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How are Internet start-ups affected by liability for user content?

Intermediaries rely on content provided by their users and the wider Internet (such as videos, photos, music and comments). Users sometimes also share copyright-protected content or content that is illegal (e.g. defamatory). The laws that govern the liability of intermediaries for user content are referred to as ‘safe harbours’ and form part of the wider Internet intermediary liability (IIL) regime.

Although all intermediaries face risks and costs in relation to IIL legislation, start-ups may be especially vulnerable. For example, new business models can be particularly exposed to legal uncertainty. Start-ups are also likely to focus on making their main business activity successful and are therefore less able to specialise in IIL issues. As a consequence, they may find it harder to deal with potential complaints or lawsuits in the most efficient way.

A socially efficient IIL regime should balance, on the one hand, the benefits of effective enforcement of the laws that protect the interests of rights holders and other affected parties, and, on the other, the benefits of intermediaries that contribute to a free and innovative Internet. Well-balanced IIL laws can help to ensure the effective removal of illegal content without constraining the free flow of information. However, an excessive level of liability is likely to considerably limit the legitimate use of intermediaries.

This Oxera study examines what happens to Internet intermediary start-ups if the IIL regime changes from the status quo to a regime with clearly defined requirements for compliance and with low associated compliance costs. Such changes can have a significant impact on the viability and success of start-ups and the wider Internet economy. For example, earlier research across different regions has estimated the GDP contribution of intermediaries to be around 1.3–1.5%.1

The impact in four focus countries

Our analysis suggests that an IIL regime that defines clear and cost-efficient requirements for intermediaries is likely to produce the best results for society. Such a regime could increase start-up success rates for intermediaries in our focus countries by between 4% (Chile) and 24% (Thailand) and raise their expected profit by between 1% (Chile) and 5% (India).

While the IIL regime is not the only lever available to policymakers wishing to encourage more start-up activity, it may be one of the easiest to pull—and such a change could be expected to stimulate further positive implications for the start-up community and the wider Internet economy. 

Estimated impact on start-up success rates (%)

Bar chart showing Increase in start-up success rate

Source: Oxera analysis

Estimated impact on the expected profits of successful start-ups (%)

Source: Oxera analysis.

1 Including in the USA, the EU and India. See, respectively, OECD (2011), ‘The Role of Internet Intermediaries in Advancing Public Policy Objectives’, p. 40; Copenhagen Economics (2013), ‘The impact of online intermediaries on the EU economy’; and Copenhagen Economics (2014), ‘Closing the Gap: Indian Online Intermediaries and a Liability System Not Yet Fit for Purpose’.

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