Protect IP/SOPA And The Impact It Could Have On Industries And Jobs

by Matt Pollari on January 8, 2012

in Business, Entertainment Industry, Government, Matt's thoughts, Politics, Technology

 

All images come from AmericanCensorship.org

When I started to learn about SOPA and the Protect IP Act that were being considered in the House and the Senate, I was saddened to see that both of my Senators Klobuchar and Franken were supporters and co-sponsors of it. I wrote a short letter to Franken about my dislike for Protect IP and I got a letter back from his office which seemed to have as one of the main reasons for his support of it being the protection of American jobs. So in crafting a reply to that argument I did quite a bit of research.  With that research I ended up creating a lengthy reply that I think helps to show while Protect IP may be designed to protect some industries and jobs in them, it also as it is currently written will have quite a negative impact on many other industries and jobs. The results of what I found in my research are below.  If you want to see a PDF of this piece with all the footnotes and bibliography, you can download it here:  PDF

Let me make clear I am not against better enforcement of copyright, as long as it is done in a fair and just way both for the copyright holder and the accused party so that they have reasonable means to contest it if they feel they are wrongfully accused of infringement. Any new bill should balance the need of the copyright holder and potential new business’ ability to innovate without there being overburdened with legal worry.  After looking into SOPA and Protect IP they do not seem to fit into that criteria.

From my research I have seen evidence and opinions from lawyers, professors, and others questioning the constitutionality of Protect IP and SOPA, but that is not the case I will be trying to make in this post.  As I wrote above the main reason Senator Franken is supporting Protect IP from what I gather is the protection of American jobs that are harmed by copyright infringement/theft such as in creative industries like music, movies and television to name just a few examples.  With that in mind I will take a greater focus at the harm to American jobs in other technology related industries by this bill that could outweigh or negate the jobs potentially helped by these bills.

The first industry that would be effected that I want to highlight is the internet hosting industry. First some background information and numbers to provide context. The hosting industry is a “very significant component of the 46 billon dollar internet infrastructure market.”  The hosting industry is growing at an average of 20% year after year. The hosting industry as a whole is predominately made up of small to medium sized businesses with them making up 81.4% of the hosting industry.  The hosting industry helps to directly and indirectly create at least 15,000 new jobs each year.  With this in mind the letter from the Save Hosting Coalition says that “Under PIPA, the process required to respond to litigation or a complaint would likely absorb an average small host’s entire yearly profit.”  As the letter points out and from what interpretations I have read elsewhere under Protect IP the hosting industry can reasonably be considered within the term “dedicated to infringing activities.”  Because of that the hosting companies themselves under Protect IP would “face the same liability as those actually engaging in the activity.” If the businesses faced those potential legal and administrative cost it is plain to see how much harder it would be for them to continue operating and take away from their core business of helping customers host their content on the internet.  The final point is that Protect IP would very likely effect the hosting industries ability to attract and maintain their current hosting customers that are from outside the U.S. who choose to use U.S. companies for their hosting infrastructure.  Foreign customers amount to 20% of the industry revenue and help the hosting industry generate “$9.2 billion dollars in positive trade flow into the U.S. PIPA will significantly affect this positive trade flow by creating uncertainty about the U.S. legal system.”  The Save Hosting Coalition letter points out that at least one company that signed the letter has already seen a loss of business from the domain name seizures by the Department of Homeland Security and how that has created a legitimate question of the ability of the U.S. legal system to protect and ensure due process rights.  In the end I think I have helped show how Protect IP could adversely affect the internet hosting industry both in terms of potential jobs and the ability to retain customers and possibly in some cases to stay in business over the potential of legal expenses.

The next area that is worth looking at is how this more broadly effect technology companies and new companies that are the driver of new innovation in the technology sector.  As discussed above Protect IP and SOPA create new legal uncertainty and costs for compliance with companies having to police the user generated content on their site and legal fees if they end up in court or have to deal with the legal notices stemming from these laws if enacted.  The burden of protective monitoring and needing legal support just as you are building out your start-up is not conducive to encouraging growth in “the pace of innovation in the US, while likely driving it elsewhere.”  Techdirt.com post on SOPA & Protect IP talks about how both bills use the language that websites are held accountable if the core of function of the site “enables or facilitates” infringement.  The article rightly points out that nearly every website that allows user created content under the bill’s definitions “enables or facilitates” infringement. A final illustration for this is seen in this quote from the Techdirt.com post, “the simple fact is that the very broad definitions in the bill[s], mean that any entrepreneur today will need to take significant compliance costs just to avoid the possible appearance of fitting the criteria.”

When turning to solid numbers to help illustrate the amount of jobs in technology and jobs connected to technology and how it has been a huge growth area and likely will continue to be there is solid data to look at.  From The 2010 State New Economy Index report from The Information Technology and Innovation Foundation (ITIF), they report that “because of the continuing digital transformation of the economy, IT jobs grew by 26 percent between 1999 and 2009, versus only 6 percent for employment in general.”  According to the Microsoft 2011 Citizenship Report (link to site as of Jan. 2012 and download of pdf) the worldwide number of jobs in the IT sector has increased to 38 million in 2011.  They also report that “that creation and use of Internet technologies contributed 7 percent growth in gross domestic product (GDP) in mature and emerging markets in the past 15 years and 11 percent in the past five.” As noted by President Obama and in a study by ITIF the internet adds approximately $2 trillion to the annual GDP.    In a 2009 report ITIF estimated that if the U.S. invested around $30 billion into our IT network infrastructure we could create around 949,000 jobs in new or retained jobs for a year.  From the University of Maryland Center for Digital Innovation, Technology and Strategy (DIGITS) research report on the economic impact of the Facebook app economy there was some amazing data illustrating Facebook’s impact.  From the report they conservatively estimate that from direct and indirect jobs the Facebook app economy added 182,744 full time jobs with an estimated total employment value at $12.19 billion. The reports more aggressive estimates say the Facebook app economy created 235,644 jobs with an estimated total employment value of $15.71 billion to the U.S. economy.  One final number to illustrate the amount of jobs created by internet site is that as of 2005, on Ebay, 724,000 people said the revenue they earned on Ebay was their primary or secondary income, and that an additional 1.5 million people report they supplement their income by selling on Ebay, according a 2005 survey.

The main points that I am trying to make showing all these numbers are two fold.  The first is the jobs and economic production created by technology and the internet is no small amount and that we should understand what ramifications new bills such as SOPA and Protect IP would have and could potentially have on the still relatively new sector of job creation in the internet.  The second point that I would like to make is that while Protect IP would likely not shutdown down Facebook or Youtube given their firm establishment in the internet economy, the challenges that new start ups would face mentioned above could prevent some one from creating the next new technology or website which could help continue to grow our economy.  Facebook is the best example of this, with the $12-$15 billion additional revenue to the U.S. economy from Facebook’s app system.  If we make it that much harder for people to innovate and create new things how much harm will that do to our future economic growth?

The final point that I want to address is how SOPA and Protect IP  would likely harm the level of investment by angel investors and venture capitalists into new technology and internet start ups.  I have talked above about how SOPA and Protect IP would make websites and companies liable for the infringement of the user created content on their site.  Making the companies liable for the infringement of their users reverses the safe harbor provisions of the DMCA act that have helped technology start-ups flourish in this last decade.  Co-founder of Reddit.com, Alexis Ohanian, had this to say in that regard, “This legislation affects my entire industry and livelihood. We never would’ve been able to start Reddit if SOPA were the law, and I worry about all of the future innovation we’d miss out on if it were to pass. And I have no idea what I’d do with myself.” What I am advocating for and what I have read about is that I am not advocating for making copyright infringement legal but for not stripping away the safe harbors from secondary liabilities that companies would face if SOPA and Protect IP were passed.  As referenced in the TechCrunch.com article, studies have been done that showed “the rich informational ecosystem we know today… is a function of the ‘breathing space’ Internet intermediaries currently have under the law.”

The first piece of data is a study done by Booz & Company (press release) found that 70% of angel investors and venture capitalists  that participated said that they would be less likely to invest if the anti-piracy legislation against user-generated or uploaded websites was increased.  The study also found that 80% of investors would prefer the current weak economy with the current internet regulations over a strong economy with the tighter and stricter regulations purposed for copyright infringement.  One final piece of data from the Booz & Company study is “If the legal framework for digital content was clarified, and penalties on copyright infringement were limited for content providers acting in good faith, the pool of angels interested in investing would increase by nearly 115 percent.” To put these numbers in perspective the Booz & Company study says that angel investors and venture capitalists invested around $43 billion as of 2010 in early stage companies. All of these stats from the Booz & Company study shows how detrimental legislation like SOPA and Protect IP would be to the amount of investment angel investor and venture capitalists would provide.  Noted venture capitalist Fred Wilson’s had this to say about the potential changes in the law on his blog “venture capitalists will think more than twice about putting $3mm of early stage capital into startups if they know that the vast majority of the funds will go to pay lawyers to defend the companies instead of to hire engineers to create and build product.” To help illustrate Fred Wilson and his company’s venture capital firm Union Square Ventures credentials his company has invested in such notable technology companies as Twitter, Tumblr, FourSquare and Zynga.  Hopefully all of this helps to illustrate the  potential harm that SOPA and Protect IP could potentially do to investments into early stage companies that are the critical area for continued economic growth for our country.

What I have tried to strive for here in my post is to give hard numbers and facts that can help show the potential harm SOPA and Protect IP could do to the technology sector and the great number of jobs and economic impact that they make.  I hope after seeing some of these numbers and facts they will reconsider their support and co-sponsorship of the Protect IP act.

To end my post I will end with another quote from venture capitalist Fred Wilson that helps to illustrate if we need change let’s do something that is beneficial for both the creative industries and the technology industries:

The bottom line is that DMCA works. Its safe harbors have allowed the Internet to become the US’s most important new industry in a century and a critical job creator. If we need to amend the DMCA, let’s do it with a negotiation between the interested parties, not with a bill written by the content industry’s lobbyists and jammed through congress on a fast track.

- Fred Wilson, venture capitalist. 

About the author of this post:

My name is Matt Pollari and I am a political Organizer (field, events, finance, and data). I have Worked with Al Franken, Tim Walz, Tom Bakk & Minnesota DFL. Love tech. Like MacGyver, only political. As you can tell from this post, I have strong interest in technology and censorship issues.

My personal site is located at MattPollari.com

All images come from AmericanCensorship.org and be sure to check out their site to help fight these bills.


{ 1 comment… read it below or add one }

Nebaglady January 10, 2012 at 11:11 PM

Good work, Matt.

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