This Horror Story Shows How SOPA Would Be Bad News For Startups

SOPA Protest
Anit-SOPA protesters gather in New York on January 18

[credit provider=”Business Insider”]

Joshua Metzger knows first hand how destructive the Stop Online Piracy Act (and its sister, the Protect IP Act) will be to startups if Congress doesn’t heed the protests and pull the cork on it.He was the lawyer for Veoh, a once high-flying competitor to YouTube that was sued out of existence by a major record label, — even though Veoh won its case and its appeal.

Just last month, the court confirmed Veoh’s victory in its years-long battle with Universal Music Group. The 9th Circuit court upheld an earlier ruling from the district court.

Unfortunately, the costs of the suit, and the tactics used by Universal Music Group, had already forced Veoh to shut its doors.

“Universal Music Group had taken the unprecedented action of not just suing the company but suing individual investors on the board,” Metzger recounts. Ultimately the costs of the suit were so high for everyone involved that Veoh had no choice but “to sell the company even though we won.”

Metzger was Veoh’s staff lawyer at the time. (His title was senior vice president of corporate development and general counsel for Veoh). Universal Music Group filed a suit under The Digital Millennium Copyright Act (DMCA) .

“The DMCA is now pretty much well-established law, and because it’s been litigated for over 10 years, everyone knows the rules of the game. The courts have defined the DMCA and now the media companies want to introduce new legislation that is more beneficial to them than how the courts have defined DMCA,”  Metzger told Business Insider. 

“The risk of SOPA/PIPA is that it’s a new set of rules,” he adds. “The world doesn’t need new legislation that will just lead to new litigation.”

Since copyright has already been well established under DMCA, Metzger sees only two real results if SOPA/PIPA passes: “It will force early stage companies to spend millions of dollars in litigation or it will stifle innovation and investment because investors will be loathe to invest in a technology that has a risk of litigation.” 

Veoh was founded in 2005 by Dmitry Shapiro, who has founded several Internet startups and was perhaps best known as the CTO of MySpace. Veoh had raised $70 million in backing from Goldman Sachs and other investors. These included Disney chief Michael Eisner, Time Warner Ventures, Adobe and Intel, he says. It was sold to Israeli startup Qlipso in  2010.

Veoh may have had problems other than just this lawsuit. It ran through a few business models. But the suit caused it to spend millions in defence instead of millions in development.

Metzger’s ultimate point is: if a startup of that pedigree, with that kind of cash, could be sued out of business even though it wasn’t breaking the law, what chance would the next crop of startups have under SOPA?