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February 01, 2011
Free-to-Consumers Ad-Supported Website Isn't Illegally Priced--Cammarata v. Bright Imperial
By Eric Goldman
If you can't compete with free, can you litigate it away?
Kevin Cammarata ran subscription-based porn sites until he sold his business at an allegedly depressed sales price. The defendant runs an ad-supported porn site, RedTube.com, one of many porn websites with the suffix -tube.com as an homage to YouTube. Nothing about any of the websites implicated by this lawsuit is office-safe. The court, apparently with a straight face, sets the context by saying "the formerly profitable subscription-based websites 'have been brought to their knees' by the tube-based sites." (Once again reinforcing that the Internet is really just a series of tubes...?)
Unhappy with competing with free, Cammarata sued RedTube and some of its advertisers for unfair business practices. Cammarata's attorney, Jay Spillane, was quoted as saying "Tube sites have done injury to the business. We feel RedTube and other sites like them are crowding out competition when it comes to the online adult business.”
Crowding out competition? Is that another way of saying that new entrepreneurs are winning market share from incumbents?
The court summarizes the allegations against RedTube:
Cammarata contends that Bright's unlawful activities consist of (1) allowing customers to view adult entertainment videos on its website below cost for the purpose of injuring Cammarata's business and destroying his competition in violation of Business and Professions Code section 17043; (2) unlawfully using its videos as "loss leaders" in violation of Business and Professions Code section 17044; and (3) engaging in "unlawful, unfair, or fraudulent business practices or acts" in violation of Business and Professions Code section 17200. The advertising defendants are allegedly aiding and abetting Bright in accomplishing the conduct described above.
The trial court granted the defendants' anti-SLAPP motion. The appellate court upholds that ruling. Unless something changes, Cammarata should be writing a check to the defendants for their troubles.
Frankly, I'm not sure about the application of anti-SLAPP laws here. The court's treatment of the "public interest" is pretty lax--basically, the statutory "public interest" here is that lots of people are generally interested in porn ("Cammarata and Bright agree that there is a substantial public interest in the kind of sexually explicit videos shown on tube-sites such as Redtube"--news flash of the day!). Nevertheless, I'm glad it results in a fee shift given the sheer craziness and anti-consumer sentiments of the lawsuit.
Cammarata argued that he was suing over RedTube's pricing decisions, not its publication of videos. The court rejects this argument:
We reject Cammarata's argument that his causes of action arise from Bright's predatory pricing, not its speech, because here the product being priced is speech, not dog food. All of Cammarata's causes of action arise from Bright's conduct of placing speech on the Internet where it can be viewed for free by the public. This is the "predatory pricing" that Cammarata complains of.
The court then turns to the merits of Cammarata's complaint about pricing. At its core, his argument is that giving away content for free, supported by advertisers, is illegal under California law. Obviously, no court was going to agree. Could you imagine? Sirius could sue all of the broadcast radio stations. HBO could sue broadcast TV stations. Subscription newspapers could sue free newspapers. That would be quite a result. The court politely mocks Cammarata's arguments:
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 rejects the arguments, saying that it's not below-cost pricing to run an ad-supported business, and Cammarata can't show that RedTube was trying to destroy his business. The court concludes with a snarky "don't let the door hit you on the way out":
If Cammarata's subscription-based website lost revenue after Redtube and other tube-based websites came on the scene it was because the tube-based business model is more efficient, not because of alleged predatory pricing by Bright.
It's true that subscription services often can't compete with free services. But as this case shows, if your competition is giving content away for free when you hope to charge users to enjoy comparable content, you better come up with a new business model pronto because the courts won't bail you out.
A historical perspective: If you never saw it, I wrote on Internet content price setting back in 1997 under my old name: Eric Schlachter, The Intellectual Property Renaissance in Cyberspace: Why Copyright Law Could Be Unimportant on the Internet, Berkeley Technology Law Journal, 1997. In the paper, I talk about price setting when marginal costs of content reproduction and distribution are zero; I then explore some 1990s-era ways of cross-subsidizing content production and publication. As any economist will tell you, the market price will be MR = MC, which if MC = 0 means P = 0. It's interesting to see folks still trying to fight that basic law of economics.
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