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.
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