[x-pubpol] Lerner Report: Copyright & the Cloud

[Joly MacFie]

http://www.theregister.co.uk/2012/06/20/uk_copyright_rulings_could_affect_cloudy_investments/

Harvard Business School Professor Josh Lerner has published a new
report (32-page/300KB
PDF<http://www.ccianet.org/CCIA/files/ccLibraryFiles/Filename/000000000642/eu%20cloud%20computing%20white%20paper.pdf>)
that claims that venture capital investment in cloud computing companies in
France and Germany has fallen in relation to elsewhere in the EU as a
result of court judgments on copyright issues in those countries.

Technology law expert Luke Scanlon of Pinsent Masons, the law firm behind
Out-Law.com, said that the report should be a warning to UK legislators and
judges over the impact copyright law, and its reading, can have on the
economy.

"This Harvard based research identifies serious economic consequences that
both courts and legislators in the UK should not ignore," Scanlon said.
"The purpose of copyright law is not to maximise revenues for rights
holders. It is to set an appropriate boundary between on the one hand,
enabling freedom to use ideas and information, and on the other, protecting
expressions of ideas and information in order to encourage investment in
creative and innovative works.

"Both the French and German courts have applied a general principle of
interpretation which requires that copyright exceptions be construed
narrowly. The problem is that these courts appear to have applied this
principle rigidly without regard to its policy basis. Exceptions to
copyright law are interpreted narrowly on the understanding that a high
level of copyright protection will increase the supply, quality and
diversity of creative and innovative works."

"Regard must be paid however to the impact which a narrow interpretation of
a copyright exception will have on the progress of related innovative
markets, such as in this case, the uptake of cloud computing solutions,"
Scanlon said.

"This is of particular relevance in the UK context as the government looks
to widen its ability to define exceptions by statutory instrument and
without full parliamentary scrutiny by means of the Enterprise and
Regulatory Reform Bill," he added. "It is also relevant in the context of
the Meltwater Group Supreme Court appeal, likely to be heard in 2013,
regarding the issue of what is a temporary digital copy.

"The bottom line is that the extent to which copyright protection may be
limited by an exception must be defined in a way that promotes innovation
and economic growth within the region," the expert said.

Lerner's research, funded by the Computer & Communications Industry
Association (CCIA), had looked into one ruling in France and "several"
others in Germany relating to whether online technology firms were liable
for copyright infringement by enabling copies of copyrighted TV programmes
to be viewable by users without a licence. The CCIA is a lobby group made
up of members from the internet and technology industries, including
Google, Microsoft and Facebook.
French and German rulings

The French ruling in 2008 found that an online digital video recorder
platform, Wizzgo, could not rely on two exceptions to copyright to justify
making copies of copyrighted TV programmes in order that users could view
them at a later date.

Wizzgo had argued that it only made "temporary and transient copies" of the
programmes for private use by its users, and that both the transient nature
of the copy and its private usage were exempt from infringing copyright,
according to Lerner's report. However, the company's arguments were
rejected and it was fined for infringing the rights of TV companies and
content creators.

In Germany in 2009, the Federal Court of Justice ruled on a copyright issue
relating to two companies that enable customers to select and store
television content on servers from which they can download and stream the
programmes.

In its ruling, the German court said that if the technology that companies
use to facilitate such a service is not automatic, the firms would be
liable for direct infringement of reproduction rights. If the technology
was automatic, companies could still be liable for infringing TV companies'
re-transmission rights to the public, the court had said, according to
Lerner's report. Lerner said that, in practice, one firm that has not been
found guilty of copyright infringement has nevertheless been unable to
obtain a licence in order to legitimately retransmit TV content online.

The result of the rulings in France and Germany, Lerner said, was that
venture capital investment in cloud computing had reduced in comparison to
in other EU member states. "Uncertainty" also "likely exists" in Germany
"regarding the viability of certain cloud computing business models," he
added.
What it means for the UK

"Our findings suggest that decisions around copyright scope can have
significant impacts on investment and innovation," Lerner said in his
report. "We have tested a number of models and consistently find that the
French and German rulings led to reduced investment in French and German
cloud computing companies compared to the EU experience."

"Our results suggest that these rulings led to an average reduction in VC
investment in French and German cloud computing firms of $4.6 and $2.8
million per quarter, respectively, implying a total decrease in French and
German VC investment of $87 million after these rulings through the end of
2010," the US academic said.

"When paired with the findings of the enhanced effects of VC investment
relative to corporate investment, this may be the equivalent of $269.7
million in traditional R&D investment," Lerner added.

Last week MPs debated the Enterprise and Regulatory Reform Bill in the
House of Commons. The Bill includes proposals to change the Copyright,
Designs and Patents Act (CDPA) so that the government could add or remove
exceptions to copyright or add or remove exceptions to rights in
performances through 'statutory instruments' containing new regulations.

At the time Luke Scanlon
warned<http://www.out-law.com/en/articles/2012/june/implementing-speedy-changes-to-copyright-law-may-create-more-problems-than-it-solves-expert-says/>
that
too much haste over the drafting of new copyright laws could cause problems
for businesses.

The government has proposed widening copyright exceptions to allow limited
private copying, introducing an exemption for parody and pastiche and
widening exceptions for library archivists and non-commercial researchers
among other reforms.

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