Cablevision DVR Ruling and the Death of MP3.com

By Richard Menta 8/5/08

Yesterday, the US Court of Appeals overturned a ruling by a lower court that barred Cablevision from launching a new type of DVR service. What's interesting about the ruling is that it supports the original MP3.com position in the devastating suit that company faced several years ago from the record labels.

Cablevision's service, which it calls remote-storage DVR, allows users to save the programs they record on Cablevision's servers rather than on a stand-alone home device like a DVR or VCR. There the file would reside until the user was ready to view it. At that point the file is streamed through their cable box.

Hollywood called the service theft and a violation of intellectual property rights. The lower district court agreed with them, but the three-judge appeals panel did not. The Court of Appeals ruled that the service is no different from any household DVR and therefore did not violate the copyrights of the program's producers. "All aspects of the case were decided our way," says Cablevision Chief Operating Officer Tom Rutledge. "It couldn't be a bigger or more complete win."

That's all good for Cablevision, but it occurred to me that, conceptually, Cablevision's service was identical to the original MP3.com's My.MP3.com service. Back in January of 2000, MP3.com invented audio place-shifting (a few years before the Slingbox brought video place-shifting to the world). Utilizing an application called Beam-it users registered the CDs in their personal collection - which the application read to confirm ownership, not upload music - and then My.MP3.com gave online access to streams of those songs, which were already loaded on company servers. The idea was give consumers access to their own record collections without having to drag their CDs with them. Users simply streamed copies from their personal account locker on the service to any PC, including the one at work where many consumers were now listening to music.

Like the TV and Movie execs, the record labels called My.MP3.com rampant copyright infringement and sued the service. Like in the Cablevision DVR case, the defendant lost in the lower court.

But, rather than appeal the ruling, MP3.com tried to buy its way out with most of the $300 million it banked from its IPO. Unfortunately, the agreement with the major labels only spawned more suits from independent labels and the music publishing houses, all looking for their cut. The appeasement strategy ended up sinking the company, which eventually was broken up and sold piecemeal. CNET purchased the URL and logo and presently operates its own service at that address.

Before Monday's ruling, many pundits felt that MP3.com should have continued the court fight. They had the relatively deep pockets to finance it and even in the worse-case scenario, MP3.com would have been around a few years longer while the case slowly winded its way through the appeals process.

Monday's decision proved that a ruling in MP3.com's favor was achievable, something ex-MP3.com CEO Michael Robertson must have doubted. Understandably, Robertson' goal was to build a music business, not divert his company's energies and resources to the US judicial system. Unfortunately, the decision to capitulate to the major record labels destroyed his company and whatever vision he was trying to establish in the early wild-west days of digital distribution.

Innovation followed by litigation is a term I coined in the wake of the Napster and MP3.com lawsuits. The phrase is a sad one, but it's accurate. The worst part is that few innovators can afford to defend their creations in court like Cablevision and MP3.com. Also, the risks remain high even for the victorious. Just look at Grokster who won its case in the second and third highest courts in the land only to lose in the Supreme Court. The Cablevision case will probably have several more stops up the appeal chain.

You can sympathize with Robertson's hesitation to spend years in court. He made the wrong decision, but he didn't know it back then.


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