Tech Policy Seminar

In summary

Weezer's new music video runs like a summary of many of the themes in this class. Many of the youtube sensations mentioned in Solove's book (and a bunch that emerged after it was published) are featured and this video has been incredibly successful, based on views, by building off the you-tubers' original content. Thought people in the seminar might enjoy this as a coda to the class. *Roll credits*.

Oops (bloopers reel)--I see Max beat me to the punch. Well let me add some relevance to this post by linking to the handy work the wsj blog has done to identify the videos sampled as well as interview the director. I thought this particular segment of the interview as interesting and pertinent:

Buzzwatch: Are you a YouTube-aholic? How hard was it to come up with the list of the right people?

Mr. Cullen: It came pretty easily. There’s a lot of references in the video. Some are obvious, some are more subtle. It was very much about what the band loves most. The most I’ve seen on anybody’s list [of references found in the video] is 30 or 35. There’s more than that.

When people look at these pieces and look at the original videos by these people, they say their 15 minutes of fame are over. I don’t buy that. We’re writing off people who are being creative and putting themselves out there, which is a very brave thing.

Buzzwatch: What was involved with getting all these people for the video?

Mr. Cullen: It was very difficult because it was a matter of getting everybody there at the same time. The key to this whole experiment was just the clear communication of the positive message of the song and the idea. Then people wanted to be a part of it. I was concerned about some of the people, like Caitlin Upton. But they understood that I wanted it to be a redemption of them…. There’s this line from the song, “I don’t give a hoot about what you think.” She’s 19 years old, she shouldn’t be defined by that one clip.

Buzzwatch: After immersing yourself in some of the Web’s most popular videos, what do you think about the outlook for culture in the digital age?

Mr. Cullen: It’s all about people being their own brands. The interesting thing is how people are creating their own content. That’s going to continue and grow, and people are going to be tuning into all different types of self-generated content…. It’s very exciting. It’s the age where everybody’s a brand and everybody’s a channel.

Meta-internet celebrity

This music video has just about every internet celebrity discussed in our readings this quarter.  See if you can count 'em!  http://youtube.com/watch?v=muP9eH2p2PI

Mr. Fix-It Has a Little Too Much Faith in His Tools

So, I wrote this post last week but forgot to, uh, post it. At least I'm only two hours late...

Ground Rules

Before I begin the substantive portion of my post, I think it’s necessary and important to get meta for a moment. When making policy proposals in the area of copyright law, virtually all assertions suffer from a lack of empirical support. It’s simply very difficult to measure the effects of policy moves on overall output, or variety of creative production—particularly in the post-registration regime. This, of course, frustrates any attempts to persuade by aversion to the data—and should, then, inform the persuader that temperance and tolerance of contrary views are essential. When a point can be made only through theory, dismissing those who disagree is rather presumptuous. As an example, I give you Mr. Netanel. While I agree with the general tenor of many of Netanel’s proposals for changes to copyright law, what really bothers me is his reluctance to adequately address counterarguments in their most flattering light. In a debate short on empirics generally, Netanel’s refusal to tell both parts of the story only weakens the force of his contentions.

Understanding Netanel

One can sum up Netanel’s general approach to copyright reform with two terms:
“derivative works” and “big media”.  Throughout the course of Copyright’s Paradox, these two themes color all of Netanel’s positive perceptions and normative proposals. He generally believes that at present, the vast majority of creative output in the U.S. is authored by media conglomerates who stifle independent creators with an overzealous (and law-endorsed) assertion of their copyrights (p. 167).

It seems to me, however, that technology—and not law—is the driver of this phenomenon. Now that digital creation and dissemination technologies have altered the mechanics of creative production, we’re seeing a dramatic surge in the creation and sharing of media from an incredibly diverse body of sources; in the past, the huge upfront costs necessary for creating a reputable newspaper, television program, or widely-disseminated literary work by force resulted in a few big players who could afford the cost and turn a profit on the back end. It wasn’t the law or human will inhibiting production, but economics. As a result, we should not take as our aim the dethroning of Big Media and defense of the little guy, but rather the maximization of creative output in both quantity and variety—while relatively agnostic to its source.

Oh, and in order to understand Netanel, we must also recognize that he really, really loves The Wind Done Gone and appropriative uses of The Simpsons. (We all have our pet topics.)

Specific Issues

Onto the meat. A comprehensive analysis of all Netanel’s proposals would be far too lengthy, so I’ll limit myself to a chosen few.

Copyright Term Length, Orphaned Works, and Google Book Search

One of the first topics that Netanel considers is that of copyright duration and its interaction with preservation efforts, particularly digital archives. This debate centers around the fate of orphaned works, and how such works can best be treated so as to enrich the cultural archive. Here, for the most part, I agree with Netanel’s basic position that the extension of copyright terms provides no marginal incentive to create. The obvious next point, then, is that such terms are problematic in that they tie up long-abandoned works (and even vibrant, successful ones) from subsequent productive uses down the line. While I don’t mind the notion of renewal payments for the few particularly  profitable copyrights, it seems that Landes and Posner’s idea that longer copyright terms incentivize dissemination for orphaned works goes too far. Given that such works have already been created, we should care most about what rule will be most likely to get them “out there”. Prior to digital scanning and archiving technologies, granting a property-esque, longer copyright term may have been the best solution, but given the advent of several digital archiving efforts of both commercial and noncommercial nature, it seems clear that these efforts are the  most promising avenue for dissemination of orphaned works. If Google Book Search or Project Gutenberg want to archive a work that no one else has been incentivized to disseminate in the last 20 years or so, there’s no reason to stop them—particularly given the likely derived benefit from the public generally.

Fair Use Reforms

Deriving from his First Amendment concerns, Netanel argues that courts should give more weight to transformative expressions and purpose when evaluating fair use under Section 107. I’m fine with this added weight, as I, like Netanel to a degree, feel that additive creation is too constrained at present. It’s hard to see how such a change will take place, though. We can urge judges all we want from the sidelines, but short of an actual insertion of weights into the text of Section 107’s enumeration of factors, I’m not sure much will change. Even then, given how muddy and unpredictable fair use analysis already is, it’s hard to expect much solid, quantifiable progress.

The more problematic aspect of this suggestion is that Netanel supports “favored status” for preservation-style efforts like Google Book Search merely because of its transformative nature (p. 191). True, Netanel recognizes the need for some sort of “remuneration” to authors, given GBS’ sure impact on ex ante creation incentives (p. 210), but to characterize the compilation of virtually every book available as transformative is ridiculous. Merely creating a compendium is not transformative; clipping, organizing in a novel way, providing commentary and analysis, sure. But mere aggregation is not.

Netanel’s next fair use suggestion—that market competition be completely dropped from the fair use analysis—is more troubling (p. 191). Such a change would, in my view, clearly go too far (p. 191). Surely ex ante creation incentives would be dampened if we allow transformative uses regardless of their impact on the market for the original work. The more pertinent question, though, is whether such a move would on balance reduce original creation more than it incentivizes transformative creation. Of course, this is hard to say, but it seems to me that given its centrality to an author’s ex ante motivation, the competitive impact of a secondary work should at least be granted token consideration.

The notion of burden-shifting in fair use cases does seem appropriate to me. Given the difficulty of proving a negative (here, the absence of market harm) and our general goal of promoting creative production and dissemination, it surely seems correct to require the copyright owner to prove any harm caused by appropriative uses.

“Reasonable” Madness

My final concern is with Netanel’s persistent use of the “reasonable” rate, “reasonable” royalty, and “portion of the work” idea. As we know from regulated industries, the idea that independent bodies of experts, judges, or anyone else is capable of accurately setting market-mimicking rates is mere fantasy. For example, on Netanel asserts that “secondary authors should only be required to disgorge to the copyright holder the proportionate share of their profits attributable to using the underlying work (p. 197, emphasis added). That’s a great idea in concept. But how in the world is anyone to determine what share of a secondary authors’ profits derived from use of the original work and not from that author’s creative genius? This notion of independent rate-setting is a plague that runs throughout Netanel’s arguments, and which seriously undercuts the viability of his core ideas about consumptive uses (copyright levy for peer-to-peer file-sharing, e.g.), appropriative uses, and damages and remedies.. If no one is capable of setting acceptable rates, his entire regime of take-and-pay falls apart.

Conclusion

While I think that Netanel accurately perceives a copyright regime which too often stifles appropriative and derivative uses of existing works, his approach is seriously flawed. (Disclaimer: I’ve got nothing better, so stones can fairly be tossed into my glass house.) By failing to fairly explain anecdotes, history, and opposing views in an even-handed manner, misunderstanding the past, taking his arguments too far, and ignoring the limits of independent rate setters, Netanel converts his great treatise on copyright reform into just another mixed bag of ideas good and bad.

Final Thoughts on Netanel

Consumer Preferences and Clustering
    I thought the discussion of clustering in chapter seven was interesting- I’m sure none of us will fight him on the point that television and other mass media programming is increasing homogenous (and arguably stupid).  From an expressive diversity or enhanced political discourse perspective, he’s probably right that we are disserved by the natural market forces that create incentives for entertainment providers to be little more than knock-offs of one another.  Or at least to stay within the general genre and subject matter that happens to be selling at the time. 

    Netanel’s solution is to break down the proprietary control held by these massive conglomerates, thus empowering smaller independent producers to take advantage of the greater pool of creative resources.  While a weaker copyright would relieve some of the pressures of this problem, I think we may need to do more.

   Supposing he is right about weaker copyright making it possible for secondary authors to produce critical of commentary works derived from mass-media homogenous works, I agree with Vikas that maybe not enough people will be watching, listening or reading.  I’m not sure how we solve that problem.  While a proposed creativity tax would do a great job of shoring up the financing for independent (or government) works, I still don’t know how we peel the eyeballs away from “American Idol” to watch the latest episode of “Contemporary Politically Relevant, Watch it Because We Say So…Show”.

   Independent production and mediums like YouTube will reduce the content, distribution and viewer problems to some extent, but we still can’t fight the powerful ability of mass media to shape our preferences, or our own apathy toward exploring new ideas.  Our time for media consumption is finite, and as Netanel points out we tend to like to consume the same products as our peers so that we can converse with one another using our common set of cultural experiences.  Although some new genres or shows, books, etc. may open up in mass media with the breakdown of over powered copyright, those new shows, books, etc. will become just as homogenized and clustered as their predecessors remain. I don’t take Netanel to be suggesting that clustering will break down with his solution.  I simply question the efficacy of newly created alternatives to actually enhance our discourse.

   I think this is particularly true when we consider that programs like The Daily Show, The Colbert Report, Family Guy and South Park already an excellent job of brutalizing pop culture icons and other common experiences.  His regime would certainly make it easier for them to do so, but how much more are we going to be able to squeeze into social discourse?

   There will certainly be a niche market for the new independent expressive works, and social discourse in those small pockets will benefit.  But overall if Netanel is right about copyright’s free speech implications, it seems that they stand more powerfully on individual autonomy reasons, the ability to be expressively diverse, rather than the reality of creating vibrant public discourse through that expressive diversity.

Constitutionality of the DMCA
   As a quick note, I think Netanel is too quick to declare the access and copy restrictions as unconstitutional under First Amendment analysis.  Under intermediate analysis it isn’t impossible to consider that the important government interest is the effective enforcement of its copyright laws.  Furthermore, given the ease with which digital copies can be made, the restriction doesn’t seem to burden more speech than is necessary- essentially keeping the copying software off the market is arguably the only practical way to prevent viral illegal copying.  I’m not saying it’s a slam dunk, far from it.  But he is much too quick to dismiss it.

Fair Use and Derivative Works
   One area I’m not completely sold on is the broad derivative works rights.  I like how Netanel doesn’t try to link this up to a First Amendment mandate, so much as a policy potentially preferable from a First Amendment perspective.  The point (and I think he agrees) is that not all derivative works are necessarily speech-enhancing.  Netanel is sensitive to this and discusses his proposed limitations on pg. 197- taking account for expensive movies and the importance of limited serial rights, the multiple taker problem, etc. 
While it is certainly true that a liability-oriented right of derivative works would enable a greater amount of commentary, creative and critical works to be created that would otherwise be stifled, I can’t help but wonder if many of those secondary uses would be actually speech enhancing.  He suggests that “even competing derivative works aimed largely at the same market can present diverse views and artistic sensibilities…” (197)

   But given the power and tendencies of mass media to cluster, a broad right of derivative works might just be opening the door for cheap knock-offs of others’ products, which rather than enhancing speech or expressive autonomy, simply rehash the characters and stories of others in humorous ways, or slightly different plot lines without any real socially desirable substance and as a consequence siphon off or destroy demand for the original, and thus incentive to create.  In the parody context we tolerate this because the work provides productive social commentary, but not so much with a broad derivative works right.

   Noting the difficulty of carving out the precise incentive structure necessary to induce authors to create and the uncertainty of harm to the original work (and especially the problems associated with judicial crafting of appropriate fees, as noted by Kathy), we might be better off leaving a broad derivative work right within the power of the original author to veto against commercial uses, while providing commercial users with a broad right of fair use.

   In the commercial context, the focus ought to be on a stronger, clearer and durable right of parody, social commentary, review, or other fair use, rather than a broad right of appropriation for derivative works.  The bar of commentary or parody should be low because I think we should be cautious with empowering courts to decide what is or isn’t useful, but I think it should exist. 
I limit this to commercial uses because I don’t want to cut into the expressive autonomy of non-profit fan fiction-maybe some kind of de minimis commercial impact standard is appropriate.  As I noted above, I think Netanel’s arguments stand best on personal creative autonomy reasons and those should come into play strongly with independent non-commercial creation.

Judicially "reasonable" compulsory licenses don't serve anyone (except maybe expert witnesses)

Throughout the book, Netanel has hinted that he would favor some sort of compulsory license. I imagined these would resemble the compulsory licenses we already have: flat fees for different types of use, determined by statute, or something like the elaborate system of expert Copyright Royalty Judges in chapter 8 of copyright law.

I thought that such a scheme would be hopeless because of the variety of derivative works.  Even the current system seems to demand impossible feats.  Expert Copyright Royalty Judges are exhorted to set fees that "maximize the availability of creative works to the public," and "reflect the relative roles of the copyright owner and the copyright user in the product made available to the public with respect to relative creative contribution, technological contribution, capital investment, cost, risk, and contribution to the opening of new markets for creative expression."  17 USC §801(b)(1).  How on earth would one even begin to guess about appropriate fees?  It's not surprising that such black box decisions are widely criticized.

Netanel proposed nothing like our current compulsory copyrights. Instead, he compounds the problem in about three terse pages (197-199).  Netanel suggests that appropriate rates should be tailored for every case.  Judges, he assures us, need only be summoned when parties fail to bargain.

I think this particular solution is unworkable, and that any compulsory license will strip incentives from the creators Netanel cares about most: individual authors.

Why does Netanal need individually-tailored licenses?

First we should ask why Netanel proposed individual rate determination instead of flat statutory fees.  I think this is an acknowledgment that some works, while being "transformative," serve as simple substitutes in the market.  The most obvious examples of these—screenplays, edited movies, serial rights, and so forth—are protected outright under his scheme, but any list of substitute works cannot be exhaustive.  Moreover, Netanel wants to permit potentially-substituting works like unauthorized sequels.

From Netanel's First Amendment perspective, this makes some sense.  Netanel wouldn't want the government to discriminate between derivative works on the basis of whether they're thought to comment on the original or advance speech goals.  Certainly there will be gray area cases where a work has both free speech and substitution value; one might be worried that courts could get this wrong, and that fair use is too chilling anyway.  Since Netanal wants to allow practically all derivative works, he must hope that royalties from displacing works more fully compensates the original author.  A few cents per copy might makes sense for statutory music covers, but applying a similar rate to unauthorized sequels—which grab substantial value from the prior work—seems unjust and destructive to copyright's incentive structure.

Impossible judicial mathematics

Liability rules don't seem up to the challenge.

Liability rules normally work in pie-dividing problems where the size of the pie is more or less known, and when entitlements can be calculated.  With copyright, only the licensing party has the foggiest idea of how big the pie is, and the true market for works is radically unpredictable.

First, I think it's useful to look at licensing under the status quo.  A secondary user wants to use a work, so she contacts a copyright holder and receives a quote, $x, which is necessarily more than the copyright holder's expected costs.  The secondary user values the right to use the work at $y, so if $y > $x, the transaction occurs.  But this is not the end.  The secondary user can also reckon the probability that they will ever be sued times the amount it could cost them, $z.  If $y > $z, the secondary user will still proceed, whether or not they even ever bothered to contact the copyright holder.  There's an internet full of mashups and fanfic proving that this sort of economically efficient infringement happens all the time.  If infringement occurs, the copyright holder can assign a value to their exclusionary right to determine whether they ought to sue—copyright, like fair use, is nothing more than the right to hire a lawyer.  In most cases lawsuit is not rational, so copyright tends to allow socially valuable but minor infringement, while preventing third parties from seriously capitalizing on a work.

Netanel would object to this analysis because it ignores the speech issue (specifically the censorial motives of some copyright holders), but it highlights the practical virtue of the status quo: both parties possess the best information about how they ought to proceed.  The secondary user knows how much they're willing to pay or risk, and the copyright holder knows how much they would accept before seeking a lawsuit.

Netanel proposes that copyright's clear rule be replaced with a legal standard that involves weighing difficult-to-calculate profits, the innate reasonableness of a royalty, and possibly even the concept of free speech.  This task is so herculean that Netanel devotes dozens of pages to it in Chapter 6, only to conclude that $10,000 for Homer Simpson is probably too much, but confessing that no precise figure is possible.  (Derek Little summarized the uncertainty problems well in a post below.)

To be fair, Netanel's proposal is a bit simpler because only the secondary author's enhanced profits are placed on the scale, but this approach troubles me.

First, focusing exclusively on the user's profit seems misguided. Although he does not say so explicitly, $0 is the presumptive licensing fee for non-profit works, even if they might wholly displace the original.  It seems consistent with Netanel's denigration of large copyright holders that create merely for profit. At several points, Netanel suggests that non-profit users should be favored, with low or no-cost royalties. This makes sense given Netanel's Air Pirates example.  Disney's preference to not have pornographic Mickey Mouse cartoons was almost certainly worth more to them than Air Pirates could possibly pay. If copyright holders could put their costs and values on the table, it would often yield exclusionary results. (Mr. Little also explains these negative externalities problems.)

Second, derivative work profit calculus is question-begging if not totally absurd.  Even physical goods don't have "profits attributable to the underlying [component];" this isn't a calculable figure, and it depends largely on the market price and success of the complete product.  Perhaps courts should determine the rate that would produce maximum distribution, but an ex post royalty would always be $0.  Ex ante determination of overall maximum incentives would require a court to engage in the same sort of impossible balancing test that we'd hope to avoid.  Maybe courts could magically divine the component value if the secondary user priced her work for optimum profit, but this rule seems to inapplicable to the non-profit and education uses that Netanel contemplates.

Finally, I find Netanel's consistent preference for non-profit expression troubling.  Even non-profit users can have viscous motives.  Imagine that a political activist or art critic wants to rob their opponents of revenue.  Suppose these actors produce cheap "critical editions" of pundit books or mainstream novels, reproducing them with critical notes denigrating the work. As a non-profit effort, they might pay the original author $0  (or very little) while taking a significant slice of their audience.  Smoking out bad faith publications would require uncomfortable judicial free speech analysis, which doesn't seem obviously easier than our current fair use inquiries.

Bargaining nightmares in the twilight of law

Secondary profit analysis puts copyright holders in an especially awkward position when negotiating "in the shadow" of Netanel's copyright.  The copyright holder has to investigate the secondary user's ability to capitalize on the first work, which they don't seem obviously equipped to do. 

Both parties strive to target a hypothetical judge who might do just about anything.  Failing to please this hypothetical person (presumably the "reasonable person," who sets "reasonable" royalties) might cause penalties in adjudication.  Therefore, neither party has good information about bargaining, unlike the status quo, and unlike the situation in most liability rules.  The value and division of derivative profits are two unknowns that the parties are supposed to fill in.  If they can't—and I suspect they frequently won't—the courts will do it for them.

Could courts ever apply such a standard evenly?  I think the answer is "no."  Discretionary "reasonable" damages are basically unreviewable situation-specific questions of fact.  As such, fact-finders will have much more discretion to impose damages based on their evaluation of the merits of underlying derivative works.  I think non-neutral content-biased application of vague standards poses a much greater First Amendment problem than "Blackstonian" copyright.  In other words: if you think it's a tragedy that a court enjoined the Air Pirates, I doubt you'll be much happier with the royalty that the same court calculates.

Exclusionary rights as an incentive

Even if we could deal with the bargaining problems above, why should we use compulsory licenses at all? Netanel identifies at least two problems that seem to be ameliorated by compulsory licenses: speech-chilling and suspected monopoly profits. Without the right to enjoin, copyright can never silence.  Without the right to reject reasonable offers, licensing fees should never be supracompetitive.  Compulsory licenses might even preserve much of the profit incentive.  Movie studios, for example, could just recalculate their revenues given their right to royalties, even if these are ultimately less valuable than exclusionary rights.

But as Netanel notes, individuals care about more than money.  Authors often care about context of their work.  They fret about its presentation, liken characters to their children, and refuse to allow their work to be used in ways they oppose. Stripping copyright holders of their veto right is the whole point to Netanel's proposal, but authors will lose control their even when compulsory licenses serve no free speech purpose.

Authors will lose control even when they value the right to exclude more highly than royalties as an incentive for creation.

Calvin, Hobbes, and personal works 

Elaborating on a previous comment, take for example Bill Watterson, the author of Calvin & Hobbes.  Although he undoubtedly worried about his work's integrity more than many authors, I don't think that his preferences were very idiosyncratic. He didn't want his characters used on merchandise he didn't approve of (he went further than most because he didn't approve of any merchandise). Watterson, like many cartoonists, was horrified by the practice of syndicates that would continue a producing strips after the cartoonist's retirement.  He didn't want anyone else to continue his strip. Both of these preferences would be unavailable under Netanel's proposal, and all authors would be utterly helpless to control their work in these basic ways.  I picked Watterson as an example because I think he is a particularly clean case.  After a few years of authoring the immensely popular strip, he nearly quit because the syndicate wanted to capitalize on the characters' enormous untapped value.  They capitulated, and Watterson wrote the strip for ten years, at which point he quit, feeling that the work was complete.

Imagine what would happen under Netanel's proposal:  A clothing company sends Watterson a letter: "please provide a quote for licensing Calvin & Hobbes merchandise, as required under the Anti-Blackstone Copyright Act of 2013." 

Watterson writes back, "one trillion dollars per copy." (Under Netanel's plan, this would earn him sanctions if he later tried to sue, but this is Watterson's last chance to protest).

The outfitter responds, "Please find enclosed check representing a reasonable royalty of $5 per item sold, including royalties for Sexy Hobbes panties. Also note that your statutory moral rights have been respected—the label says it's an unauthorized modification, and refers customers to your original."

Even worse, in my view, is that any fool with a pen and checkbook could publish spurious Calvin and Hobbes comics.  Netanel apparently counts this as a virtue of his plan.  Watterson & co. might feel conscripted to write more comics to fill the market for their work indefinitely, like Cervantes.  (Or perhaps not: J.K. Rowling apparently loses "the will or the heart to continue" because of shoddy derivative works.)  Compelling authors to produce against their artistic vision strikes me as shockingly reprehensible from a moral rights perspective.

It also seems to be a powerful incentive against publishing certain works.  Watterson might get used to it—like he presumably gets used to infringing but judgment-proof bumper sticker sellers who depict Calvin whizzing on various things. That may be, but I wonder how many authors would avoid publishing personal works under compulsory derivative licenses. Perhaps Watterson would have just pursued a day job penning hack political cartoons in Ohio.  If an author knows that their work can be appropriated—for profit or advocacy—for any crass, vulgar, political, or objectionable purpose, I suspect that they would not share personal works in the first place.

Fair fair use

I agree strongly with Netanel that fair use is unacceptably vague.  However, replacing fair use with a practically-mandatory obligation to contact the original author (and possibly write a check) doesn't seem like the best way to serve speech values.  Instead, I propose that we resolve fair use's murky boundaries in two steps:

1. Create balanced medium-specific guidelines for fair use that command the respect of lawyers, distributors, E&O insurers, and (hopefully) courts.  Check.  We're on our way.  The Else predicament loses much of its bite because of this development.

2. When lawsuits are used to silence speech, resist them to raise the costs of dubious infringement suits.  Check.

It might be that infringement suits will still occur too frequently.  If that's true, we can make copyright's optional fee shifting mandatory for certain defendants.  If that's still not enough deterrence, we could add SLAPP-style fees.  But it doesn't make sense to hollow out all copyrights.  This is especially strange because it would encourage many who now rely on fair use to instead pay a "reasonable" fee, or risk future penalties.  Netanel's proposal to contact the owner seems like an actual prior restraint. The compulsory bargaining requirement is utterly unsuited to rapid creation and publication in the internet age.

Tortured Economics and My Tortured Pages

I dog-ear books in places I find exceptionally interesting. It's an old habit. I have dog-eared every page of the last twenty-plus in Copyright's Paradox. This tells me I have more to say than is sane, so I'm just going to focus on the economic incentive issues raised by the last portion of the book.

Getting the Incentives Right

Netanel argues that extended periods of copyright protection are unnecessary. He does so on several grounds, one of which is the willingness of publishers to print and distribute books in the public domain. (Page 201.) He cites as evidence of this Mark Lemley's comments about Ulysses. Obviously, though, a great many public domain works simply go out of print entirely. Netanel makes much of this in the following pages, but overlooks a trouble spot: some works would not go out of print if copyright still existed. Classics stay in print, to be sure, but a great many volumes in any major library would be cost-prohibitive to reproduce in physical form if there is even a risk of competition in that work from another publisher. The potential market for many of these books is so small that any competition makes all players net losers.

The problem is this: we all are familiar with the "forever period stream" function for the value of a perpetual copyright. That is, PV = C/r (present value of a work with eternal returns equals periodic value over rate of interest). The fact that the value of a copyright decays with time means that when we set time limits, the law of diminishing returns applies - the value of year 28 in a copyright is less than the value of year 27, for example, and so on. In order to incentivize authors and publishers, we must give them the bulk of their potential profits. After all, if all one could get from writing Harry Potter novels was royalties on the first 25% of book sales, fewer popular books would probably be written, unless one could be confident of a roaring success. Once we get out to year 150, say, not to mention year 1,000, unless the market is tremendous - fueled, perhaps, by tenth-grade required reading lists - the marginal returns are usually too small to make it worthwhile for more than one player to enter the market. Because of the up-front costs of printing a book, this risk is likely to be enough to keep everyone out, lest anyone be caught by surprise. The average bottom-dwelling new release on Amazon probably still produces more revenue than the average five-volume tome on eighteenth-century European ornithology, and the prospect of competition makes the reprint even scarier.

What I'm getting at is simple: provide the opportunity to print something free of competition, and people will take the opportunity. Impose the risk of huge sunk costs, small marginal costs, and small marginal returns made smaller by competition, and there may be no takers, even when society might benefit from the reprint.

Beware the Huddled Masses - They Have Broadband

One argument that bothered me terribly in this section was on page 208. Netanel argues for "largely unrestricted noncommercial file sharing while remunerating copyright owners." The economic reasoning on this page has utterly befuddled me. Netanel says we should compensate copyright owners for file sharing through "a noncommercial use levy - set as a percentage of gross revenue." Yet, he has already provided that the only covered uses are noncommercial - those who are "not receiving monetary compensation" are the people shielded. I find unconvincing his argument that it is possible for a peer-to-peer software platform to enable sharing, while profiting itself yet obtaining the benefits of this shield. More importantly, I don't think you can spell this out so clearly that courts will never find that platform providers or ISPs can be made liable for profiting when users share copyrighted files.

What really blows my mind, though, is the argument that the only fees assessed would be as a percentage of gross revenue. There are millions - maybe billions - of people sharing files at a loss, with no intent of making money on the practice, already. This surely is noncommercial - if I give an MP3 to Douglas Baird for his own amusement while we sip Scotch, neither of use is receiving monetary compensation. Yet there is no revenue to be levied. BitTorrent, Napster, and plenty of other platforms are used mostly by people with no monetary interest in their actions of uploading, downloading, or making available copyrighted works. That leaves us with only the purely commercial enterprises - Netanel mentions YouTube (which barely generates any gross revenue, anyway) and ISPs - to tax. Do we really want to pay $150 for Internet access to subsidize the neighbor's kid who runs a mini-server farm to share movies over BitTorrent? Even if we could measure the amount of copyrighted material users access - a technically daunting prospect which also implicates tremendous privacy concerns due to the necessities of monitoring and filtering at the ISP level - ISPs are network industries. Their profit margins are necessarily extremely small, and the prospect of a 4% levy on gross revenue (pages 208-09) might cause many ISPs either to stop providing service or block all of the content Netanel wants us to be able to access, because it will be impossible to obtain a competitive rate of return while providing unfiltered access.

Fossilizing the Tree of Knowledge (While Saluting Star Trek)

I haven't watched anything Star Trek in years, now. I remember clearly one episode of The Next Generation, though, which I happened to catch, called "Darmok." I kept thinking of that episode the entire three weeks we have spent on this book. In "Darmok," Picard and crew encounter a strange alien race, The Children of Tama, who speak entirely in metaphor, by reference to shared stories. For example, a complete statement or question in their language would be "Chenza at court," or "Kiazi's children, their faces wet."

The episode has prompted numerous fan dictionaries, of course, like this one. There is a world of irony in the fact that people are producing dictionaries and fan sites around a race who learned to communicate solely through stories and shared meaning. There is also the more relevant irony of the fact that this is a kind of fan fiction, perhaps most like the Harry Potter Lexicon - these dictionaries are meaningless without a copyrighted show and unquestionably quote or retell large parts of it, yet they also unquestionably help explain a very confusing hour of television and have social value as a result.

Back to the episode. The premise is all necessarily very circular, of course - The Children of Tama have to explain their own metaphors to each other in metaphor - and tends to confuse the living daylights out of the Enterprise crew, who are not used to thinking in this way.

What struck me most severely and often about Netanel's book is his dogged insistence on free sharing of stories and the freedom to produce remixes, mashups, and fan fiction (his apologia for moral rights on 215-16 notwithstanding). In Netanel's ideal copyright regime, one can easily see countless derivative works produced around the Harry Potter characters, for example. I have an uneasy feeling - unfounded, probably - that this would tend to impoverish our culture by blurring the lines between independent and dependent creation. Harry Potter is popular not only because the books are well-written, but because they are different. Perhaps not all that different from books like The Black Cauldron or Tolkien's writings, but different enough. In a world flooded with fan fiction, though, imagine how difficult it will be for an author to break away from any given mold - as stories grow farther and farther from their roots, the line between original authorship and yet another knockoff of some story might be very unclear, indeed. Music, with its limited vocabulary of tones and rhythms, might be even more rapidly exhausted.

Some people would say this is not problematic, that a book's value and meaning is in the mind of the reader, and likewise for other types of creative works. Thus, if the fan fiction and mash-ups convey something interesting, why would we care if the work is independent or derivative? I disagree. We would not even have the original work that prompted a derivative work, unless somebody had a creative flash. There may be a hundred ways to retell the story of Romeo and Juliet, but the value of the eponymous play is immeasurable. More importantly, the brand value - the signaling value in the name "Shakespeare" - has social worth. We want to know that the original source - whoever that really was, in this case - is a source of quality, so we can obtain more work like the play in question and incentivize the author to keep writing.

Netanel's idealized copyright regime, on the other hand, produces for me a mental image of our currently ever-expanding and growing tree of knowledge and thought suddenly and unexpectedly calcifying, as societies lose their ability to be creative. When parents, teachers, and children become more and more accustomed to derivative works - books, music, movies, and so on - thinking up something truly new will be harder and harder. I worry that such a permissive regime will damage that tree, until fewer and fewer branches are able to bear fruit and truly independent imagination is stifled in ways neither copyright nor the First Amendment are intended to bring about.

Conclusion

I have no doubt that the quotes from Picasso, Stravinsky, Eliot, and Guthrie on page 58 hold much truth. I worry, however, lest they become actual truth; we may not mind the theft of a musical, poetic, or artistic idea, but we should encourage a creative repackaging of the idea so we... don't really notice it. When the line between creation and theft blurs too much, we may care a great deal less about any of the themes we have discussed this quarter. Google's accumulation of knowledge may seem less intimidating, privacy may have lost its distinctive nature (with too many stories about a person or group of people, who really cares how many are true?), and we may all plug into a universal computer, but if we no longer care about true independence in creation, we may not care all that much if we're not that distinguishable in our lives, either.

Perhaps I'm simply jaded. I'd like to think, though, that our independence - in our thoughts, our creative output, and our choices to reenact light saber battles in front of a camcorder - is something we really want to fight for.

TM Dilution & Fair Use v. Copyright's Equivalents

Last week, Prof. Picker had mentioned the similarities between a Copyright holder's desire to avoid exploitation of his or her work, and the corollary in Trademark Law known as Trademark Dilution.  I think we discussed Dilution in the context of derivative works, but perhaps it was in the context of moral rights.  Trademark Law from two semesters ago was escaping me in class, but I thought about it some over the weekend and a few things came to mind.

TM Dilution allows owners of famous marks to bar the use of the famous mark on products outside the mark's relevant market (ie, uses that would likely not satisfy the Likelihood of Confusion analysis).  A typical example is selling a Coca-Cola T-shirt.  The idea is that by using the mark so broadly it either weakens its identifying characteristics, or makes it look like the company, Coca-Cola, endorsed the subsequent product, the T-shirt.

Much in the way a TM holder seeks to avoid the Dilution of his TM; a Copyright holder presumably seeks to bar derivative works that portray his or her work in a negative light. 

There's another aspect to this TM-Copyrihgt analogy however: TM Law also has a "Fair Use" exception.  Though structurally different from that of Copyright, it serves many of the same functions.  TM's "nominative fair use" allows an individual to use a TM when referring specifically to the marked good or service in question.  As such, a dilution claim likely would fail where one is using the mark in a manner that refers to the specific good, even if in a disparaging manner.  The class discussion left me with the impression that TM Dilution might somehow inform a copyright regime that restricts "fair use" or derivative works, but floating in the background of TM law is a provision that addresses some of the very free-speech concerns in "Copyright's Paradox". 

More Pending Legislation: The Pro-IP Act

On the topic of pending Legislation... while the Orphan's work bill seems to give something to the "Free Speech" side of Netanel's Copyright Paradox, the "Pro-IP Act" (which passed the House two weeks ago) throws a bone to the Copyright-Enforcement wing, Link (Ars Technica).

The Pro-IP Act would establish a new copyright enforcement division with the Department of Justice and create a new position for a federal copyright enforcement czar. The bill would also enable law enforcement agents to seize property from copyright infringers.

I imagine the idea is to target wholesale pirates, but I'm interested to see how the new resources and tools will be applied in practice.  In particular, I'm curious as to how the DoJ Czar decides who's copyrights to protect. (Note: Bill hasn't passed the Senate yet) 

Criticism of orphan artworks bill

To follow up on Chris's post:
http://www.nytimes.com/2008/05/20/opinion/20lessig.html

Orphan Works Bill Clears Senate Committee

FYI, from Ars Technica.

A Copyright View of the Cathedral

I’m intrigued by Netanel’s proposal for replacing a property rule with a liability rule in the areas of derivative works and colorable but unsuccessful fair use, but I wonder whether uncertainties as to the type of use, the reasonable value of a license and negative effects on the underlying work might inhibit private bargaining in the shadow of the rule.

Distinguishing Fair and Derivative Uses

In the fair use arena, Netanel proposes first a broad, purposive definition that would allow a fair use defense wherever the appropriator adds new expression or value that “imbues the original with a different purpose or character in furtherance of distinct creative, critical, communicative, or informative objective” (191). Second, it would be the copyright holder’s burden to show that the appropriator had used more than necessary, which would seem a difficult burden given the plasticity of what might be deemed “necessary” to a given expression. And finally, damages for a colorable but unsuccessful claim of fair use would be limited to the reasonable license fee. (192)

For derivative works, as for colorable but unsuccessful fair use claims, Netanel proposes to replace an entitlement with a liability rule. He qualifies Jed Rubenfeld’s proposal that secondary authors should be free to distribute derivative works subject only to disgorgement of profits attributable to using the underlying work (197) by 1) exempting certain genres like screenplays, 2) providing for a limited period of exclusivity to preserve incentives (198), and 3) providing a kind of moral rights compensation for loss of creative control (215). To encourage private bargaining, the secondary author would be penalized for failure to notify the copyright holder or refusing to pay a price less than or equal to the judicially apportioned profits (i.e. if it refused to accept a reasonable or better-than-reasonable deal).  Likewise, the copyright holder would be penalized if the judicially determined fee falls a certain percentage short of its licensing offer (i.e. if it tried to charge too much).

One question I have is how these regimes would interact. Because Netanel’s definition of fair use is broad and purposive—“imbues the original with a different purpose or character in furtherance of distinct creative, critical, communicative, or informative objective” (191)—it seems that the line between fair use and derivative works might be difficult to police. Would the liability for a colorable but unsuccessful fair use claim (reasonable license fee) be the same as for a derivative work (profits attributable to using the underlying work)? If so, it would seem that appropriators would want to claim unsuccessful fair use whenever possible because of the lack of penalties for failing to notify and strike a reasonable bargain, and also because of the exemption from the period of exclusivity for derivative works.

Bargaining in an Uncertain Shadow

Replacing a property with a liability rule would seem to make sense for derivative and colorable but unsuccessful fair uses for the Calabresi-Melamed reason that transaction costs may be high where rights to the work are fragmented (i.e. the tragedy of the anti-commons). But I suspect that bargaining may also be inhibited by uncertainty about how much the secondary work owes to the original. Netanel cites a movie executive’s dictum, “Nobody knows anything,” for the proposition that the market for creative works is extremely uncertain. Under Netanel’s proposed derivative works regime, it would seem extraordinarily difficult to determine how much of the secondary work’s profits are “attributable to the underlying work.” It is easy to imagine a good deal of self-serving bias leading to a disparity in estimates of the value added by the underlying work, even assuming that the parties are bargaining in good faith. Of course, the parties will be bargaining in the shadow of sanctions if they fail to offer or accept a reasonable licensing deal, but I wonder whether parties will have any degree of certainty as to what percentage of profits a judge might deem attributable to the underlying work.

Another area of uncertainty, which admittedly can be easily clarified, has to do with the meaning of “profits attributable to the underlying work.” I think the “profits attributable to the underlying work” metric might be construed (perhaps a bit creatively) to capture something like the more traditional metric of the displacement effect of the secondary work on the copyright holder’s ability to enter the market occupied by the secondary work. In other words, the copyright holder could have entered that market if it added value 5 to its existing value in the underlying work 10 (total value of 15). To the extent that the derivative work displaces the copyright holder’s ability to enter the relevant derivative market, the secondary author owes the copyright holder a fraction of 10/15 or 2/3 of its profits. So if half the derivative market is taken by the derivative work, then the copyright holder is owed 1/3 of its profits. On reflection, however, it’s probably more likely that Netanel means “profits attributable to the underlying work” would apply even if there was no displacement of the copyright holder’s ability to enter the relevant derivative market. I think the first version is more favorable to secondary authors (no payment without displacement—and only payment to the extent of displacement), but the plain meaning of “profits attributable to the underlying work” would seem to suggest the latter interpretation.  (In favor of the latter approach is that there is only one step to the calculation, easing the information-gathering costs.)

I guess my point is that although liability rules are said to be good where parties have difficulty bargaining, it may be optimistic to hope that they will be able to bargain more effectively in the shadow of a liability rule that is fraught with uncertainties.

Negative Externalities

Another area of uncertainty which might tend to inhibit private bargaining is that of the negative externalities of the secondary work. Netanel briefly refers to the negative impact of loss of creative control in the moral rights context, suggesting that the price of licensing should reflect that negative impact. Another negative externality would be a derivative work that lowers the value of the original by, for example, mocking it.  (This is something we discussed a bit during the last class.)  If that lost value were incorporated into the cost of the license, it would seem to have adverse policy implications in terms of raising the cost of critical or satirical speech as compared to bland, non-controversial speech.  I guess this would be another reason to support a liability rule, where judges are instructed to ignore these externalities in setting the price of licenses—and also to support bargaining backed by sanctions in the shadow of this externality-blind rule. Still, I wonder how this hypothetical speech-protective, externality-ignoring rule lines up with the idea of moral rights. Wouldn’t an author feel that his moral rights were more infringed by a parody than a reverential treatment? Maybe the solution is a flat percentage for the loss of moral rights, regardless of the positive or negative impact on the underlying work.

Some positives, some negatives

Netanel does a good job at convincing readers that the marginal benefit of increased copyright protection does not outweigh the cost imposed on freedom of speech and the cost of  discouragement in the creation of new works. If authors are granted exclusive rights as an incentive to create, then the continuing expansion of copyright protection beyond its traditional scope makes little sense. People or businesses that rely on copyright as a dominant incentive do not base their decisions considering profits decades after the original work is created. Furthermore, copyright industries are not capital intensive in the sense that recoupment costs have to occur over long periods of time (e.g. a utility company or a railroad). In copyright industries, even works that cost hundreds of millions of dollars tend to recoup their cost and become profitable (if they’re ever going to) within a couple of years after their creation. Movies like Ironman will get made regardless of whether not there’s an exclusive license to the character for 10, 20, 30, or 40 years; in a relatively short time, these hit movies recoup the cost of production and marketing (Iron man did this in its second week). The point is that the incentive for authors or corporations to create, when it comes to copyright at least, is generally satisfied fairly soon after the work’s creation or publication.

If this is the case, then even a slight cost to freedom of speech or discouragement in creation seems to make the trend of expansion in copyright protection unwarranted. Copyrights are needed in order to eliminate free rider problems that discourage creation, but once this problem is eliminated and the incentive purpose is satisfied we may be far better off, as Netanel points out, “with an open contest of multiple use, editions, and interpretative recastings than an heir’s or corporation’s perpetual veto (205).

There may some benefits allowing heirs or corporation to retain longer and stronger protection of copyrighted works. Movie studios can make more sequels or invest in developing works of better quality that ultimately benefit consumers and society as whole. But these types of arguments do not seem to relate to the original incentive to create; their validity in supporting the expansion of copyright protection is therefore questionable. Additionally, there seems to be no empirical evidence that works based on copyrighted materials are actually better than works based on material that falls into the public domain, at least after a certain period of time has passed.

Copyrights should not function as barriers to entry

Copyrights limit the ways in which others can use copyrighted work. As a result, copyrights naturally create at least some barriers to entry. However, the barrier to entry effect is a secondary, not a primary function, required to incentivize the creation of works. Exclusive rights are the incentive authors receive as reward for their work and may be seen as the necessary evil required to encourage creation in the first place.

This view forces me to disagree with Vikas point that copyrights “may serve an important function as barriers to entry…by requiring the creator to think strongly about the value of the work he is creating” before he creates it and distributes it in the market. It seems that this is precisely what Netanel wants to avoid. Creativeness and speech may be chilled if we force every creator to navigate the copyright maze or figure out whether his work is valuable enough to create and distribute in the first place. Authors are usually not good at predicting the value or success of their works in the market place. The author of Gone With the Wind probably expected the book to be somewhat successful, but probably not to the extent that the book eventually became. The better approach would be to allow as much creation as possible and then let the market sort out which works are valuable. Although this may lead to a problem of information overload or too much creation, we now have the technological tools that will keep improving to help us sort through all the works. For example, if I create a bad novel and post it online, it will get few or no hits, while all the good novels will receive more hits. With search engines and other services that rate the quality of online content, people can bypass all the useless works or works that they don’t want. It is better to have as much creative work out there rather than forcing people to over screen their works for fear of copyright infringement. People should take reasonable care to ensure that one is not infringing, but the problem now is that it is so unclear when and how one may use copyrighted work than it is almost not worth the risk of using copyrighted material. In the process, the public is deprived of valuable works and speech is chilled. Copyrights role as a barrier to entry should be minimal and only to the extent that it fosters, not deters, creation.

Netanel addresses a Public Choice dilemma but offers no Solutions

Netanel provides legislative and judicial solutions to the issues he raises in previous sections the book. Some of his solutions are less workable than others but if implemented correctly could alleviate some of the problems. Unfortunately, his solutions seem unworkable until the public choice dilemma is resolved. Netanel addresses the problem in p. 182 but does not address how successful rent seeking by special interests can be countered society as a whole. Without resolving the problem posed by interests groups, Netanel’s legislative and judicial solutions seem somewhat unrealistic.

Public choice views Congress’s decision to push for stronger copyrights as the result of interests groups working to overcome the “free rider” problem. In viewing government action as the product of interest group politics, one can apply a public choice analysis to see that as the importance and value of copyrights became an evident and substantial aspect of certain corporations or interests groups, particularly in light of the new distribution medium provided by the internet, these entities had large economic incentives to overcome the first mover problem. In other words, the benefits of lobbying for a strong copyright regime became great for the copyright industries while the costs of such a regime were dispersed through consumers or users lacking comparable political power. As Netanel points out, the public, which is most affected by this legislation is unorganized relative to the lobbying groups of copyright industries. The public, Netanel says, “consists of a large number of discrete individuals, each with a small, highly diffuse stake in the regulation at issue” that prevents it from forming strong organized groups that can press Congress for more balanced copyright legislation (p. 184). Netanel seems recognizes this key dilemma but glosses over it even though the challenges posed by the problem seem insurmountable.

As I mentioned in an earlier post, because of the almost increased access to existing and new works via the internet, the public at large does not even feel the cost that stronger copyright protection is imposing on the creation of new works or on free speech. Thus, while the internet provides big incentives to copyright industries to gain more concession from Congress in copyrights, the public, feeling that there is access to almost too many works via the internet, is oblivious to the effects of these concessions.

Netanel seems to get this, but rather than providing solutions on how society can overcome its organizational problem and effectively counteract copyright industries’ pressure on Congress, he goes straight into his legislative and judicial solution relying, on blind faith, that either Congress or the Courts will somehow change their ways. Recent history suggests that this will not happen. Netanel’s solutions, although venerable, look somewhat idealistic.

The Shadow of a Judicially Imposed Liability Rule

The First Amendment Lodestar 

In Copyright’s Paradox, Netanel urges the reader to consider the approach of Justice Brennan, who, writing in dissent in Harper & Row v Nation, argued that “The copyright laws serve as the ‘engine of free expression,’ only when the statutory monopoly does not choke off multifarious indirect uses and consequent broad dissemination of information and ideas. To ensure the progress of arts and sciences and the integrity of First Amendment values, ideas and information must not be freighted with claims of proprietary right.” (217). Netanel joins Brennan in the position that a proprietary approach to copyright weighs down the progress of arts and sciences. He argues that instead of a property regime, we should embrace a liability rule, which would promote private bargaining but prevent impasse and the failure of negotiations.

Netanel writes that under this new regime, “the parties would often bargain, and could be induced to bargain reasonably, under the shadow of a judicially imposed liability rule should negotiations fail.” Netanel here brings up the idea that parties will privately order their bargaining in the shadow of the law, an idea first articulated by Mnookin and Kornhauser in “Bargaining in the Shadow of the Law: The Case of Divorce,” 88 Yale L.J. 950 (1979). In assessing how divorcing parties negotiate outcomes outside the courtroom, Mnookin and Kornhauser noted that “The ‘no-fault revolution’ has made divorce largely a matter of private concern” (Mnookin, 953). Netanel, in turn, argues for a type of “no-fault” liability regime in his arguments for revising our current copyright framework. This approach incorporates the actual behavior of rational parties in addressing how to formulate legal rules. 

Free Speech, Expressive Diversity, and Human Behavior 

In the last section of Copyright’s Paradox, Netanel addresses the shortcomings of applying the idea/expression dichotomy without reference to free speech concerns. In many ways, his ideas take into account rules of human behavior. He pays attention how the internal copyright valves (e.g. fair use) operate in the real world. His free speech observations also account for the way humans act. For example, his approach to creative appropriation uses the way humans express themselves as a touchstone. Mimicry is an essential part of human development, and as some people argue, even essential to the development of human culture. 

Complex imitation, some argue (see link), has allowed for a “great leap forward” in evolutionary terms. Imitation is an ancient form of communication and connection—more advanced forms of imitation provide the basis for efficient communication and for laying the grounds of common culture. In this way, imitation provides a distinct vehicle for speech and understanding that Netanel keenly recognizes and comments on in his thoughts on opposition and expressive diversity. He notes “To successfully challenge prevailing understandings and stereotypes perpetuated by mainstream, popular expression often requires a partial melding of expressive product rather than complete product differentiation.” (p. 159, emphasis in original). This approach to creative appropriation acknowledges habits of human speech that our current method of separating idea from expression does not necessarily incorporate. Netanel rightly accounts for how we might create bargaining endowments with reference to different forms of expression and First Amendment interests.

Commercial Copyrights, Demand Diversion, and Litigation

By contrast, I worry that some Netanel’s analysis excludes some other hallmarks of human behavior that should also influence how we balance Copyright with First Amendment concerns. First, humans often determine their hierarchy of values with reference to their proprietary value. Our current system certainly lacks fine-tailoring and does not readily accommodate negotiations, but the licensing regime created within a proprietary interest model might better perform the symbolic function of law—reinforcing the importance and value of original speech. Furthermore, it’s not clear to me that the bargaining outcomes would necessarily improve given a shift in models. 

    In their article about Bargaining in the Shadow of the Law, Mnookin and Kornhauser identify the important determinants for the outcomes in bargaining:

“The factors are (1) the preferences of the divorcing parents; (2) the bargaining endowments created by legal rules that indicate the particular allocation a court will impose if the parties fail to reach agreement; (3) the degree of uncertainty concerning the legal outcome if the parties go to court, which is linked to the parties' attitudes towards risk; (4) transaction costs and the parties' respective abilities to bear them; and (5) strategic behavior.” (966)

    The bargaining endowments created by legal rules, such as the penalties that Netanel envisions for supra-pricing their licenses, therefore play a role in the success of private ordering. These endowments, however, play just one role. Judicially-crafted compulsory licenses and rules that give judges the ability to determine license fees might run into the same problems that Netanel rightly criticizes in the clearinghouse culture. Uncertainty in litigation will persist and when crafting these rules, the same rent-seeking behavior from entertainment industries that shaped the CTEA (182) might influence the form of these rules. Resistance to this influence might falter under the difficulty of the task. How shall we craft these rules when, as Netanel himself notes, “these questions cannot be answered—and thus the competitive price benchmark ofr copyright cannot be defined—without making value judgements about the types and mix of expression and speakers we want our copyright systems to foster”? (128).

    Continuing to situate the action of the bargaining in the courtroom might continue to privilege massive media players who benefit from the leverage they can bring to bear. As Mnookin and Kornhauser note: “The magnitude of these transaction costs, both actual and expected, can influence negotiations and the outcome of bargaining…As is generally the case, the party better able to bear the transaction costs, whether financial or emotional, will have an advantage in divorce bargaining.” Part of operating in the shadow of a liability regime involves calculating one’s own ability to tolerate litigation as well as the other party’s ability to do so. It is not clear to me that Netanel’s solution, as he describes it in the book, would remedy the problem of litigation transaction costs. The bargains that his regime induces therefore might continue to favor the large media conglomerates that he finds so bothersome.

   

...and the Bad (or Why do Law Profs Have to Constitutionalize Everything?)

If you think a Problem is Big enough to Write a Book About it must be of constitutional magnitude, right? There's more to Netanel's Chapter 5 argument than that, of course, but it does seem like every law prof believes his or her pet issue has constitutional implications. Maybe (other?) law schools teach students to fetishize the Constitution and Supreme Court too much - I don't know.

In any case, as you can probably guess, I don't buy Netanel's argument in Chapter 5 that the 1st Amendment should be brought to bear on copyright in its current form by courts. I particularly don't agree with most of his criticisms of the Court's decision in Eldred.

Let me first make it clear that I think the CTEA is a stupid law, a profoundly vivid example of bad public policy and industry capture of legislation. I just don't think that is enough to make it unconstitutional.

I think the Court's conclusion is basically right - the 1st Amendment doesn't make content-neutral copyright laws unconstitutional unless they go way beyond the traditional role and structure of copyright. I am somewhat sympathetic to Netanel's case that the DMCA does go too far to be constitutional, but I am not convinced that either the CTEA does so, or that, as he argues, the basic framework of Eldred and the analysis behind it are wrong.

A blog post isn't a very good place to get into the details of the Court's reasoning and, more generally, the doctrinal interplay between copyright and the 1st Amendment. I do want to make a broader argument, however - that constitutionalizing copyright, even if it can be defended doctrinally, is a bad idea. Netanel's book up to this point has done a good job of giving a relatively balanced account of the copyright/free speech intersection. Copyright burdens speech, but we need it or we don't get enough speech. Drawing lines is hard. Lots of smart people have struggled with how to set the balance. Reasonable and democratic societies have set copyright protections and free speech protections at different levels, and faced different problems as a result. In other words, this is fundamentally a public policy issue - it involves balancing different interests and values, making predictions based on limited information, and, ultimately, picking some winners and losers. Figuring these kinds of issues out is what democracy is for, not courts. Constitutionalizing the free speech-copyright balance, at least when it goes beyond setting outer boundaries as the Court did in Eldred, freezes the compromise. There is no reason to believe that the Court would strike the right balance, or a better balance than Congress today, and it would be crazy to think that the balance they set today would be the right one tomorrow. And if copyright is constitutionalized today, we will have to deal with that balance in perpetuity.

I feel the same way about this issue as many people do about abortion and Roe - whatever one thinks of the doctrinal basis of the decision, or even the underlying correctness of either position, the Court's decision has locked out political debate and prevented the country from ever really dealing with the issue. I fear the same might happen with copyright if Netanel's advice were followed. To be sure, removing issues from public debate (and therefore majority rule) is the purpose of judicial review - but the power should be wielded carefully, especially in areas like copyright that are complex and in flux.

I agree with Netanel's skepticism about Congress' ability to avoid industry capture and come up with an effective copyright law. Its track record is not good (see CTEA, DMCA). Still, it is the institution we have in this country to deal with these kinds of public policy issues. If Congress isn't doing its job, we need to demand beter representation, not push off decisions onto unelected bodies by arguing they are part of the original social contract. Doing so, I feel, is an abdication of our democratic responsibilities. Whether we want to make incremental changes to copyright, or blow it up entirely, we need to do it ourselves, through our representatives.  To paraphrase Obama, "we are the change in copyright we have been waiting for." 

The Good (or Why Haven't We Done This Already?)

Like Prof. Picker, I did eventually get the impression I was reading a novel as I got through Netanel's book. It was good to finally reach the climax and denouement of the case he had built over the first six chapters. Maybe that emotional reaction says I'm getting too much into this stuff, or maybe it just means Netanel is good at keeping some suspense in what would otherwise be a dry book.

In any case, there were some things I'm quite excited about in this last segment, and some things I'm somewhat disappointed by. This post deals with the positive stuff; I'll put my criticisms in another post.

Incremental Changes

Netanel proposes a range of incremental changes to copyright law in his last chapter, many of which we have come up with independently in class or in other posts. Like Ruben, Netanel recommends ending the statutory damages regime, at least for some forms of infringement. Like Dan, he argues that some burdens of proof, particularly in fair use cases, should be shifted to the party alleging infringement. Like many of us have argued, he thinks the duration of copyright should be cut back. He also makes the case for renewal fees as a first cut at solving the orphan copyright problem.

All of these are excellent ideas, and could be implemented by Congress tomorrow. They should be. None are particularly big or bold moves, but all would be effective. Taken together, they might even be enough to address Netanel's core concerns. But Netanel does not stop there - he at least hints at more radical change.

Revolutionary Change?

Netanel's 6th chapter's title leads the reader to believe he advocates "remaking" copyright law entirely. He does make some broad proposals - such as the "noncommercial use levy" that would authorize but indirectly tax file sharing - but largely relies on incremental adjustments like those mentioned above. Maybe all of those, taken together, could be considered "revolutionary" in a sense, but his proposals fall short of the "blow it up and start over from first principles" approach I advocated in my first post on the book. That isn't necessarily a bad thing. Netanel's course may be wiser, or it may simply be that only incremental adjustments have any chance of actually being enacted. Given the rhetoric earlier in the book, however, I was a little disappointed to see that his legislative proposals lacked the freewheeling, iconoclastic ambition I had hoped for.

Still, they are probably a good summary of what can and should be done. Other than moral rights, which I've already discussed my objections to, I think each of Netanel's recommendations in chapter 6 should be seriously considered by Congress.

I don't feel the same way about his recommendations for the judiciary in Chapter 5, but I'll get to that in my next post.

A paternalistic balance

I started off the quarter with a post pushing back on the glories of utility computing.  I shared some concerns that under Carr’s description of utility computing, we could end up in a society separated by technology and providing people with too much privacy.  The result would be detrimental to the civic participation and ongoing conversations we need for a well-functioning democracy.  (Many did not share my concerns, which I was happy to see.) Therefore, I definitely sympathize with Netanel’s concerns about reigniting the public conversation by limiting the chilling effects copyright can have on subsequent expression.  Netanel wants First Amendment rights to win more of the battles against copyright’s limiting effects on expression.

Netanel’s underlying assumption, however, is that people will speak—namely, that they will create and otherwise will have the ability to create—as long as copyright is not an impediment.  Furthermore, we will want this type of creation for the diversity of viewpoints necessary in a marketplace of ideas that leads to the best democratic policies.  He also assumes that people will want to listen and be able to listen to these diverse viewpoints.  Lastly, he argues (or assumes) that the best method to reignite this conversation is to limit copyright and allow more freedom in creating secondary or derivative works.

I argue that while Netanel is probably right that copyright is a strong limiting factor today for producing new works, his assumption that people will listen, and which will lead to better democracy, is flawed.  I propose an alternative regime (“a paternalistic balance”) that may be better at alleviating his concerns while not resting on faulty assumptions.

Who’s listening?

I think Netanel is right that today one of the greatest impediments for creators is copyright (and its licensing regime).  Technology has made production of content and information cheap and ubiquitous.  Computers, cameras, communication, and collaboration have all become very cheap.  Distribution to a potentially large audience can also be done cheaply.  Assuming that most creation builds on prior creative works, copyright does seem to function as a wall.

The problem is not with creation or distribution, which Netanel seems to have gotten right, but with what happens afterwards.  The proliferation of information overloads our ability to sift through it all and we choose metrics that in the long run probably unhinge this marketplace of ideas full of people interacting with a diversity of viewpoints (the central purpose of the First Amendment).  Furthermore, as I argued in my first post, the shift to all this technological connectedness may be making us into more solitary creatures.  The combination of these two factors is the likely effect that implementing Netanel’s ideas is at best unlikely to foster the necessary democratic conversations and at worst is likely to reduce them.  And Netanel is certainly concerned with these types of conversations: “Robust public debate, the spread of knowledge, and the questioning of cultural hierarchy are of paramount importance to a democratic society.” (p.162)

Polarization: more is not better

Just yesterday, I discovered that a friend on facebook has posted a link to the following video: http://thinkprogress.org/2008/05/15/kevin-james-appeaser/.  It’s a political video of Chris Matthews allegedly embarrassing a Republican radio host regarding recent statements by President Bush.  If I am the original blogger wanting to engage in political dialogue with others, I could just describe the video and its contents, but it is probably more effective for people to simply watch the video.  That reduces costs to me of having to describe the video in great detail and to the reader of having to read a lengthy description.  Using descriptions rather than the video would also reduce the overall impact of the situation on the reader.  This seems like a prime situation in support of Netanel.  The posting of the video is unlikely to take away from MSNBC’s market; the video is political and discusses the state of our democracy; and it creates a forum for people to participate in political conversations.  Use of the First Amendment is at its highest.  If the original poster of the video had to acquire a license from MSNBC before posting the video, then that probably would have simply prohibited him from doing so.  (He may actually need to under our current regime and is simply committing piracy.) Conclusion: we should limit the extent of copyright in order to facilitate such conversations.

But let’s reevaluate.  That video is posted on a seemingly very liberal website.  The hundreds of comments following are a chorus of people cheering the embarrassment and simply echoing each other.  The few people who disagree or challenge these statements are yelled at and are labeled “trolls” in order to diminish any contribution they may make.  It isn’t long before the commentators are calling Bush and these trolls “Nazis” and murderers.  Is Netanel right that more expression will mean more diversity of expression?  That may be, but the crucial question is who will be listening (or reading or watching).  As I mentioned in my first post, research tends to show the polarizing effects of the Internet.  People visit the blogs and news websites with which they agree.  This seems to be a result of the proliferation of content and not the lack of it. 

Barriers to entry

Copyright, then, may serve an important function as a barrier to entry.  It reduces this information overload by requiring the creator to think strongly about the value of the work he is creating.  Only those that are considered valuable will be created and distributed in the market.  There are of course some concerns here.  Is the creator in the best position to decide what will be valuable—especially socially?  Shouldn’t society as a whole decide—meaning let the creator create and then citizens can pick and choose.  I think the reality is that this is impossible.  There is so much information that picking and choosing becomes so difficult that people begin to use poor metrics.  In a market situation, the creator will likely consider economic value, but that value intrinsically incorporates the value to the consumer (social, political, moral, aesthetic, etc.).  Often, I think, the incentives will be aligned such that if people value these important social conversations, those types of works will be created. 

Netanel, and Professor Picker, noted that sometimes the creator cannot fully capture this social value, thus resulting in underproduction of valuable works below the social optimum.  First, I question the extent to which such social values are not already incorporated into the price.

Second, I don’t understand how limiting copyright resolves the problem.  Netanel wants to argue that limiting copyright will lower the price for the second creator to create thus fostering more creation that the consumer values but is unwilling to pay for.  He wants a transfer from the initial creator to the consumer.  But why wouldn’t the transfer end up being from the initial creator to the second creator?  The price of the license will be reduced (maybe to $0) but the second creator can maintain his market price and reap the benefits.  This will be especially true if these consumers have a very low price and simply want to be free riders.  Netanel describes them as those who “benefit from the ability of secondary authors to reformulate and challenge [] social meaning…even if [they] never personally purchase or even see the transformative work.” (p.162) If these people are unwilling to pay for these social benefits, lowering licensing fees will not do anything to expand output.  It will simply transfer income from the primary to the secondary creator.

A paternalistic balance

Netanel is in some ways self-contradictory.  He asserts that an explosion of diverse viewpoints from limiting copyright will foster good civic debates.  But he also notes that often the mass media determine people’s values and preferences.  People are highly influenced by these media forces.  It seems unlikely then that simply increasing the amount of creation—even mostly independent creation—will change the level of the debate if people will simply follow the tastes established by mass media.

This is a crucial concern.  Some paternalism is necessary if we believe people are not looking out for their best interests (or the best interests of society as a whole) over the long term.  People may not be very good at independently assessing the value of various works if (1) they are greatly affected by mass media propaganda; and (2) use inadequate metrics to sift through information.  But limiting copyright, for all the reasons I have noted, does not seem to be the answer.  More creation is unlikely to create more and better conversations.  In fact, copyright seems to serve an important function as a barrier to entry.

I would instead propose some sort of a creativity tax on major media conglomerates.  That revenue would go towards funding a small number of independent creations that would seemingly foster such debates.  There are probably millions of difficulties with this solution, but I will try to address a few here.

First is cost.  Would this system not be costly?  I don’t think it would be costlier than all the government activity Netanel advocates in Chapter 9—having courts set licensing fees and liability amounts, having Congress set up various central databases for all types of information, etc.  A tax is of course pretty cheap to implement and the grants to some creators probably would not be that expensive to implement.

The bigger concern, of course, is of government determining the political debate.  Should we be concerned about censorship?  How in the world would the government determine to whom to give such grants?  I don’t have simple responses to these problems.  I think there are ways to allay some concerns by cabining discretion.  There could be a congressionally approved rubric for all the requirements a project must meet.  Each project proposal could be made public similar to notice-and-comment procedures in agencies currently.  The administrator of the program would not be a political appointee.

The benefits are several.  First, we will not see proliferation of information that could end up overloading senses and actually harming the debate.  It will be a more controlled stream rather than a waterfall.  Second, this will be a subsidy that will fund projects that may not have been viable independently in the marketplace—presumably because of the free rider problem Netanel noted.  Some people may value democratic conversation but not be willing to pay for it.  Third, I think it would minimize disincentive effects on the initial creator.  Limiting copyright had a direct effect on the returns a creator expects from his creation.  A tax on these conglomerates averages out over all projects, therefore making it more difficult for them to allocate the costs to any single project.  It would certainly matter at the margins by reducing the return per project on some diluted basis, but I am not as concerned given how much creation there already is (and the increasingly cheaper ways to create).

Netanel on Volokh

Just a quick FYI.  Netanel has been blogging all this week on Volokh about Copyright's Pardox.  See: http://volokh.com/posts/chain_1210894412.shtml

Why Has Copyright Expanded?

Netanel's recent essay, Why Has Copyright Expanded? sheds some light on his views about the "Blackstonian" conception of copyright and Netanel's thoughts on moral rights' compatibility with free speech.

The first half of the essay documents the expansion of copyright and paracopyright over the last 12 years or so.

Then Netanel explores theoretical justifications behind more expansive copyrights.  He writes about moral rights arguments last and most sympathetically.  I think this section should be part of Copyright's Paradox, because "Blackstonian" and "moral rights" aren't defined well in the book.

Someone needs to take a bong hit and chill out.

Now that we're 2/3s of the way through Netanel's book, I'm tempted to offer some ideas for resolving the problems I see with the current Copyright regime vis-à-vis Free Speech.  Since we still haven't heard Netanel's solutions though, that might be a bit premature, so I'll focus instead on some of the issues Netanel hasn't.  I'd like to note though that I don't agree with Netanel on a lot.  In particular, I don't agree with the general way he's framed the issue in "the sky is falling" terms, and the way he uses positive examples of "Fair Use" success such as The Wind Done Gone as negatives at times.  Maybe this is just a rhetorical tool for him since the book seems to be more of an advocacy piece than scholarship (then again, maybe there's really no difference?). 

You're probably wondering what the deal is with the title of this post.  It's taken/copied/stolen/fairly-used from this post (via BoingBoing), but it could also be the title of Netanel's book. Carrie Brownstein has a blog over at NPR.org, and she's started posting streaming "mixes" of music. A few entire songs are posted in non-downloadable format, and Brownstein seeks permission from the record labels before posting (since posting the entire song probably doesn't count as fair use).  She hasn't run into any issues until she requested permission to post a Grateful Dead song.  She was told that she might be able to use the song if NPR did a piece on All Things Considered about the Grateful Dead tied to a piece on NPR.org.  It's not clear to me Brownstein has any say at all over what happens at All Things Considered.  Needless to say, the Dead didn't make the mix. 

Now, at first glance, this seems a lot like Jon Else's "Simpsons" scenario.  Most of the labels agreeing to Brownstein's post probably reasoned that they were gaining more from the transaction (free publicity, maybe someone will buy the song / CD) than not allowing the post.  The Grateful Dead's label was apparently only willing to allow the post with yet greater publicity.  As Brownstein notes, this doesn't make sense.  The posting would presumably confer only a benefit on the Grateful Dead's label… yet the label refused.  What's going on here?  One way to look at it is that the Grateful Dead, being more popular, would only gain a marginal benefit from the transaction relative to the other bands.  Perhaps the Greatful Dead are better off creating scarcity in public displays of the work so that they can extract a higher premium (ala a feature on All Things Considered) when they do get played.   Or, perhaps this is the "winner take all" scenario Max describes at work.  Or maybe, as Netanel suggests, it's somehow the abuse of market power in a particularly popular work.  I honestly don't know which line to buy, so I'm guessing it's a little bit from column A), B) and C).  Also, I wonder to what extent statutory damages play a role in enabling the extraction of supra-competitive rents rather then the winner-take-all / cross subsidization scenario. 

The Role of Damages

In all the discussion of Copyright economics, I was surprised that a discussion of damages didn't play a more dominant role.  I haven't take Copyright yet, and I imagine Prof. Picker knows a lot about this, but I really wonder to what extent the threat of statutory damages warp licensing agreements.   Damages are supposed to ideally make the infringing party no better off, and the infringed party no worse off.  But the Copyright Act offers Statutory Damages between $750 - $30,000 per infringing copy (up to $150,000 if willfully). 

I imagine the threat of such damages are what primarily lead to the "clearance culture" that forced Jon Else to scrap the "Simpsons".  Jon Else's use was probably most clearly Fair Use, but errors and omissions insurance required that he scrap it.  Presumably someone at the insurance company has conducted a risk analysis and decided that even in a case with such a clear fair use, the threat of damages in an unlikely finding of infringement is so great as to not warrant the risk.

This likely wouldn't be the result under a regime that allowed damages that were more compensatory / ideal in nature.  Without the threat of statutory damages, it's likely that error and omissions insurance wouldn't be so averse to letting fair use fly.  Similarly, Fox might be more willing to license the Simpsons at a lower rate, knowing that they have no great windfall if the user goes ahead and infringes. 

Yet, as I bash Statutory Damages, I can't deny they play an important role in creating disincentives for wholesale pirates.  Piracy can often be hard to detect, so damages need to be higher in order to deter.  I think both forms of damages can be reconciled in a regime that imposes statutory damages on wholesale market-stealing pirates, while offering more economically sound damages in cases like Jon Else (where detection isn't so much a problem).

Fair Use Instead of Licensing

As I said before, I think Jon Else's use was a fair use, and under current law you don't need any license for fair use.  However, per our discussion last week there seems to be a willingness to do away with fair use under the presumption that licensing and the price system can account for fair uses.  After class, Prof. Picker showed how that might not always be true given the external "social value" that can often accompany fair uses.  I think the damages issue might also warp licensing in cases of "fair use". 

I'd like to make another argument in defense of no-license fair use.  The Copyright system is created by government to foster creativity, expression, reward authors, prevent free riding, etc.   Fair Use is likewise created by government to promote other social goods: freedom of expression™, criticism, education, etc.   While I lack any empirical data, I can't help but think that most fair uses of works deal with very low-valued uses, the licensing of which involves relatively high transaction costs, even in our computerized era.  Fair Use eliminates those costs, and I guess indirectly subsidizes Fair Uses.  I see nothing wrong with this, the government also subsidizes Copyright on the other side with criminal enforcement and the Copyright Office.

Has Copyright Law Become Un-American?

This is a slightly random sidebar, but many of the "anti-speech" changes to Copyright that have taken place since the 70's have been made to more closely comply with European notions of Copyright embodied in the Berne convention.  These changes have seen the extension of copyright terms, the end of formalities and renewal requirements, and even the limited introduction of moral rights in the united states (via VARA). 

Although Netanel mentions in Chapter 4 of technical content protection mechanisms (or DRMs) that greatly extend the copyright holder’s rights beyond the rights given by the Copyright Act, I was slightly disappointed with his subsequent over-emphasis on DMCA because I believe that the technological developments that are being spearheaded by industry consortiums has a potential of imposing even greater burdens on free speech than the burdens noted in Chapter 6. Of course this point is not a new one and has been brought up by various commentators but I wish Netanel had spent a little more space in his book discussing this point and addressing this problem in his subsequent chapters. 

The problems of DRMs have been extensively discussed by other commentators and I don’t think I have much to contribute to that discussion.  Netanel does note the problem of DRMs by stating that “given those technological controls, it will not be possible to cut and past images and sounds from culturally salient expression to create artistic collage, video mix, machinima, political commentary, fan fiction, or even grade school research projects.” He, however, quickly proceed into discussing DMCA and his analysis goes as follows: (1) if there are technical restrictions, you could break the restrictions, (2) but DMCA prohibits even legitimate hacking for legitimate situations, (3) therefore “most people will be unable to obtain the tools they need to circumvent technological protection measures in order to engage in fair use or other noninfringing copying.”  My point is that, it is increasing likely that people will not be even able to progress beyond the first stage, i.e., the public will simply be unable to bypass the technical restrictions and consequently the public’s fair-use rights may be severely eroded by DRM systems. 

Some industry observers somewhat flippantly dismiss the this problem by claiming that the industry can not create a perfect DRM system and arguing that all technological restrictions will eventually be defeated.  It is true that historically hackers have been winning the battle against the industry. Most DRM systems have been broken, some almost immediately after the system had been introduced, and some almost with trivial effort by the hackers. I do not believe that this trend will continue on in the future.  First, companies have become far more sophisticated in designing DRMs and have learned from previous mistakes. (for example, DTCP/IP (Digital Transmission Content Protection over Internet Protocol) specification even has a provision on number of transmission “hops” that a media content may go through, which means if such specification is adopted, sharing content between computers or devices within a single home may be prohibited) Second, as consumer electronics gets more powerful technological, it will be easier to implement more sophisticated systems in them (for example, some of the televisions that are being sold right now probably have more computation power than personal computers that we used couple years ago).  Finally, there is much greater pressure exerted to the consumer electronics companies by the media industry to develop better DRM system.  Previously, media industry didn’t care too much about what consumer electronics companies did.  And for the most part, consumer electronics companies manufactured products that made it easy to copy content because that is what consumers wanted. This is not the case anymore. Media companies have become more active participants in industry consortiums and will kill any standards that they believe don’t provide that sufficient protection.  Also, consumer electronics companies are liable to large multi-million dollar fines if their device is found to have a defect that allows a hacker to bypass the DRM system, which gives tremendous incentive for the consumer electronics companies to lock down their products as much as possible. 

This problem is compounded by the emergence of industry consortiums.  The public will not be able to opt out of the system because the all consumer electronics will include (onerous) restrictions.  Therefore the market will fail to put any limitations on the restrictions.  For example, HDMI, which is rapidly becoming a dominant standard in interfacing digital media devices, was developed primarily to plug in the analog hole, where a person is able to duplicate a digital content by playing the content over an analog channel, by passing any DRM mechanism that may be present in the digital player. [Think of copying a DVD movie by connecting the DVD player to a VHS player, or connecting an iPod back to a recording device through a regular audio player.]  Other examples include Digital Flag in DTVs, BluRay/DVD, etc.  [Of course there are counter-examples in DRM-free music].  The problems noted by Netanel, such as barrier to entry, problems of vertical integration, becomes much more problematic.  I think in this light, Netanel’s antitrust analysis gets more bite.  Industry consortiums have been discussed by commentators and potential antitrust problem arising out of them.  Some commentators have focused on issue of patents arising out of consortium but I think the analysis from patents can be easily transferred to copyright. 

So what happens to Netanel’s argument for compulsory licensing?  I don’t think compulsory licensing will solve this problem is any way.  Even if I can license something from you, it will be meaningless unless I have the means of using that license.  I think a preferable way would be to create a clear statutory right to fair use and require that any digital system uphold those rights. 

I think a more interesting question is of the similarities and dissimilarities between copyright and patents.  While both are intellectual property there are substantial differences in the regulatory approaches.  At the same time, there are many areas where each could borrow from each other, such as maintenance fees (I think someone mentioned a similar idea in the previous class), compulsory licensing and reasonable royalties in the patent field.  I also find it interesting that the Supreme Court has somewhat moved away from strong property rights in patents in eBay while moving towards stronger property rights in copyright in Eldred (kind of, I know that the holding in both cases is not directly on point but I am talking more general treatment by the courts).

License Pricing, Content Diversity, and the Value of the Little Guy

I am not an emoticon person. They are almost without fail cheesy and reductive. That said, throughout Chapter Six of “Copyright’s Paradox,” I drew little frowny faces in the margin to denote where Netanel was pushing his sob story of the little guy on us the hardest. The documentarian Jon Else, unable to use The Simpsons, came up every other page. Poor Else. Who suffers when copyright holders charge whatever they want? Big companies don’t suffer, someone Else suffers. It could be you. It could be all of us! (Hard to believe this providential eponymy escaped the author, right?)

This post will focus on Chapter Six, free speech, and issues of pricing copyright usage. I do not argue that Netanel’s call to arms or policy position is wrong in a normative sense, but I believe the premises on which he relies are empirically false, that his hand-waving and lip-service in the neighborhood of economic analysis are far from thorough, and that while he happily monetizes the predatory nature and disadvantages of oligopoly power in copyrighted materials, he presumes without valuation that the speech of the independent artist ought to be furthered at the expense of the current copyright holder (relative to their profits if they set their own licensing fee). To be clear, this post will make me sound like I favor the status quo, and that I do not. It simply seems to me that Netanel wants to change the rules for copyright in a way that will drastically affect the calculus of content producers and that rather than admit his vision will change production, he claims big companies will continue to act as they do now and we will simply gain the benefit of new speakers at the lower end of the economic spectrum. That cannot be so.

Making Hits

Let’s say you step up to a roulette table in Vegas. If you put your money down on a single number, the payout is 35 to 1. The allure of roulette is that you can hit a big payoff relative to your investment. The winner-take-all structure in fields that sell creative expression is, loosely, similar: you expect to lose most of the time, but every once in a while, you’ll get a big hit. (p. 132) Think of an entertainment industry, say film (where 5% of film earns about 85% of all profit), as high stakes roulette (except film has better expected value per dollar invested, we assume). Now, imagine you were considering playing roulette and someone named Neil came along and told you “Part of the payout for a hit will be taken away; you’ll now get 32 to 1 on a hit, but don’t worry, the three dollar difference is going to subsidize the poor roulette players’ bets.” Wouldn’t that make you less likely to sit down and play roulette and more likely take your money and find another game with the same expected value as roulette had before (35 to 1 for a hit)? This seems obvious to us, and yet, as we will see below, it is precisely what Netanel denies.

Profits, Viewpoint Diversity, and Empirical Considerations

In his “Risk and Rent” section, Netanel claims 1) that the risk multiplier and high rent “greatly [] overstate the true competitive price benchmark” and 2) that “major, mass media copyright industries... manage risk without need of significant excess profits on successful works.” (p. 135) He backs up the first claim by telling us that “media conglomerates generally earn profits of up to 20 percent,” leaps and bounds ahead of industrial corporations, retailers, and the oil companies. I suppose that’s why everyone would rather invest in media than oil: it has better returns and is lower risk. In fact, I hear President Bush is considering invading India to gain control of Bollywood.

Moving on, Netanel supports his second claim by going to the whip and insisting that media companies never produce anything new and that more money in their hands necessarily means the promulgation of less diverse works. (p. 137) This is one of his claims which I believe is simply empirically wrong. For example, over the last 20 years, and particularly over the last 5, major movie studios have used their money to bid record prices on completed non-studio films at Sundance, Cannes, etc.  The winner-take-all system means that the studio that buys “Blair Witch” or “Little Miss Sunshine” as a completed product is in great shape.

Further, if all the other texts we’ve read are right, the internet and increased availability of media results in specialization of interests. To put it in Netanel’s terms, while media goods are “solidarity goods” that have added value where more people consume them, they are also “associative goods” that have value because they are consumed by the right people. (p. 133) That is, it is important to me that I am NOT be in the group of people to see the last Michael Bay movie (Transformers) and AM in the group to see the last Coen Brothers movie (No Country for Old Men). The market is too smart to, as Netanel flatly puts it, “narrow public discourse” and “appeal to the lowest common denominator of the consumer public.” (p. 145) Certainly we see that, but it doesn’t always work (for example, Chevy focus grouped their new line of cars a few years ago and 80% of respondents liked them but few people loved them, and the cars sold very, very poorly), and the lowest common denominator productions are supplemented by investment in specialty fields (because in many industries, the highest returns are on things people love rather than merely tolerate in the background like muzak). This is why record labels like Universal Music Group buy up and maintain specialty labels like Interscope, which in turn owns Shady records, which in turn owns G-Unit records, etc. This kind of specialization undermines Netanel’s account, which would suggest that media conglomerates create only cookie cutter products. Henry Ford said the customer can have a car in “any color he wants so long as it’s black.” Netanel’s account suggests the customer can have any media he wants as long as it “appeal[s] to the lowest common denominator of the consumer public,” and I think that account is woefully flat-footed.

The account I give suggests that mainstream success helps pay for specialty studios and their distribution (Weinstein Company, Warner Independent, etc.) and vis-versa. The point of buying a lot of lottery tickets is to reduce volatility in returns. In a winner-take-all system, owning multiple specialty items that can dominate even a niche market is doing exactly that (or, best case scenario, specialty items that might have cross-over appeal and make it into the mainstream, e.g. “March of the Penguins”). To suggest, as Netanel does, that an oligopoly of corporate speakers results in a lack of viewpoint diversity is not as obvious or strong a point as he apparently takes it to be. Besides if Netanel’s right and major producers are currently afraid to deviate from the mainstream, wouldn’t that mean that they would become more conservative and produce even fewer specialty items if he took away their right to charge high licensing fees?

Monetizing Evil Profiteers and Valuing Independent Speakers

Netanel argues that free speech considerations are foundational in copyright law and that market analysis cannot be executed in the purely quantitative fantasy world of economic textbooks. Rather, he says, “value judgments about the types and mix of expression and speakers we want our copyright system to foster” are built into any economic analysis of expression and copyright. (p. 128) His systematic valuation of expressive speech as an unquantifiable good, however, dismisses the foundational economic considerations in copyright law. While he takes note of market issues, he ignores them and presumes a small-time documentarian’s free speech as a self-explicatory good that practically outweighs the preexisting expression it wishes to include in the first place (The Simpsons). 

Not all speech is equally valuable, Netanel reminds us. The Supreme Court has told us that obscenity, commercial speech, etc. are not on the same footing with political expression, journalism, and things of that nature. There is, in fact, a way to value speech at least insofar as this kind is more important than that kind to public discourse. When we enter a world of artistic speech, Netanel is concerned with protecting the little guy. But the purpose of copyright is to incentivize the generation of creative works. Netanel claims that Fox is more than adequately compensated for its creation (The Simpsons) without its $10,000 flat-rate licensing fee. I agree that Fox is making plenty of money, but I don’t accept Netanel’s conclusion (or presumption, sometimes I can’t tell) that Fox isn’t counting on that money as part of the winner-take-all system in which they participate. Netanel seems interested in leveling the playing field, but it feels more like he wants to rewrite the rulebook: homeruns are now worth less, power hitters should swing for average, box office megahits should give way to arthouse films, etc., etc.

Again, I understand his worries, but at the same time, the largest film studios and record companies (and micro-budget documentary filmmakers and smalltime artists) all do what they do, in part, because of the lottery-ticket potential of any given creation. To say that the lotto winner must (effectively) subsidize likely future losers (by not maximizing profits from their copyright) drives away potential investors and creators. And it is this fact that he seems to me to underestimate. Netanel looks to and rightly dismisses historical cost and average price per unit, but he then inadequately considers “normal profits” from some “‘typical’ alternative venture.” (p. 127) For those of you who took Network Industries, you’ll remember the problems this kind of pricing got us into (see Southwestern Bell, Hope Gas, and Duquesne). It’s a messy balancing of considerations that can become Three Card Monte. I’m not saying Netanel is wrong to try to figure out a measure of appropriate price rather than letting copyright holders set their own, I’m just saying that it’s more difficult than I’ve seen him admit thus far and that in the face of that difficulty he would rather trash the current system to facilitate the use of a Simpsons clip in the background of a documentary than make slow steps toward some slight cabining of copyright. And who will get down to the nitty-gritty and try to set the price in the trenches? Maybe Netanel hopes it will be someone Else.

 

Compulsory licensing is not the answer

Compulsory licensing of copyrighted works seems like a great middle ground between allowing authors to receive compensation for use of their works and granting the maximum amount of access to copyrighted works. In Chapter 6 of his book, Netanel outlines one proposal for compulsory licensing, including a scheme to reach a fair competitive price for licenses, while still accounting for the risk that studios and other authors take when investing time and money into creating a work. Though compulsory licensing is often touted as a more efficient and fairer alternative to private negotiation, it is unclear if such a system would really be either more efficient or fairer.

Efficiency

As Sarah points out in her post, there are several questions surrounding Netanel’s proposed compulsory licensing scheme. Before reaching questions of administrability or practicability, however, it is worth considering the more baseline question of whether compulsory licensing will be a more efficient or cheaper alternative to individual private negotiations.

Without compulsory licensing, as Netanel points out, people who want to use a copyrighted work have to negotiate individuals with the copyright holder. In some cases, multiple parties might hold copyrights to various parts of the work, making this process arduous, time-consuming, and potentially costly. A system that allowed for parties to avoid this process could be helpful it was faster and cheaper.

The alternative proposal Netanel mentions in his book, however, would require people interested in a license to litigate their claim in order to obtain the compulsory license. Litigation, as we know, is rarely fast or cheap. Dan’s anecdote from his professor illustrates this point well. Even with modifications to the copyright system, it is likely that any copyright litigation would involve months of fact-finding, expert debate and wrangling over profits and market power. Sarah’s post explains some of the specific problems that might arise in a typical case litigated under Netanel’s proposal. Is market power measured with respect to a parent company and all its subsidiaries? Are profits measured with respect to a parent company and all its subsidiaries? What about determining risk? Even if standards for these questions were developed through litigation over time, the questions would be at issue in each and every case because copyright cases are so fact-specific. While the ultimate judicial determination might be easy to abide by, getting to that determination is likely to be extremely costly and time-intensive.

Moreover, even if litigation was just as fast as individual negotiation, it is likely that some parties might attempt to privately negotiate at first anyway. Litigation is often uncertain, and parties seeking the use of copyrighted works might decide that it makes sense to attempt a private negotiation before resorting to a judicial remedy. Then, if private negotiation fails, the party might turn to the courts for a mandated license. It is not clear that litigation would result in an affordable price for the licensee (or a price that was acceptable to the licensor), however. If the goal of compulsory licenses is to allow greater use of copyrighted works, but a judge decides the fair or competitive price is at a level that is still too high for the potential licensee to meet, then the compulsory license system is not much better than the private negotiation system. Of course, we might think that having a judge decide the competitive price is “fairer”, and that therefore potential licensees will feel better about not being able to obtain a license, but this does not decide the compulsory license question.

Further, it is questionable as to whether a judge-mandated price for a license would be more efficient than a price negotiated by the parties. Individual parties to a negotiation will probably know the market for their works better than a judge will. Judges can hear testimony on industry operations, but will not be able to understand them as well as the parties can. Additionally, in cases like that of Jon Else versus Fox, Fox obviously will have the money advantage during litigation. This money advantage may translate into one-sided litigation, in which judgments will not be any different than outcomes in private negotiation.

Another related problem is the precedential effect of judicial decisions. Would a decision in one case influence other cases involving repeat players or similar players? How often would judges deviate from previous decisions? Prices and markets change as time goes on, so if judges stuck to previously decided license fees, it could result in problems. Would judges take into account the license seeker’s type of work? That is, once a judge decides that the competitive price for Else using The Simpsons in his documentary is X, would the same price be applied to a director wanting to use a portion of The Simpsons in a more commercial movie or a television show or a book or a song? These markets are very different, but it is possible that through a compulsory license system, the price would be set the same for each market, though it would not have been through private negotiation. Moreover, the fact that the first case might have important precedential value means studios or other conglomerates defending against a license seeker would have incentives to throw as much money at that case as possible in order to obtain a favorable judgment. This could deter smaller license seekers, who would rather wait for someone else to try the case and see the results instead of litigating themselves.

Fairness

One of the benefits of a compulsory license system that is often touted is that it will be fairer. That is, because a judge sets the license price, parties can be confident that the copyright holder is not exploiting market power to censor speech. As discussed above, though, there are questions as to whether the license price decided by a judge would be accurate. Indeed, as Sarah mentions, it is hard to know what a fair price is for licensing The Simpsons. Most would agree that $10,000 is probably too high for Else’s proposed use, but that does not mean it is clear what a fair price is. A lower price, such as $1000 might seem fairer, but that does not necessarily mean Else could afford it or would pay it.

Another consideration that often gets dismissed in these discussions is fairness to the copyright holders. Although we usually dismiss moral rights concerns—because, after all, if the author is compensated for the use of his work, then it must be fair—Netanel lists a few examples in his book of artists that refuse to license their work for any amount of money. John Densmore refused a $15 million offer to license one of his songs for a commercial. (p. 48). Most would agree that $15 million is probably much more than a competitive price for one song, but clearly, for some authors, compulsory licensing will never be able to compensate them for their work. Perhaps this is not a large concern because we do not think that authors should ever be able to prevent certain speech by refusing to license. But, certainly there are some situations in which would not think it is fair to force an author to license his or her product—politicians wanting to use a musician’s song as a campaign theme song, for example. Netanel mentions that people probably would not take this to mean that the musician is endorsing the politician, particularly if we had extensive compulsory licensing, but I am not so sure. The larger point here is that maybe the musician should be able to make sure that his or her work is not used to support people or causes he or she disagrees with. The compulsory license system might seem fairer because it involves third parties making pricing decisions, but the machinations of such a system are like to result in decisions that are not fair to the copyright holders or the license seekers.

The Dismal Copyright Paradox

In Chapter 6, Netanel goes through an economic explanation of why copyright holders’ behavior causes speech-stifling effects. He starts by explaining that copyright holders don’t appear to have a direct censorial motive but demand licensing fees that make it prohibitively expensive for the would-be speaker to obtain a license. Netanel concludes that prohibitive licensing fees are often properly understood as an “intolerable speech burden.” He supports this conclusion by exploring a copyright holder’s market power. He states that a copyright holder profits from its market power by charging supracompetitive prices. This behavior, allowed by copyright law, creates an artificial scarcity in existing expression that results in the deadweight loss characteristic of monopolies. He further notes that a copyright holder cannot price licenses at marginal cost, because then it would never recover its fixed costs. He then discusses factors that allow supracompetitive licensing fees such as weak firm competition and a dearth of substitutes for the copyrighted work.

My first reaction at the end of this discussion was, what about discriminatory pricing? Netanel talks about supracompetitive pricing as if it is the most profitable pricing structure for firms, but in fact, discriminatory pricing brings a firm even more profit, as it allows the firm to extract all of the surplus from the transactions. Under discriminatory pricing, a firm charges different consumers different prices for the good, depending on their individual willingness to pay. The firm benefits because it is able to charge higher prices to consumers with a high willingness to pay without losing the consumers with a lower willingess to pay who would not buy the good at that higher price. With supracompetitive pricing, a firm may get a larger overall profit than with marginal cost pricing, but it loses the consumers who are willing to pay more than the marginal cost of the good but not the supracompetitive price. These lost purchases make up the deadweight loss. Discriminatory pricing is not economically inefficient like monopoly pricing because there is no deadweight loss. The consumers with the lower willingess to pay are also accommodated and able to buy the good. People may have distributive issues with discriminatory pricing, believing that it is “bad” that the producers get to reap the entire surplus, but there is no efficiency problem. Discriminatory pricing would avoid the “intolerable speech burden” Netanel is worried about, because people like Else would get their license at the price they were willing to pay, as long as it was above marginal cost, which assumedly it would be, since licenses have such a low marginal cost.

People who are not familiar with the idea of discriminatory pricing may be asking why all producers don’t price discriminate if it allows for the largest profit. The reason is, most producers do not have a mechanism to sort consumers by their willingness to pay, and therefore must charge a single price. Usually, only the consumer knows his willingness to pay. Some markets have consumer purchasing patterns that allow sellers to roughly discern consumers willingness to pay. A commonly cited example is air travel. Many leisure travelers have the flexibility to plan their trips in advance. In contrast, business travelers often have to purchase their tickets near to the date of travel. Therefore, airlines price discriminate between the two groups by charging higher prices the closer the purchasing date is to the date of the flight. Getting back to copyright, it seems like large copyright owners like Fox have the ability to charge different prices to different would be licensees based on their willingness to pay. Each licensee must approach Fox about licensing the work. Fox can ask the licensee for what purpose it wants to license the copyrighted work and do a quick background check on the licensee. In Else’s case, upon hearing that Else was going to use the Simpson’s clip for a documentary with a small budget and limited distribution, why didn’t Fox charge $500, or something else it thought Else could pay? Then Else would have paid for the license to the clip, and Fox would have gotten that profit. When a producer of a projected blockbuster with a large budget, funded by a major studio approached Fox to license a clip from The Simpsons, Fox is still free to charge the studio $10,000. Sure, basic questions such as (1) use of the license in a new work (2) budget of the new work and (3) scope of distribution of the new work are not going to suss out perfectly each would-be licensee’s ability to pay, but they seem to serve as fairly effective proxies. Additionally, such simple questions do not appear to create transaction costs that make them impossible as a price discrimination mechanism. After all, Fox already had to communicate individually with Else.

So why didn’t Fox price discriminate and allow Else to pay a lower price for the license, instead of maintaining that it always charges $10,000 for such a use and would not negotiate. Netanel claims that he didn’t believe that copyright holders like Fox have a speech censorial motive. The Else case does not appear similar to the Wind Done Gone situation where the copyright holder objected to the use of the copyrighted material, believing it distorted the message of the work, or lowered its value. Nor does it have face transaction problems inherent in the music industry where licensing is centralized under a middleman like ASCAP who does not want to individually negotiate a price for each work, perhaps because of the sheer number of licenses it works with. Netanel does not describe a copyright law that mandates that all copyright licenses be the same price, and I am not aware of one. Finally, I doubt Fox was releasing a work that would compete with a documentary as esoteric as one covering the behind the scenes action in operas. Therefore, it is unlikely it was charging a prohibitively high licensing fee to stifle competition.

Perhaps I’m wrong, and the transaction costs of asking would-be licensees questions are too high to make discriminatory pricing worth it. Or, perhaps Fox has no way to verify these claims, or put them in as important representations in the licensing contract, so the licensee cannot lie about them. In that case, those basic questions would not serve as a mechanism allowing discriminatory pricing. However, it is possible that the licensing situation is more complex than Netanel presents it using basic economic explanations. Not only are there the unconsidered pitfalls of using the economic analysis as justification for a compulsory licensing system based on the copyrighted works’ “fair market value,” as Sarah describes in her post, it’s not even clear that the economic analysis behind this potential solution is fully correct in the first place.

Valuing Copyright

In Chapters 4 through 6, Netanel outlines the history of copyright from the founding until the present day and suggests that copyright as currently constituted is anything but an “engine of free expression.” He argues that the treatment of copyright as a property interest has led to a system rife with free speech abuses, and lays out an initial proposal for determining the appropriate value of a license in a copyrighted work. While I am sympathetic to some of the problems that Netanel is seeking to address, I am skeptical about the workability of his proposed valuation scheme.

How Broken Is The Copyright Regime?

While this section of the book is still obviously influenced in parts by some of the biases that we discussed in class, overall it offers a more even-handed treatment of some of the most severe copyright issues. For example, Netanel points out that he is not advocating a system in which anyone can use any copyrighted work for anything they want, but rather is only proposing that we should consider how we can curb some of the worst abuses perpetrated within the current system of copyright. While I appreciated his recognition that the desire of an individual for self-expression cannot be the absolute and only priority of a copyright regime, I found myself wondering again how prevalent the abuses that he describes are. He asserts that the anecdotal cases that he references are “typical,” but it is unclear to me whether these anecdotes are a relatively small number in the whole universe of potential copyright cases, or if copyright enforcement is in fact leading disproportionately to abuse (p. 113). While I realize empirical evidence of this type would be hard to come by given that the copyright universe is so large, I think that it would be helpful in determining whether the system is fundamentally broken, or whether we are simply seeing are isolated instances of overzealous copyright-holders.

Valuing A Copyright License

I think that Netanel’s proposal in Chapter 6 for placing value on copyright licenses is an interesting one. On its face, it appears fairly sound – it accounts for market power and, in the case of large media conglomerates, does not seek to price the copyright without considering that the value of a single copyright will frequently be dependent on a company’s entire copyright portfolio. (For every hit, a studio has also financed many misses.) However, I thought that Netanel glossed over several potential complications that would make such a scheme less straightforward than it initially seems.

First, particularly in the case of large media conglomerates, I am curious to know how far Netanal would want to cast the “net” in terms of determining market power and the extent to which a company has invested in copyrighted works. I am thinking specifically of a situation where you have several sister companies held by a parent company that has input in its business operations – would the market inquiry be extended to all involved companies? On a related note, most large media companies’ operations are diversified such that profits are derived both from  a huge number of sources. Could this valuation really adequately account for the balancing and cost-benefit analysis undertaken by each company with respect to any given copyrighted work as a small part of the totality of its business?

The above are just several question of practicality, but the scheme suggested by Netanel has an even greater potential practical flaw – that of administrability. Even if Netanel (or anyone) were to answer the above questions and flesh out a fully operational scheme for valuing copyright licenses, is this really the kind of scheme that we think judges will be capable of administering? I am currently taking Antitrust, and one thing that is quite clear from the cases that we have been reading is that judges frequently misunderstand the concepts of market power or the relevant market for a good. Netanel’s pricing scheme seems fairly fact and labor-intensive, which on the one hand might be quite good, because it could result in more accurate pricing than a less fine-grained system. On the other hand, I have grave doubts about the ability of judges across the board to be able to undertake the kind of technical analysis that would be required to produce the “right” answer under this scheme.

Unconsidered Pitfalls?

I imagine that Netanel will flesh out some of the issues that I raise as we move through the final chapters of the book, so it is possible that he will cover some of the pitfalls of a new copyright regime that currently seem to be unconsidered. Chief among these is what the practical effect of a compulsory licensing scheme would be. An initial reading of Chapter 6 would suggest that a copyright license would be priced without regard for the license-seeker’s ability to pay. Netanel suggests that the “fair market value” for licensing “The Simpsons” might be $5,000 instead of $10,000. Taking this hypothetical as true, do we think this decrease in pricing would have changed much for the independent filmmaker in question? Yes, $5,000 is less than $10,000, but does is this new “market” price really attainable for a film on a shoestring budget? If the filmmaker can pay with the new $5,000 discount, than his problem is solved.

However, I found myself wondering what Netanel would suggest as a solution if the $5,000 market price was still too steep. The way I see it, there are basically two possible reactions. The first would be one that says, well, it is too bad the filmmaker cannot pay, but at least we know that the license is being priced fairly, and therefore he is not being deprived of his free speech rights unfairly. The other reaction would be something like: the fact that the license is still out of reach for this filmmaker means that there is something fundamentally wrong with the system, and that we should not allow him to be priced out of the market. Essentially, I wonder whether a move to a market-based evaluation of licensing fees would ultimately be that much better for the small players and individuals out there.

If, as I suspect is the case, we would get frequent situations where individuals would still be priced out of using the most popular copyrighted works, and judges are in the business of making individualized determinations about the specific value of a single copyright, I wonder whether we would see a move towards licensee-based pricing. In my opinion, such a system would be fairly problematic because the value to an individual of gaining a license in a successful copyright will almost certainly always be far greater than the proportional value of a large player maintaining control of that copyright.

Conclusion

Of course, we know that judges are already making all kinds of individualized determinations with respect to copyright when it comes to things like fair use, so it might well be the case that a new system would not ultimately change the balance all the much. However, I am skeptical of any compulsory licensing system that might push in the direction of licensee-based pricing, because I think it would reduce the value of copyright too completely. And, as Netanel points out, we are not trying to do away with copyright entirely – copyright still is an important factor in encouraging creation and expression – we are just trying to find the best balance on our way to that goal.

Who you gonna call

Muddy Waters and muddy waters

 

 Given our interesting discussion about the value of appropriation last week, especially as it relates to parody and fair use, the Creative Appropriation section (p 58–66) of Chapter Four seems like a good starting point. I’m completely on board with Netanel that 1) creative appropriation is a valuable (and intrinsic?) part of artistic expression (see Kathy’s post last week for some good modern art examples); and 2) that the current legal tests are woefully inadequate, focusing entirely on the appropriation itself rather than the amount of alteration or value added by the subsequent user. I’m more interested in point 2), but point 1) is well-illustrated by musical evolution over time (see the section title). Even if current popular music sometimes seems like a race to the bottom, there is no doubting that current musical genres piggyback off of older forms.

 

For point 2), I’ll begin with an anecdote. One of my favorite philosophy professors in college was, in his past life, an entertainment lawyer in Los Angeles--“babysitter to the stars,” as he put it. His very first case as an associate was a high profile one: defending Roy Parker Jr’s “Ghostbusters” theme song against an infringement suit by Huey Lewis for the similarity to his song “I Want a New Drug.” To be fair, there was a good case there, as the following clips indicate:

 

 

In addition, the producers of Ghostbusters had contacted Huey Lewis prior to hiring Parker, so there were not prohibitive transaction costs for licensing in that case. But what was striking was the professor’s story of how they prepared for litigation (though they eventually settled out of court). They spent several weeks bringing in expert “musicologists” (as well as Stevie Wonder!) to break down the two songs note by note and point out all the differences. They also basically “focus tested” the songs by playing them for other associates in the office, family members, etc. I’m sure that led them to settle, given the obvious similarities, but apparently this was standard operating procedure for all infringement cases of this type. He also worked on hip hop cases where sampling was an issue, and he talked about how they would measure the sample length to the nearest tenth of a second, because apparently that was legally relevant. His overall point in telling these stories, and my point in relating them, is that the current test is a theater of the absurd in practice, and entirely divorced from protecting creation incentives.

 

Some amount of the above nonsense is inevitable in high-stakes litigation, but courts could help by expanding fair use. My own biases about the value of appropriation probably align with Netanel’s, but looking at market impact more concretely instead of invoking “the bare possibility of licensing in potential markets” is a start. A more controversial proposal is to put the burden on plaintiffs to show that the allegedly infringing work is not fair use. As an affirmative defense, fair use does not do enough to protect against chilling of speech, since it is relatively costless for copyright holders to send cease and desist letters or take other initial steps to prevent infringement (see 113 for some examples), and many appropriators don’t have the resources or inclination for protracted litigation. An obvious problem with this approach is that the alleged infringer is in a much better position to argue about the fair use value of her work than the original copyright holder. This approach would thus increase information costs for copyright holders seeking to shut down infringing works. As an empirical matter, it is hard to know if these increased costs are outweighed by additional speech benefits. And as noted last time, the actual value of “more speech” in itself is unclear.    

 

Copyright as Censorship

 

I’m a little less on board with Netanel’s discussion in Chapter 6 of copyright as a tool to silence speech. Though I understand his point, the problem, as others noted last week, is his lack of a coherent theory about free speech and First Amendment guarantees. But he does make an important point about the power of risk-aversion to give copyright holders’ threats of legal action incredible “stickiness” (also note the misaligned incentives of intermediaries like ISPs with their consumers). The point about documentary filmmakers editing under the supervision of insurance carriers is a funny image, but somewhat pathetic too.

 

Of course, it is much easier to say there is a problem with the current system than it is to present a workable fix. Hopefully the final few chapters of the book will present some interesting suggestions. For right now, however, I’m finding myself more aligned with Nathan’s view that changing technological circumstances and pressures will force copyright into a “constitutional moment.” As I mentioned in class, perhaps our concern should be about making sure that when such a moment does arrive, the discussion is not dominated by the current copyright holders. 

Free Speech vs Consumer Welfare

The middle part of Netanel’s book dives right in to the economics of copyright law and how they relate to the “marketplace of ideas”. Overall, Professor Netanel’ does an adequate job explaining how and why the copyright system ensures that copyright owners are compensated for their creative efforts. In his analysis, however, Natanel blurs the line between copyright law and antitrust law. Two features in particular stood out to me: his arguments for a type of pseudo-essential facilities doctrine and his attack on vertical integration in the media markets.

New Copyright Law or Extending the Essential Facilities Doctrine?

In Chapter 6, Netanel embarks on the economic analysis of copyright law and how its burdens on free speech are distributed. In doing so, he draws from the language of antitrust, explaining how copyrights can be used to create an “artificial scarcity” that enables its owners to charge supracompetitive licensing fees (p 123). Netanel’s provides a fairly solid analysis of the zero-marginal cost dilemma posed by markets for intellectual property (p 125). He acknowledges that marginal cost pricing schemes, while theoretically eliminating the deadweight loss, would actually prevent some works from ever being created in the first place because their creators could never recover their high first-copy costs. (p 125). Moreover, Netanel does an admirable job explaining how the inherent risks that studios, production companies and record labels face in creating new content may require even high licensing fees for commercial successes to offset the financial losses of failures (p 126). This analysis touches on the point that Mike made last week about how we may need to take into account the special circumstances of the economics of the film industry before revamping the entire system in favor of weakening copyright.

Where things get interesting is when Netanel purportedly disavows that he is proceeding under the rubric of an antitrust analysis (130). He claims that his arguments are grounded in his concern for speech and that in certain instances, we should be less tolerant over a particular copyright holder’s power over price than we would under a traditional antitrust rubric (130). Proceeding along these lines, Netanel makes his case that for certain iconic works such as the Simpsons and Gone with the Wind, there are insufficient substitutes for individual users to chose from in creating their own content for which these popular works are an essential component (131). Netanel points out that such works have the widest audience and therefore are the most desirable for speakers wishing to build upon “in communicating their own message or artistic sensitivity” (p 131).

Despite Natanel’s assurances to the contrary, his assertion does bear striking resemblance to a key concept of antitrust law: the essential facilities doctrine. In a variety of network industries, ranging from railroads to telecom to operating systems, new entrants often request access to key elements of incumbents’ network. The arguments used to justify these access requirements are normally based on the notion that duplicating the “essential facility” would be impossible, wasteful and/or prohibitively expensive. Natanel’s assertion that there are some cultural icons, such as the Simpsons, that can command such a wide audience as to make them essential for some forms of expression raises similar arguments.

The question is whether courts and Congress can easily apply such a criterion in determining what a reasonable licensing fee is. The essential facilities doctrine has not been a model of clarity for the antitrust bar. Justice Scalia’s opinion in Trinko certainly underscores the fact that the Supreme Court has never explicitly endorsed this approach. This is understandable, given that both American and European courts have spent considerable efforts to precisely define the circumstances under which a particular facility is “essential”. Natanel’s proposal raises similar questions. How exactly does one determine that a particular movie, book or TV show has reached “cultural icon” status? Are courts to look at total number of viewers of the program or total number of copies of the book sold? These are difficult questions and Natanel seems to assume that we can readily discern when the standard has been met.

Copyright and Vertical Integration

A related issue to the essential facilities argument deals with the vertical integration of distribution channels with content product. Natanel argues that this integration presents a significant barrier to entry (p 133). It is undeniable that firms who own the copyright are at a distinct advantage to their downstream rivals in the distribution market. Natanel point to conglomerates’ superior ability to bundle together large numbers of works in a single genre and deliver them via their own distribution networks (p 148). Natanel levies some fairly sharp criticism at what he sees as copyright owners’ repeated attempts to gain control of new distribution channels as they emerge (p 149). Citing examples ranging from the sheet music case to the FCC Broadcast Flag Order, he decries what he sees as excessive lobbying by copyright holder to ensure that they retain control over new forms of distributing content.

Yet Natanel fails to acknowledge that bundling and vertical integration by content owners can have significant consumer benefits as well. Consumers may enjoy the ability to receive a large variety of content in a single package, provided in a convenient format by the copyright holder. Vertical integration into distribution channels allows copyright holders may allow copyright holders to provide more options to customers as to how they receive their content. ABC can broadcast episodes of Lost at its regular time slot and then later provide the content online for those individuals who missed the episode. Natanel overlooks the fact that consumers still benefit from this arrangement even though ABC is controlling two different methods of distribution.

Furthermore, Natanel seems fairly dismissive of the media companies’ desire to develop alternative distribution channels to Google (p 150). He claims that while their desire to avoid being “beholden to a potential new media behemoth” (p 150) is perfectly understandable, he does not agree with their aggressive use of their copyrights to do it. However, given Google’s dominance in this area, one is hard pressed to argue that this is the class case of the big companies picking on the little guy. Natanel seems to forget that a monopsony in the online distribution of content could raise significant threats to consumer welfare just as easily as aggressive use of copyright to foster the development of rival networks.

He does pull back a bit by suggesting that a system of compulsory licenses may provide some relief to this dilemma (p 151). If Congress were to step in and establish such a system, a good deal of the concern regarding the use of copyright as censorship may disappear. Furthermore, compulsory licenses that provided a reasonable rate of return would allow copyright holders to recoup the value of their content without triggering as much of a concern about stifling downstream competition. The setting of the licensing fees would probably not raise nearly as much trouble as the 1996 Telecom Act’s UNE pricing. Distributors such as Youtube, which is often the location of choice for fan faction and other independently-created works that build off of the originals, will not always completely usurp the market for the original works. In certain circumstances, the demand for the originals may actually increase as more people are able to contribute to the development of fan fiction and mashups.

Overall, Natanel’s analysis in this section provides a good overview of the economics behind the paradox of pricing zero marginal cost nonrivalrous goods. However, in his rush to assert the necessity of weakening what he sees as a bloated copyright system that stifles competition in the marketplace of ideas, he fails to adequately address the possible economic counterarguments that one might levy against this wholesale revamping of the system.