28 May 2015Working Paper Summaries

Lost in the Clouds: The Impact of Changing Property Rights on Investment in Cloud Computing Ventures

by Josh Lerner and Greg Rafert
Looking at specific rulings in the US, France, and Germany, this paper examines the economic effect of major but largely unanticipated changes in the allocation of copyright protection on venture capital (VC) investment in cloud computing companies. Findings suggest that decisions around the allocation of copyright ownership can have significant impacts on investment in innovative enterprises. Indeed strong upstream property rights, combined with transaction costs that limited the ability to enter into licenses, can significantly deter investment in downstream innovations.

Author Abstract

Our analysis seeks to understand the impact of changing allocations of property rights on investment in new firms. We focus on the Cartoon Network, et al. v. Cablevision decision in the U.S., which narrowed the protection enjoyed by content creators (e.g., movie studios) and gave greater rights to downstream technology firms, as well as decisions in France and Germany that took an opposite view. Our findings regarding relative venture capital investment in the U.S. and Europe, across Europe, and between the various judicial circuits of the U.S. suggest that decisions around the allocation of property rights can have economically and statistically significant impacts on investment in innovative enterprises.

Paper Information

Josh Lerner
Josh Lerner
Jacob H. Schiff Professor of Investment Banking
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