Government regulation is often necessary, and it often offers significant benefits. But those benefits cannot be measured standing alone. They also come with a cost. One of those costs is potentially stifling innovation.
An example of the risk materialized is the copyright litigation surrounding a company called “Aereo,” which streams broadcast television signals over the internet. Last June, the Supreme Court said that Aereo’s business was enough like that of a cable company that it violated the broadcasters’ copyrights in the broadcast material. But cable companies get to retransmit broadcast signals by paying a statutorily-prescribed fee to the broadcasters. Aereo said, OK, if we’re like a cable company, then we, too, get to pay the fee and retransmit the signals. Makes sense, right?
No, says the federal district court for the Southern District of New York. According to that court, Aereo is effectively a cable company for the purpose of having to pay for the signals it retransmits, but it is not a cable company for the purpose of being able to take advantage if the statutorily-prescribed retransmission fee. I have no opinion on whether the New York decision is correct legally. I am unfamiliar with the law and concede the court may have been compelled to reach that result. But if it is the law, Congress needs to fix it pronto.
The result is terrible public policy because it favors entrenched interests over those of market innovators. That’s a downside of regulation from the perspective of the public. It is a significant feature of regulation from the perspective of entrenched interests. This is the world we live in.