IP with a license to kill
Every start-up with a brilliant idea will learn that it is good to check if you are really free to put that idea to use. Sometimes a competitor’s intellectual property rights (IP rights) can seriously impair your so-called freedom to operate.
Especially building upon a product or service of a third party can be problematic, for instance providing an online service for an offline product offered by someone else. In itself, there is nothing wrong with such activities, but they may lead to extra scrutiny from the third party. If they are particularly unhappy, they will most likely allege an IP infringement. Sometimes these allegations stick and are able to kill a start-up business. It is good to be aware of these risks and – more importantly – to know that it could be worth investigating if there is way to circumvent IP claims.
A recent decision of the US Supreme Court in the case against tech start-up Aereo provides a good illustration of how things can go wrong.
Plug pulled on Aereo’s online television
American cable companies were considered quite hesitant to offer their services online. Aereo hoped to fill this gap in the market by picking up free-to-air television channels and relaying those via its website. This provided Aereo’s customers with means to view cable television online. Aereo presumably anticipated some copyright concerns and therefore chose to install a separate receiver for each of its customers. Every receiver would pickup the free-to-air signal and relay this to the customer individually. Aereo hoped that this specific technical setup pre-empted any possible copyright claim, as it supposedly would not constitute a ‘public performance’ (due to the ‘private’ individual relay). Such a ‘public performance’ is a requirement for a copyright infringement.
Not long after its launch, some cable companies indeed filed suit. Aereo successfully defended its business in first instance. Unfortunately for Aereo, the cable companies appealed to the US Supreme Court.
In its recent ruling the Supreme Court found that in essence there was no difference between a cable company and Aereo. Therefore, Aereo’s services included a ‘public performance’, regardless of its individually setup technical relay. However, the Court was not unanimous and the well-known Justice Scalia dissented together with two other justices. This minority was of the opinion that Aereo had found a loophole in copyright law and that it was for Congress to repair this. Of course, these dissents were of cold comfort to Aereo, who will now have to negotiate a license or cease operations.
TVCatchup already caught up by Court of Justice European Union in 2013
This was not the first online television business that was killed after a copyright claim. In 2013 a British startup suffered the same faith. TVCatchup offered online television to customers who had already obtained a license for offline television. TVCatchup hoped that because these customers were already licensed to view certain television channels via cable, it could provide online transmission of these channels without infringing copyright. In the end the Court of Justice European Union ruled otherwise and found that TVCatchup’s services constituted a copyright infringement.
Of course, copyright infringement does not necessarily have to mean the end of a business. For instance, TVCatchup is still up and running. Sometimes, only a small portion of a product or service is found unlawful. Further, a quick workaround could prove sufficient to circumvent conflicting IP rights. All in all, start-ups should have a realistic approach when it comes to their freedom to operate and not ignore potential IP pitfalls.
If you have any questions, please do not hesitate to contact the Startup Team.