “existing legal rules are generally defensible within an analysis of their costs and benefits.” ⁷Pg. 220.

George Mason law professor Adam Mossoff has recently provided a real world example of this equation in action. In his latest article, How Copyright Drives Innovation in Scholarly Publishing, Mossoff looks at an area that has been especially fertile to charges of copyright as an obstacle. In his abstract, Mossoff writes

Today, copyright policy is framed solely in terms of a trade off between the benefits of incentivizing authors to create new works and the losses from restricting access to those works. This is a mistake that has distorted the policy and legal debates concerning the fundamental role of copyright within scholarly publishing, as the incentive-to-create conventional wisdom asserts that copyright is unnecessary for researchers who are motivated for non-pecuniary reasons. As a result, commentators and legal decision-makers dismiss the substantial investments and productive labors of scholarly publishers as irrelevant to copyright policy. Furthermore, widespread misinformation about the allegedly “zero cost” of digital publication exacerbates this policy distortion.

This paper fills a gap in the literature by providing the more complete policy, legal and economic context for evaluating scholarly publishing. It details for the first time the $100s millions in ex ante investments in infrastructure, skilled labor, and other resources required to create, publish, distribute and maintain scholarly articles on the Internet and in other digital formats. Based on interviews with representatives from scholarly publishers, it reveals publishers’ extensive and innovative development of digital distribution mechanisms since the advent of the World Wide Web in 1993. Even more important, this paper explains how these investments in private-ordering mechanisms reflect fundamental copyright policy, as copyright secures to both authors and publishers the fruits of their productive labors. In sum, copyright spurs both authors to invest in new works and publishers to invest in innovative, private-ordering mechanisms. Both of these fundamental copyright policies are as important today in our fast-changing digital world as they were in yesteryear’s world in which publishers distributed scholarly articles in dead-tree format.

True innovation grows the entire pie. The type of false innovation of services like Aereo simply shift the pieces around — and, if such a service negatively affects those providing the television programs that Aereo relies on to attract subscribers, then, in the long run, nobody wins.