The Booming of Streaming Platforms and its Intellectual Property Challenges
Tracking the intellectual property (“IP”) rights is currently one of the primary legal challenges facing of the entertainment industry, in the age of internet streaming services.[1] Internet streaming services are undergoing a major shift with the explosion of services like Netflix, Disney+, and Hulu, which can now be considered dominant forces in the market.[2] The main challenge is to track rights to thousands and thousands of pieces of intellectual property, an unprecedented volume of content with a complexity needing new processes and solutions to easily track.[3] In this context, it is paramount to have a comprehensive understanding of which intellectual property rights are involved within the streaming industry.
The film industry mainly protects its IP using patents and copyrights. First, patents can be considered the foundation of film streaming services.[4] Patent law plays an important role in the property rights regime since it stimulates innovation by fostering competition in the overall marketplace. For this reason, patents are considered essential to a well-functioning competitive economy.[5] Since streaming platforms patent their business models or service innovations, this form of protection plays an especially important role in how streaming services compete against others. For instance, Netflix recently patented the way they add subtitles to movie trailers.[6] Hulu has also patented the process of how they choose which ads to show viewers.[7]
Second, copyrights are also a major tool used by streaming platforms to be competitive in the market. In their 2019 Annual Report, Netflix wrote “[w]e also compete against entertainment video providers and content producers in obtaining content for our service, both for licensed streaming content and for original content projects.”[8] Netflix understands that consumers are not interested in subscribing to Netflix because they view Netflix as the company with the better product. Indeed, Netflix provides the same service as all the other streaming services. The difference between Netflix and Hulu is mainly what films they have the exclusive copyright to.[9] Netflix licenses and distributes content from a multitude of providers on its platform. This allows viewers to consume creative content of others’ IP rights through streaming. Depending on the media’s popularity, the value of licensing or distribution contracts will vary. The amount of money Netflix spends on acquiring content from outside parties emphasizes this point. For instance, Netflix spent USD 14.7 billion on licensed content from outside parties in 2019. Netflix has now developed Netflix Originals, a series of tv shows and films originally which appears to be a remedy to Netflix’s licensing issue. Independently producing content meant that Netflix gained the opportunity to take a step back from licensing deals.[10]
In addition to protecting their technology and underlying content, streaming platforms also deal with the intersection of IP rights and piracy as a major market issue. Netflix’s 2019 Annual Report noted piracy’s major threat: “[P]iracy threatens to damage our business, as its fundamental proposition to consumers is so compelling and difficult to compete against: virtually all content for free. Furthermore, in light of the compelling consumer proposition, piracy services are subject to rapid global growth.”[11] As a consequence, Netflix, Disney+, and Hulu devote a substantial amount of resources to protecting their intellectual property rights from unlicensed use.[12] From a competition point of view, the threat of these websites is so important that streaming services dedicate a serious amount of money and time to properly enforce their intellectual property rights. One of the main challenges of the piracy streaming industry is that it bypasses the need to acquire exclusive copyrights for the films they are streaming.[13] According to Muso, a digital piracy analytic company, illegal platforms are pushing forward innovation.[14] Indeed, in 2018, there were 190 billion visits to piracy streaming sites and most of them were for films unavailable on legal sites.[15] These illegal sites are trying to be competitive on the market by providing smooth, efficient interfaces and user-friendly search functions, therefore giving consumers better and easier experiences than any paid site.[16] This is the case of the website Afdah.com which was first launched back in 2013, and caught the attention of rights holders as it swiftly built up a library of over 18,000 shows and films for free that would usually cost to rent or buy from legitimate services, like Prime Video and Disney+. This illegal piracy portal that offered free access to thousands of movies has finally been shuttered after years of legal action.[17] Even if some websites are being shut down after being sued and condemned for patent and copyright infringement, there seems to be a clear need for a straightforward legal framework, enabling legal actions’ efficiency in this area.
Some legislators are proposing solutions to fight to growth of these illegal platforms. The Protecting Lawful Streaming Act, enacted on December 27, 2020 significantly increased criminal penalties for those who, willfully and for commercial advantage or private financial gain, illegally stream copyrighted material.[18] This Act closes this “streaming loophole”––the enforcement gap between marketplace reality and existing copyright law.[19] Indeed, previously, illegal streaming was treated as a misdemeanor. Under the new law, the Department of Justice can bring felony charges against providers (as opposed to users) of such illegal services.[20] It appears that this legislation has taken a practical approach of modernizing penalties for copyright infringement to provide additional leverage for copyright holders.[21] Yet, the way courts will use this new legislation to control illegal streaming websites remains to be seen.
Footnotes
