China’s e-commerce giant Alibaba and Qihoo 360 have teamed up to launch 360.etao.com, an online shopping search engine that rivals similar products by Baidu, China’s biggest search engine.
Qihoo’s new relationship with Alibaba is noteworthy because Alibaba dominates China’s $190 billion e-commerce market through two of its portals, Taobao and Tmall, and is on its way to becoming the first online retail company in the world to handle $1 trillion a year in transactions.
The launch of 360.etao.com, which currently points to Alibaba’s vertical shopping search engine Etao, is part of aggressive efforts by Qihoo 360 to chip away at Baidu’s dominance in China’s search market. Baidu has 67.2% market share and Qihoo 360 holds 14.9%, according to data from analytics firm CNZZ.
Qihoo 360, which launched its search engine just nine months ago, declared in February (link via Google Translate) that it intends to double its current market share to 20% this year. Other competing products Qihoo 360 has produced include vertical search engines focused on music, software, doctors and mapping services.
Qihoo has sought allies among China’s most important Internet companies. One of its current partners is Sina, which runs Sina Weibo, the country’s largest and most influential microblogging platform. The two companies signed a strategic browser game agreement in January.
Baidu has not been sitting idle. It recently launched security software designed to compete with Qihoo 360′s products (before entering the search business, Qihoo was best known for its antivirus software) and is reportedly trying to increase its share of the search market by purchasing Sogou, Internet company Sohu’s search engine. Baidu also prevailed in a lawsuit that accused Qihoo 360 of engaging in unfair business strategies.
TechStars, the popular startup accelerator with locations in Boston, Boulder, New York, Seattle, London, and more, has today announced an expansion to Austin, Texas – a city TechStars founder and CEO David Cohen refers to as the “natural next stop for us” in this morning’s announcement about the new location.
The program will launch its first program this August, and is accepting applications now.
TechStars Austin will operate out of Capital Factory in downtown Austin, and will be managed by Jason Seats, who sold his company Slicehost to Rackspace in 2008, making him VP of Engineering there. Seats has worked with the TechStars organization since 2011, serving as Managing Director of TechStars Cloud. He’ll now be relocating from San Antonio to Austin with his new position.
Cohen also notes that Austin has been named the “number one boomtown” and best place for your startup by folks like Forbes and Bloomberg, and recently became the second city chosen to receive Google Fiber. It’s also already home to a number of growing startups, as you probably know.
Austin’s Chamber of Commerce named 28 companies to its “A-List” showcase, its annual list which now includes startups like Spredfast, MassRelevance, Sparefoot, and MapMyFitness (to cite those Cohen pointed out), as well as others like myEDU, Uship, InfoChimps, Socialware, Emmoco, and many, many more. There’s also Indeed, HomeAway, Bazaarvoice, Spiceworks, and the 150+ others can pull up here in CrunchBase.
As with TechStars’ other locations, TechStars Austin won’t focus on any particular vertical, but is generally just looking for disruptive Internet companies backed by strong teams.
Mentors and investors involved in the new program include: Brett Hurt (Bazaarvoice), Tom Ball and Mike Dodd (Austin Ventures), Sam Decker (Mass Relevance), Jeff Dachis (Dachis Group), Kip McClanahan and Morgan Flager (Silverton), Josh Baer and Bill Boebel (Capital Factory), Ned Hill and Aziz Gilani (Mercury Fund), Rony Kahan (Indeed), Rob Taylor (Black Locus) Lori Knowlton (HomeAway), and more.
Austin’s scene is so hot right now that TechCrunch is even taking a roadtrip to that city this month (May 30th), kicking off the TechCrunch Meetup + Pitch-Off series, our 60-second pitch competition. First prize winners receive a table in Startup Alley at TechCrunch Disrupt SF 2013, while second and third place winners will receive tickets. (Those event details are here.)
Editor’s note: Sid Venkatesan is an IP partner specializing in high stakes IP disputes and IP counseling for technology companies in the Silicon Valley office of Orrick, Herrington & Sutcliffe LLP. James Freedman is an associate in Orrick’s IP group and a recent Stanford Law School graduate.
A New York appellate court has recently ruled in UMG Recordings v. Escape Media Group that the safe harbor protections that Congress designed for Internet companies do not cover sound recordings made before 1972. The decision is a new and unexpected break with earlier decisions by state and federal trial courts.
As a result, Internet companies that host or transmit songs before 1972, including hits from The Beatles, The Rolling Stones, and Elvis Presley, may no longer rely upon the DMCA’s safe harbors to insulate them from potentially crippling legal liability as a result of copyright infringement that arises from downloading, hosting or transmitting copyrighted sound recordings.
The Decision
Escape Media Group, which owns the Grooveshark music hosting site, was sued by Universal Music Group, a major rights-holder, in New York state court for infringing UMG copyrights in pre-1972 works. Grooveshark permits users to upload recordings to its servers and lets other users stream that music. UMG sued Grooveshark for hosting UMG-owned copyrighted songs from prior to 1972 without a license.
Grooveshark argued in the trial court that its services were protected by the DMCA safe harbors, specifically Section 512(c). As we’ve discussed before, this safe harbor immunizes service providers that host user uploaded content so long as the service provider posts a DMCA policy, adheres to DMCA notice and takedown provisions, and complies with other formalities. The trial court agreed with Grooveshark (as well as an earlier federal court decision) and found that Grooveshark’s hosting of pre-1972 songs was protectable under the DMCA. UMG appealed, and on April 23, this decision was reversed by a New York appellate judge that found the DMCA safe harbors inapplicable to copyright infringement of sound recordings created before 1972.
Why does 1972 matter? In 1971, Congress amended the U.S. Copyright Act to include federal protection for sound recordings “fixed” on February 15, 1972. At the same time, Congress included in Section 301(c) of the Copyright Act that “any rights or remedies under the common law or statutes of any State shall not be annulled or limited” by the Copyright Act until 2067. UMG argued that it had common law rights in sound recordings fixed before February 15, 1972 and its rights could not be annulled by the DMCA safe harbors.
Grooveshark countered with a public policy point, arguing that Congress could not have intended the Copyright Act to be read in this way, as it would “eviscerate the DMCA.” Unluckily for Grooveshark, shortly before this decision was issued, the U.S. Copyright Office sent a letter to Congress stating that the DMCA did not cover pre-1972 sound recordings, and urged Congress to fix the issue. At the end of the day, the appellate court rejected Grooveshark’s position and held that pre-1972 sound recordings were not covered based on the text of Section 301(c) and the legislative history. The court punted the issue back to Congress, stating “it would be far more appropriate for Congress, if necessary, to amend the DMCA to clarify its intent, than for this Court to do so by fiat.”
The Aftermath
Though it has its critics, the DMCA provides Internet services, including content-hosting sites, certain peer-to-peer services, search engines and ISPs with defined protections from copyright infringement claims based on the transmission, downloading, uploading, caching, or linking to digital copyrighted content. Under Section 512, the DMCA protects four types of Internet services — called “service providers” under the Act: 1) conduits, like ISPs, that transmit material through a network; 2) caching services; 3) service providers like YouTube or Veoh that store user uploaded content; and 4) information location tools, like search engines. The DMCA also exempts nonprofit educational institutions from liability.
With this decision, those protections may have gone up in smoke. Therefore, Internet companies hosting pre-1972 sound recordings can face claims for actual damages and injunctions under common law. Actual damages can be substantial. For example, BlueBeat.com settled a lawsuit for approximately $1 million for claims to streaming and selling Beatles songs, many of which were recorded prior to 1972. On the flip side, since this decision applies to state common-law copyright protections, it means that service providers may be clear of the worst penalties for copyright infringement for infringement of pre-1972 sound recordings. Under federal law, which would be subject to the DMCA, a service provider can face “statutory damages” that can range from $750 to $30,000 per work (meaning that, for example, a service that is found to host 1,000 infringing copyrighted songs could be hit with a $30 million award).
Further, though UMG has won the day in New York, there remain a lot of uncertainties regarding its claim. The copyright rules of the road that have developed in cases involving Internet companies have developed in connection with claims arising under the federal law. It is uncertain how legal issues, like the determination of indirect liability, the evaluation of affirmative defenses (such as fair use and “Betamax defense”), and the calculation of damages will occur under New York common law.
As a result of this case, Internet companies with a presence in New York (and perhaps other states, should this decision prove persuasive in other states) are now facing a two-regime copyright system and will face increased regulatory costs as a result. Going forward, these companies should take a hard look at what content is hosted, transmitted or cached through their services using, for example, logging techniques or third-party systems, such as the Content ID systems employed by sites like YouTube, to audit content on their service. This can inform appropriate action—either identifying a need for content licenses or a need to engage in increased technical self-help measures to curb infringement.
These costs are obviously unwelcome for technology companies, and we expect that this decision may fuel the drumbeat for Congress to act to amend the Copyright Act to correct this statutory loophole.
[This column reflects Sid’s and James’ general views and does not constitute legal advice or the views of Orrick or its clients.]
[Image Flickr]
After weeks of rumors, Baidu finally confirmed today that it has acquired the online video business of Shanghai-based PPS for $370 million. PPS will be merged into iQiyi, Baidu’s video platform Baidu, to form China’s largest online video platform by the number of mobile users and video viewing time.
The sale is expected to close in the second quarter of 2013. PPS will continue to operate as a brand of iQiyi.
The deal allows Baidu to step up its competition with video platform Youku-Tudou. At the end of last month, before Baidu had officially announced the deal, Youku-Tudou president Dele Liu made a statement about his company’s competitors: “After the success and synergy created by the Youku Tudou merger, increasing consolidation was inevitable throughout the video industry. We are happy to see this purchase go forward, we expect this acquisition will further rationalize the industry and help reduce piracy in the sector.”
Despite the somewhat cheeky tone of Liu’s comment, the purchase of PPS does indeed position Baidu as a formidable competitor to Youku-Tudou, which was previously China’s biggest video site according to Analysys International.
Baidu’s purchase also underscores the importance of online video for Internet companies all over the world as they seek to sell more premium advertising, keep up with consumers’ viewing habits as they shift to online content, and take away market share from TV.
For example, reports of Baidu’s decision to purchase PPS emerged around the same time Yahoo made a $200 million bid to take a majority stake in Dailymotion, the “YouTube of France.” The deal was scuttled by the French government because it did not want a U.S. company taking a controlling stake in a French operation, but if it had gone through, the cash infusion would have helped Dailymotion compete with international rivals like YouTube while allowing Yahoo to build up its video offerings.
AOL (our parent company) also emphasized the importance of online video at the end of last month when it unveiled three new initiatives, including 15 original, unscripted shows; a new creative studio called Be On; and a deal with FreeWheel and Mediaocean. Of course, it remains to be seen if any of these initiatives prove to be as successful as Google’s prescient $1.65 billion acquisition of YouTube in 2006.
“The merger of iQiyi and PPS’s online video business is a major step toward consolidation in the industry and will contribute to the development of China’s Internet video industry. The merger will generate significant synergies, and will provide for an improved user experience as well as more and better content. It will also deliver better marketing value and a wider range of options for advertisers,” said iQiyi CEO Gong Yu in a statement.
In this week’s Ask A VC episode, we sat down with Index Ventures partner Mike Volpi.
Volpi, who makes investments in both enterprise software and consumer internet companies, serves on a number of boards, including Path, Sonos, Lookout, Hortonworks, Soundcloud, Big Switch Networks, Zuora, Foodily, and Storsimple. We asked Volpi what his biggest challenge is as the board member of a startup, and what entrepreneurs should be looking for in a board member.
He also had some interesting perspective on the latest buzz word du jour, big data, and where we’ll see the most innovation taking place in the enterprise data space.
Tune in above for more!
