Dark Cloud on the Horizon: The Significance of American Broadcasting Companies, Inc. v. Aereo, Inc. for the Future of Cloud Technology Regulation

Date01 January 2015
AuthorAlex Towers
Dark Cloud on the Horizon: The
Signicance of American Broadcasting
Companies, Inc. v Aereo, Inc., for the
Future of Cloud Technology Regulation
Introduction: A Light Touch for the Cloud
In June 2014 the Supreme Court of the United States decided that the
company Aereo, which offered television-streaming services over the
Internet, was enabling copyright infringement.1 The decision of American
Broadcasting Companies, Inc. v Aereo, Inc. (Aereo) immediately rendered
Aereo’s business model illegal and the company was forced to halt
operations, with CEO Chet Kanojia commenting:
Today’s decision by the United States Supreme Court is a massive set-
back for the American consumer. We’ve said all along that we worked
diligently to create a technology that complies with the law, but
today’s decision clearly states that how the technology works does not
matter … [it] begs the question: Are we moving towards a permission-
based system for technology innovation?2
Traditionally innovation and regulation have been relatively dissimilar,3
with regulated industries such as law, medicine and public utilities largely
1 American Broadcasting Companies, Inc., et al., Petitioners v Aereo, Inc., f/k/a.
Bamboom Labs, Inc., Supreme Court of the United States, Docket Nos. 13–461, 573
US (2014)
2 Chet Kanojia, “Statement from Aereo CEO and Founder Chet Kanojia on United
States Supreme Court Decision”, (Aereo.com, 25 June 2014), http://goo.gl/8Icnpe
[Accessed 26 June 2014]
3 Johannes Bauer and Wooyun Shim, Regulation and Digital innovation: Theory and
Evidence, (Econstor Conference Paper provided in cooperation with the International
Telecommunications Society for the 23rd European Regional Conference of the
International Telecommunication Society, Vienna, Austria, July 2012), http://goo.gl/
lJIyvy [Accessed 16 July 2014], in which it states “Regulation inuences innovation
in multiple ways: it affects the risk of innovation projects, inuences the protability
of innovations, and often constrains the scope of available innovation activities.
As many forms of regulation are applied asymmetrically, the innovation activities
of different participants in the information and communication ecosystem are also
affected differently. The net effect of regulation at a sector level will then depend
on the relative magnitude of effects that support innovation and those that impede
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operating outside the more market-based systems that are solely driven by
innovation. In these regulated industries, certain forms of competition could
often be limited and occasionally even criminalized, with the purpose of
maintaining a regulated status quo.4 Conversely, technological innovation,
which is often dened by the disruption and redenition of a status quo,5
could be seen as being partially incompatible with concepts of traditional
regulation.6 It was thought that in regulated industries, companies could
exchange the freedom to innovate and actively compete for certain public
interest concessions, such as guaranteed access and marketing controls.
Conversely, the complete removal of competitive pressures by excessive
regulation might create a vacuum of market dynamics; namely that with no
incentives to innovate, there would probably not be very much innovation.7
Intellectual property rights therefore function as bestowing negative rights
whereby third parties are prevented from copying or duplicating the
trademarks, patents, industrial design or copyright of the original owner.
However the theories on regulation and innovation that emerged from
the industrial development of matter-based twentieth century industries8
cannot easily be applied to the dynamics of the digitally based twenty-rst
century Internet.9
innovation. Conceptual analysis will often not provide clear a priori answers to this
question.” For an illustration of the same principles from the perspective of twentieth
century industrialisation see Elizabeth E. Bailey, “Innovation and Regulation”, (Journal
of Public Economics, volume 3, issue 3 1976), at 285–295
4 Jerry Taylor, “Deregulation or Managed Competition”, the Cato Institute, (cato. org,
opinion commentary, Washington D.C., 15 January 1997), http://goo.gl/ya66bI
[Accessed 20 June 2014]
5 Clayton M. Christensen, The Innovator’s Dilemma: When New Technologies Cause
Great Firms to Fail, (Harvard Business Press, 1997), p.3 in which he states: “The
technological changes that damage established companies are usually not radically new
or difcult from a technological point of view. They do, however, have two important
characteristics: First, they typically present a different package of performance
attributes, ones that, at least at the outset, are not valued by existing customers.
Second, the performance attributes that existing customers do value improve at such a
rapid rate that the new technology can later invade those established markets.”
6 Luke A. Stewart, The Impact of Regulation on Innovation in the United States: A Cross-
Industry Literature Review, (Information Technology and Innovation Foundation,
Commissioned by the Institute of Medicine Committee on Patient Safety and Health
IT, US. National Academies, June 2010), in which the author identies several
developmental trends with regard to the nexus between regulation and innovation,
http://goo.gl/EaqziE [Accessed 28 June 2014]
7 Christine Greenhalgh and Mark Rogers, Innovation, Intellectual Property and
Economic Growth, (Princeton University Press, Princeton University, research study
2010), pp.16–29 and 268–289
8 United Nations, Industrial Development for the 21st Century: Sustainable Development
Perspectives, (U.N. Department of Economic and Social Affairs, 2007), at Part 1, http://
goo.gl/n9NJyD [Accessed 29 June 2014]
9 Mark Graham, “Warped Geographies of Development: The Internet and Theories of
Economic Development, (University of Kentucky, Geography Compass, 2/3 771–789
Blackwell Publishing 2008), http://goo.gl/4ZVG16 [Accessed 15 June 2014]
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The Signicance of American Broadcasting Companies, Inc. v Aereo, Inc. 113
If the Internet can be considered an ideal ecosystem for disruptive
innovation,10 it is in part because of the Internet’s failure to conform to
traditional market principles.11 Whereas markets would traditionally rotate
through a pattern of regulation, failure and distortion, how such cycles
could possibly manifest in the digital market remain largely unpredictable
due to a lack of precedent.12 Consequently, a concern that has emerged from
this lack of precedent is how regulation might interact with innovation with
regard to new Internet-based technologies.13 As Geoff Huston, of the Asia
Pacic Network Information Centre proposed, fostering internet-based
technological innovation in an unpredictable digital environment could
actually be guaranteed by a novel regulatory approach:
True salvation … is going to come from the regulatory sector, but
we’re asking an awful lot, perhaps too much … what we’re asking
for is that a very delicate, light touch that keeps the incumbents to
the level where innovation is still possible … where your bright idea
actually has the ability to redene tomorrow’s businesses.14
The immediate difculty that Huston’s “delicate touch” creates however,
is how to measure the amount of relative force to be applied; too strong
an approach could create excessive administrative hurdles for emerging
10 Christensen, supra note 5 and for a 2014 perspective, see Brad Brown, David Court
and Tim McGuire, “Views from the Front Lines of the Data-Analytics Revolution”,
(McKinsey Quarterly, McKinsey & Company, Insights and Publications, March
2014), http://goo.gl/EVcVkJ [Accessed 15 June 2014]
11 See Hannu Verkasalo, Framework for the Strategic Analysis of the Mobile Internet
Business, (Helsinki University of Technology, Networking Laboratory, 2008), http://
goo.gl/bJE3ST [Accessed 28 June 2014], and Clodagh O’Brien, “The Emergence
of the Social Media Empowered Consumer”, (Irish Marketing Review, Volume 21,
Number 1 & 2, 2011), http://goo.gl/SSwdIV [Accessed 30 June 2014]
12 See the remarks made by Geoff Huston, Chief Scientist at the Asia-Pacic Network
Information Centre, at the Internet Society’s Panel on Regulation, Innovation
and the Internet, October 2011, details of which were reported by Carolyn Duffy
Marson, “ISOC Panel Addresses Regulation, Innovation, and the Internet”, (Internet
Engineering Task Force Journal, The Internet Society), Volume 7, Issue 2., 27 October,
2011, http://goo.gl/goCxBg [Accessed 18 June 2014]
13 Matthew Le Merle, Raju Sarma, Tashfee Ahmen and Christopher Pencavel, The
Impact of E.U. Internet Copyright Regulations on Early-Stage Investment: A
Quantitative Study, (Booz & Company for Google Inc., February 2012), http://goo.
gl/wLw7vS [Accessed 30 June 2014], Le Merle et al, The Impact of U.S Internet
Privacy Regulations on Early-Stage Investment: A Quantitative Study, (Booz &
Company for Google Inc., February 2012), http://goo.gl/PqBAWn [Accessed 30
June 2014], Daniel Castro, “Stricter Privacy Regulations for Online Advertising Will
Harm the Free Internet”, (The Information Technology and Innovation Foundation,
Washington D.C., September 2010), http://goo.gl/07jTnv [Accessed 30 June 2014],
and Knut Blind, The Impact of Regulation on Innovation, (Technische Universität
Berlin, Nesta Working Paper 12/02, January 2012) http://goo.gl/fTg3ek [Accessed 20
June 2014]
14 Huston, supra note 12
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