What Does the Aereo Decision Mean for Innovation?

I was interviewed by Xconomy today in a piece entitled “Could Fallout from Aereo Ruling Have “Chilling Effect On Startups?” Here’s a little more analysis than what was covered in the Xconomy article.

The question of how the decision would affect innovation was raised immediately after the ruling by Chet Kanojia, Aereo’s CEO, when he asked rhetorically “That begs the question: Are we moving towards a permission-based system for technology innovation?”

Kanojia just lost a huge case, and he’s understandably pissed off — but still, I thought this was a bit hyperbolic.

Look, I wish Aereo had prevailed, for a couple of reasons. One, their service is something that I’d personally like to be able to buy. And two, I think the practical effect of an Aereo win would have been to encourage the unbundling of video from cable operators and to accelerate the move to over-the-top delivery of video more generally. Both of these things would be good for innovation.

On the other hand, virtually no intellectual property lawyer I know thought that Aereo’s chances were very good, given the text of the 1976 federal law on which the decision turned. I attended a great half-day session on this topic about a month ago, sponsored by the Silicon Flatirons Center at the CU Law School, and the sense there was certainly that Aereo had long odds. So, although I’m not a lawyer (thank heavens!), and I’m certainly not going to get into parsing the terms “public performance” and “transmission,” I can’t say I was hugely surprised that Aereo lost.

What I don’t see is any huge call to be alarmed about the impact of the decision on most types of innovation. For one thing, the Court went to some lengths to craft a reasonably narrow decision, which applies only to broadcast TV retransmitted over the Internet.

With any innovative business idea, there are different types of risk. For instance, the area we engineers deal with frequently is technology risk: the risk that whatever technology is necessary for some business plan simply won’t work. A related area of risk — and a main reason people hire Cardinal Peak, if I can be excused a tangential plug — is engineering risk: the risk that the engineering team just won’t be able to come out with a working product in the time and budget available.

The Aereo decision highlights a different kind of risk, which I’m going to call the fuzzy law risk: the risk that the entrepreneur’s interpretation of some act or case law won’t ultimately prevail. That’s what happened to Aereo. They had one way of interpreting copyright law, the broadcasters advanced a different interpretation, and six justices sided with the broadcasters.

My overall takeaway is that startup investors will now approach future business involving fuzzy law risk with trepidation. Not a ton of plans involve this type of risk, but the decision is still likely to have some effect.