Subscription Porn Site SLAPPed Down After Suing RedTube For Undermining Its Business Model

from the competing-isn't-undermining dept

We've joked in the past about how many of the complaints we see from companies about new, more innovative competitors, is that they somehow represent "felony interference of a business model." Some companies, it seems, like to believe that if they have a successful business model, any new competitor that changes the market around must be doing so illegally. Eric Goldman points us to just such a lawsuit in California, where the proprietor of a subscription based porn website sued RedTube, one of many, many porn-focused free streaming video sites, and many of RedTube's advertisers, arguing unfair competition. Basically, the argument was that by setting up a website and offering these porn videos for free, while making money on the advertising, RedTube was effectively "dumping" its product on the market below cost in order to harm the market and make money elsewhere.

RedTube, in response, filed an anti-SLAPP claim, saying that the lawsuit sought to silence RedTube exercising its First Amendment rights of speech. While a lower court mostly agreed, it did leave open one small piece of the unfair competition claim, related to the issue of the claim that someone at RedTube's parent company signed up for the plaintiff's subscription website, downloaded the videos, and posted them on RedTube. However, the California state appeals court rejects the lower court's argument, and agrees that even this claim should be tossed out, because it's only unfair competition if the plaintiff can show that he has, in fact, lost money or property as a result of the unfair competition. Since the plaintiff was unable to do so, the court ruled that this claim got tossed out too (though, if true, you do wonder if there might be a copyright issue -- which does not appear to have been raised here).

On the overall point of underpricing the market unfairly, the court points out how silly this is, noting that giving away free content in exchange for advertising is a business model that's been around for ages, and is hardly a form of unfair competition:

If Bright's business model sounds familiar it's because it's the business model
typical of broadcast radio and television stations in the United States not to mention
thousands of local newspapers and, more recently, tens of thousands of Internet websites
including Youtube, CNN and Video.Yahoo.

The court also points out, in its opening, that business models change, and companies need to keep up -- and they shouldn't expect the law to keep their old business models in place:

In the 21st century, businesses of all kinds are having to adapt to a constantly
changing commercial landscape. The business that the parties describe as the "adult
entertainment" industry is no exception. Websites that originally made their money by
offering such material on a subscription or pay-per-view basis are being replaced by
"tube" websites which offer their content for free and make their money through
advertising.

There's also an interesting discussion over whether or not RedTube qualifies for SLAPP protections, as the site's content must involve the "furtherance of their right of free speech on a public issue." The plaintiff said that his complaint had nothing to do with stopping speech, but from the "anti-competitive conduct." The court notes that even publishing videos of porn online is conduct in the furtherance of speech and, in fact, that there is a "substantial public interest in the kind of sexually explicit videos shown on tube-sites such as Redtube." That's one way to put it.

The final point that seemed worth discussing on this is just how silly some "anti-competitive" behavior laws and rulings can be. Part of the plaintiff's argument here was to bring up a bit of caselaw involving two competing San Fransisco tourist cruises, where one firm got in trouble for selling tickets below cost, even though the firm made it up elsewhere. The court rejects this, by claiming that the earlier ruling doesn't apply here because RedTube "does not sell two separate products." That seems silly to me, and if anything really just highlights the problem with the original court ruling about using the tickets as a loss leader. If you read the ruling this way, you get a nonsensical result: giving away the videos for free would be legal, but charging a penny for them could suddenly be seen as unfair competition, because now it would be "selling" two separate products. Bundling multiple products, such that some are given away free or cheaply in the interest of a larger business model should never be seen as anti-competitive on its own. While I agree with the outcome, it seemed like this was the most confused part of the court's ruling, in that it tapdanced around what was, basically, a really bad ruling. The real issue should be to get rid of any rule that says such kinds of bundles are against the law in the first place.

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Thursday, 17 February 2011

Making Money With a Website

Subscription Porn Site SLAPPed Down After Suing RedTube For Undermining Its Business Model

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