Impact of Copyright Regulations on Early-Stage Investment
The government’s involvement in copyright issues may move in one (or more) of four potential directions:
The government’s involvement in copyright issues may move in one (or more) of four potential directions:
1. Decreasing the cost and complexity of obtaining licenses. An integral function of copyright law is the granting of licenses. Changing this process could have important consequences for rights holders and content distributors alike.
2. Reducing legal ambiguity concerning the likelihood of lawsuits and the size of damages in the event of liability. Some aspects of copyright law are as young as the Internet itself, and thus, many argue, still very ambiguous.
3. More actively prosecuting pirates. A common method of deterring piracy has been direct prosecution of pirates themselves. Despite many steps in this direction in the past, the potential for expanding these efforts remains.
4. Holding websites and content intermediaries responsible for copyright infringement. Proposed legislation would hold the intermediaries that redistribute content liable for the activity of their users. These companies would be required to screen and filter content and could be held responsible for any ensuing copyright infringement.
Booz&co undertook an empirical, quantitative study to understand better how potential changes to copyright regulations might affect angel and venture capital investment on digital content intermediaries. In the course of preparing the study, Booz&co surveyed 189 U.S. accredited angel investors and interviewed 24 prominent venture capitalists. In sum, Booz&co's principal findings support the following points:
- Increasing liability for content providers would have a greater negative impact on early-stage investment than would a weak economy and an increased competitive environment combined.
- Holding digital content intermediaries liable for the content uploaded by users would have a significantly negative effect on investment in this space, reducing the pool of interested angel investors by 81 percent.
- Regulations making users more easily prosecuted for copyright violations would have a negative effect on investment in this space, reducing the pool of interested angel investors by 48 percent.
- A large majority of angels and venture capitalists support increased clarity in copy right law, especially if it would decrease the level of ambiguity surrounding the probability of facing a lawsuit in cases of copyright infringement, as well as the size of damages in the event of liability.
- Fully 80 percent report being uncomfortable investing in business models in which the regulatory framework is ambiguous.
In light of these results, lawmakers might wish to consider the angel and venture capital community when contemplating new copyright regulations. Angel investors and VCs play a critical role in the capital markets, providing early financing to new companies that otherwise would find it difficult to secure funding. Taken together, angel investors and VCs are the primary source of this entrepreneurial funding, investing nearly $43 billion in the U.S. in 2010 alone. In fact, angels and VCs were early investors in many companies that are household names, including Apple, Cisco, Dell, eBay, Facebook, Google, Intel, and Microsoft.
To find out more please read the attached document.
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