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.

Comments

[frank_b]

I think your post touches on an important point. The right to exclude is an important incentive. In fact, I would say that for individuals, exclusionary rights are more important than royalties.

On the face, compulsory licenses seem to be an elegant solution. For institutions like movie studios, such derivative rights could lower transaction costs while still giving all of the players compensation for their investment. But individuals are not corporations, and they might have strong personal connections to their work. I found the Doors' refusal to license touching--they clearly value the right to exclude at more than $15 million, and by stripping them of their right, we take an entitlement from the highest value user.

More perniciously, I suspect that the right to exclude is more valuable than money to potential creators. Authors often compare characters to their children, and some might be hesitant to throw their kids to the market when they know that their work can by licensed without their permission into figurines, adaptations, sequels, political screeds, and God knows what else.

Imagine we're in a cafe with J.K. Rowling in 1990. An oracle approaches and says "the books you are now composing will earn you $1 billion." Obviously, this is exciting news, because she would have written the stories for almost any renumeration whatsoever. If an oracle instead told her that her books would earn her $100 million in royalties, she would obviously still write them.

But now imagine that the oracle adds, "and, due to Netanel's copyright law, your characters will be used in unauthorized sequels ad infinitum--but don't worry, this will give you an incentive to write about them forever. Oh, and you won't have any control over the cinematic adaptations, and the Tories will use your stories to help take control in 2015, which will be known as the 'Potter parliament,' but don't worry because they'll be paying you seven cents per copy." At that point, I posit, some authors might instead choose to sleep in.

Take for example Bill Watterson. The cartoonist of Calvin and Hobbes choose to quit after 10 years. Watterson had bargained to prevent others from taking over his strip, which has happened to many older strips (like Pogo). Under Netanel's regime, this would be impossible. Watterson's retirement would just open up the market for compulsory-licensed successors--or Watterson would be coerced into continuing himself forever.

Moreover, Watterson famously opposed any sort of merchandising. He nearly quit when the syndicate didn't want to grant his concessions. These concessions would be impossible if anyone could license against his will. Under Netanel's regime, I think people like that would choose to not tell their stories rather than put it into the hands of any idiot willing to pay seven cents a copy.

I believe that many authors value derivative rights more than royalties, and that removing them bludgeons the central incentive behind copyrights.

[Ed Cottrell]

One thing I found interesting is that Netanel seems to sympathize with copyright holders who are unwilling to license a work for any price for a given use, even while arguing that, in many cases, the copyright holder should be forced to grant a license at a "competitive rate." I don't think he ever reconciled the tension here; if he did, it was not very clear. You and Frank are spot on here in noting that the entire bundle of rights we call copyright means far more to many creators than any licensing royalties.

Further, I'm still not sure what a competitive rate is. There are no competing sellers. There are no truly interchangeable works; the best we might have is an approximation in terms of market appeal. But does any of us really think Family Guy, for example, can substitute for The Simpsons? King of the Hill? Adult Swim? These products may have similar appeal, but they still have different appeal. Comparing a work to others in the same portfolio fails for the same reason. Coase says that, without transaction costs, the highest value use will hold the right. In many cases, that means there will not be a license, no matter the price. More importantly, do we really think judges - even copyright-specialized ones - could get it right if there were?

In short, I share your concerns about the proposed scheme. I think it would severely undermine most of the monetary and emotional reasons for creating new works - some would survive, like simple pride, of course - and result in less daring kinds of speech. After all, who wants to write a book, paint a painting, or produce a film and risk its adoption and use by a hate group, for example? For example, if Moby's song "Extreme Ways" is used as the theme song of a paramilitary organization in its meetings, marches, commercial promotion, and internal propaganda, perhaps Moby would be less than thrilled. I think most of us would decline any royalties if we knew our work would be used to promote such activities. If we really want to write, then, maybe we'll just be less daring, so as to avoid the "wrong type" of reader or viewer. Engine of free expression, indeed.