Archive for March, 2007

Cablevision’s Remote DVR Unplugged

March 26th, 2007

I have just finished reading the opinion in the Twentieth Century Fox v. Cablevision case from the Southern District of New York and boy, is it ever a stinker (to use the legal jargon).

Briefly, Fox sued Cablevision for setting up a “network digital video recorder”, a device that operates like a DVR, but uses equipment sitting in Cablevision’s facility rather than in a box in the consumer’s house. The court held that such a system violates Fox’s copyrights in its programming because Cablevision both copies and transmits the content to consumers without the proper licenses from Fox.

My first thought on reading the case was that it focused on extremely technical details only to reach a completely anachronistic ruling. In the age of Software as a Service, we have all gotten pretty used to the idea that technology can be administered remotely. We don’t need to have the set-top box, many of us may be happy not to have to plug yet another device into our TVs, and the end result for consumers is exactly the same. As Sherwin Siy notes, the main difference is the length of the cable.

Unfortunately, the more I think about it, the more it seems like it is the Copyright Act that has it wrong these days. Distinctions that used to matter no longer make a difference.

The court talked extensively about the fact that Cablevision was “transmitting” the content. Cablevision tried to argue that the consumers were actually doing the transmitting when they choose which programs to watch, but it doesn’t take much to see that argument as a loser.

A little tricker was Cablevision’s similar line of reasoning that consumers actually do the “copying” as well, another basis for finding copyright infringement. Consumer-copiers can rely on a fair use exception for home use of content, but Cablevision can’t. The court really didn’t like this argument either. It left the door open a crack based on Cablevision’s complex N-DVR architecture, but held that the copies were made on Cablevision equipment maintained by Cablevision personnel in Cablevision facilities, so Cablevision was really the copier.

The place where it all starts to come apart is where the court tries to distinguish “devices” from “services”. Sony’s Betamax is the precedent-setting case here, from 1984. Consumers could install a Betamax machine and have nothing further to do with Sony. The court found that the N-DVR was nothing like a Betamax, because consumers subscribed to the “service” to get the DVR functions.

Of course, this is only a hair removed from every other type of DVR, including the Tivo in my house. Sure, I record content onto my Tivo within the walls of my own house, but my “device” would be useless without the “service” that tells my Tivo what is on which channels.

My own belief is that the judge realized this and the focus on technical operation was his attempt to confine his ruling to the narrow N-DVR issue in front of him rather than come out of left field with an opinion that could be read to say every DVR everywhere (and probably VCR+ scheduling codes as well) are copyright-infringing.

The scorecard, then, is something like this:

Judge Chin gets the law right, even if he doesn’t seem to like the result.
Prof. Eric Goldman sums up the issues nicely.
Mark Cuban gets it right for sure when he says Fox is far better off distributing content this way than to see it pirated, or just losing the distribution channel entirely as the Internet changes video progamming models.
Copyright law is the big loser for foisting arbitrary rulings like this on consumers. Trying to draw a line between hardware and software isn’t going to make for happy caselaw.

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Smart Grid Rubber Hits the Road in Stockton

March 26th, 2007

NPR this morning reported that PG&E is starting a trial program in Stockton, Calif. they are calling “SmartAC”. In exchange for a $25 discount, homeowners agree to install a “smart switch” on their air conditioning units that will let PG&E cycle the units off during peak demand periods- reportedly for 15 minutes every hour. According to the Central Valley Business Times, the first switches were installed recently, and the hope is to ramp up to 400,000 customers by 2010, which would give the ability to reduce demand by 300 megawatts.

The challenge of the smart grid, I believe, has to do with the “tragedy of the commons”, the idea that if I don’t use shared resources, my neighbors will take them all and I will end up with nothing. The tragedy comes in when resources that could be managed to support use sustainably over the long term get depleted by short-term thinking.

In the energy context, PG&E and all the smart grid operators need to overcome this hurdle. Particularly in the hot Central Valley, it may take some work to convince many consumers that turning off an A/C is actually a good thing for everyone in the long term. If successful, the program’s most immediate benefits will be that the power stays on, rates might not go up, and less CO2 may hit the atmosphere- none of which will be apparent unless PG&E makes an effort to point them out to people.

It sounds like the program has started with people with energy efficiency and carbon footprint ideas already in mind. I question whether they will be able to hit their 400,000 household target without moving out of that demographic. This will be a pilot program to follow closely. I am especially interested to see which marketing ideas sell best to the general public.

California Stock Option Plans Get Friendlier

March 6th, 2007

The California Department of Corporations seems likely to adopt a new set of rules affecting compensatory benefit plans by the end of March. The rules cover a variety of plan types, but stock option plans are the most commonly used type of plan.

Vesting Terms Reflect Real Life
The new rules generally conform California law to IRS rules. California has a few requirements that aren’t covered by the IRS, so the changes will help to avoid a few different “gotchas”. Some of them are basically stenographic, such as the (soon to be former) requirement that options vest at least 20% per year. I have not yet worked with a company that used a 5 year or longer vesting period, so the issue was moot for all practical purposes, but the language still needed to be in the plan. It always makes me happy when I cut language out of a document, so this is a nice step.

2/3 Shareholder Voting to be (Mostly) Eliminated
The other notable “gotcha” is the funny rule that companies can not have options outstanding to purchase shares in excess of 30% of the company’s capitalization without 2/3 shareholder approval. The new rules would eliminate the 2/3 voting requirement (majority vote for option plans is still required for favorable tax treatment) if the plan otherwise complies with IRS rules.

It is the rare company that *needs* that many options outstanding, but I have once or twice encountered a situation in which it made sense, esp. the “late co-founder” situation where a person comes in after the stock price has risen and assumes such a critical role that s/he should be treated as a de facto co-founder for equity purposes.

In those cases, it may be too expensive for him/her to buy founder’s stock and an option is the simplest way to get a substantial equity share to the person. Once or twice I have worked with companies where it has made sense to authorize options in this situation, pushing it up to the 30% of outstanding capital limit. Shareholder voting would not be required to issue stock outright to the person, so it is nice to see that the voting requirement has been eliminated if the equity comes as an option as well.

California Steps into Line
All in all, the new rules aren’t particularly momentous, but that is really the point. California is such outlier on so many issues, with its own special rules, that it is nice to see it simply come into line with “standards”.

Smart Grid/Demand Response: an Alternative Energy Space to Watch

March 5th, 2007

It struck me that most of the attention in the cleantech/alternative energy space seems to go to solar and biofuel technologies. A look at 2006 venture investment trends confirmed this impression, so I bugged a friend who knows far more about the space than I. He pointed me toward Demand Response, or “Smart Grid” technology, as an up-and-comer. After a bit of research, I think he is on to something.

Both terms refer to a distribution system for electricity that can detect and manage peak loads more efficiently. The electric grid is designed to handle loads up to a certain amount. Past that and adding capacity becomes much more expensive (esp. if it requires new plants to be built) and/or reliability becomes a concern (witness the East Coast US blackout of 2003 and various “brownouts” in California over the past few years). And then there’s the issue of added pollution and CO2 emissions arising from inefficiencies in the existing system, where the grid has excess capacity for parts of the day and struggles to meet demand at others.

Enter the Smart Grid. There are some really interesting technologies maturing in this field and I believe it is going to start getting more attention in the near future. In particular, two companies in the field have filed for IPOs in 2007. Investors will be watching Comverge and EnerNoc closely as bellwethers for the sector.

Comverge is a fascinating business because it demonstrates the power in aggregating small changes. The company sells equipment that lets utilities reduce demand during peak periods- for example by turning down air conditioners and hot water heaters slightly across a large group of consumers. The net effect can be enough in the short term to keep the lights on, or reduce the need to buy expensive “emergency” power. Long-term, the idea is that the savings can help the grid make do with fewer power plants.

EnerNoc focuses on commercial and industrial electricity customers instead of residential ones, especially customers with their own backup generators. By monitoring demand and capacity, EnerNoc is able to switch on these generators both to reduce overall demand at peak periods, and to put energy back into the system as well. The result for these users is not merely cost savings due to reduced drain from the grid, but potentially money back for the power supplied back into the system.

VentureOne (subscription required) described in a recent article a host of companies that can help monitor and regulate demand, including chipset, broadband-over-powerline and wireless sensing companies such as Current Communications, BPL Global, Intellon, Miartech, DeepStream Technologies and SmartSynch. These companies will be falling in behind the Comverge/EnerNoc vanguard, I am sure.

Coming at the issue from a different part of the spectrum is Fat Spaniel, a provider of online monitoring tools to users of grid-based electricity as well as solar systems. The principle is to let consumers see their energy consumption in better detail and decide when to increase loads and when to conserve. The company doesn’t appear to aggregate customer data right now, or plug into DR management systems, but to me it seems like a natural adjunct to something like Comverge’s technology. I have to think that consumers would be a lot happier about having their ACs turned down if they could see the savings to them personally.

It will be fascinating to see how the Comverge and EnerNoc IPOs play out. If successful, I have to think that the space will start getting a lot more attention. Many of the companies are past the startup phase as well, so we could see some real growth in fairly short order. We will stay tuned to see how things unfold.