Incentives for original works and derivative works – what’s the right balance?

Netanel argues fairly convincingly using the text of the Constitution that the main purpose of copyright is to incentivize the creation of works of authorship. Assuming that this argument is true, then we need to look at what effects we think changing copyright laws will have on creation. One of Netanel’s emphases seems to be increasing the ability (and lowering the costs) of secondary authors to build on the work of others, whether through some compulsory licensing regime, allowing it for free, or some other mechanism. (I’ll call these secondary works “follow-on” works, which includes the derivative works included within the original author’s exclusive rights protected by the current copyright regime, and also works that aren’t included in the exclusive rights such as parody). Netanel’s goal leads to a few questions. Do we think the incentives for creation of original works will be significantly undermined by diminishing the derivative works right? How many more follow-on works will we see, and how much should we value these follow-on works?

To answer this question, I think we can apply one of the economic arguments from the Eldridge case that was touched on in class and in the posts. Briefly stated, authors don’t expect their works to have much value long into the future. Most works have a fairly short shelf life, and even if they do have value into the future, the author would discount that value because of all that time-value of money stuff (in essence, the value of a dollar to me today that I would receive 100 years into the future is close to zero).

So let’s modify that argument a little to the idea of follow-on works. Do we think that authors create works with the intent to license them for derivative use? It depends. As we discussed in class, big movie studios might. George Lucas probably has marketing opportunities in mind when he produces Star Wars sequels. Disney does when it makes its latest animated feature. But do we think that as a whole, authors do? Probably not. Just as most authors don’t expect their works to have commercial value long into the future (or at least, shouldn’t expect them to), most authors probably don’t expect their works to have much value for licensing for derivative works. They probably expect to capture most of their value through direct sale and licensing of the underlying works. A garage band hoping to strike it big might think that it will make money from selling CDs, or perhaps selling T-shirts and stickers (to which I think they would have exclusive rights due to rights of publicity and trademark, not copyright). (Incidentally, I understand that many of the popular bands make most of their money from concert tours, not music sales). Do they expect that someone will want to license their song in a documentary or in a YouTube video parodying President Bush? Probably not.

It seems that the general trend in copyright law is that content creators push for as many rights as they can, saying “whatever you can do with a work, we want the exclusive right to that.” Owners argue that they need these rights to incentivize creation, arguing that some creation won’t occur if these rights are denied. At some point, restricting copyright (or its enforcement) will definitely affect creation. If everyone keeps downloading songs illegally, record companies will probably sign fewer artists. As discussed in class, big movie studios probably spend a lot on a movie like Iron Man with the expectation that they will be able to make sequels, and if someone else make can make a sequel, maybe they only spend $50 million instead of $180 million. Or they decide not to make the movie. Without expressing an opinion on the movie, it seems like losing a movie that a lot of people would want to see is a bad thing.

But that is only half of the story. What about the follow-on creators? Do we always want to privilege original authors over subsequent authors? We do need some original creation to have follow-on creation. But maybe we’re okay with fewer “original” works if we get tons of follow-on works through a weaker derivative works right (building upon the original works that are still created even with the weaker derivative works rights). Let’s say that an author with really strong derivative work rights will create 10 works and license his works to third parties resulting in 10 other works, and then another 10 works will be created by third parties under claims of fair use. Now let’s suppose with really weak derivative works rights, the author will create 8 works and license 3 works (for example, a TV version of a book), but then another 100 unlicensed works will be created by third parties. This could be a pretty good tradeoff. Sure, some of these follow-on works may have little redeeming value. But in the aggregate, if there are a lot of follow-on works have at least a little value, society could benefit a lot. Netanel talks a lot about how licenses that are too expensive or too costly in terms of time and effort can keep follow-on creators from creating a follow-on work (though some follow-on authors will still be willing to bear these costs). If this is so, we miss out on some of these aggregate benefits. How much are these potential benefits? I have no idea, but I imagine that the Internet has greatly expanded the potential gains.

Overall, I think Netanel’s message that we want more creation by lots of different people is sound (echoing Judge Hand, see p.104). As he explains, copyright has greatly expanded from a relatively limited right, both short in duration and narrow in scope. I agree with extending copyright to new forms of media, as we still want to incentivize creation of not just books but also songs, movies, and whatever else comes out in the future. But what counts as infringement seems a bit too broad to me. Even though I don’t know that a jury would find that West Side Story infringed Romeo and Juliet under today’s laws (or that Shakespeare infringed someone else), I still have to worry about the effects on derivative works if I think there’s a chance. If there’s a chance of an adverse jury verdict, Laurents, Bernstein, and Sondheim could decide that their idea is just so good that they’re willing to pay to get a license from Shakespeare. But Broadway being a risky business, they may just move on to some other idea, and the Romeo and Juliet adaption gets canned. Or Shakespeare may decide that he doesn't like the idea of Romeo and Juliet being associated with gang members singing and dancing, so he refuses to grant a license or sets some ridiculously high price for a license. If creators of original works have really strong derivative works rights, there may be a lot of would-be West Side Story-type works out there that never see the light of day.

Comments

[Derek Little]

I agree that loosening copyright holders’ grip on derivative works and fair use to encourage the creation of more of these “follow-on” works has the potential to provide a social benefit. You argue that even if there is a reduced incentive to create an original work, resulting in fewer original works, that social loss could be more than offset by the additional numbers of follow-on works.

I wonder, though, if instead of resulting in fewer originals, opening up the market for follow-on works might in some media lead to the production of a greater number of originals, with less money invested in each. I guess I’m thinking that if the law changed tomorrow, big movie studios might decide not to invest as much in a few blockbusters that they would hope to turn into huge franchises, but rather decide to make a lot of smaller productions, knowing that without control of the derivative works market they won’t be able to make as much on each one.

This would be good in that this increased output of originals would likely be more diverse, but bad insofar as the resources wouldn’t be concentrated in a lower number of more expensive originals (if we think that more money translates into better originals). Personally, I would rather see a more diverse, higher-volume, lower cost-per-movie output in the movie industry. I’m not sure about other media. Anyway, I guess the point is that with respect to originals and derivatives there is in some media at least the potential for not just a net-positive trade-off, but a win-win: more plentiful and diverse (if cheaper) originals and more derivatives.

[Ross Tucker]

I think you give a good explanation of another scenario that could result. I think the point of what we've both said is that we just don't know how exactly these incentives work.

It seems that the implicit argument of people supporting really strong derivative rights is that we want as many original works as possible (with the maximum amount invested in each work) and that original works are better than follow-on works. The West Side Story example shows me that follow-on works can be just as good, if not better, than the original work, so we shouldn't necessarily always favor original works over follow-on works. I know lots of licensing does occur today, but the transaction costs definitely seem like a formidable barrier sometimes.

[Vikas Didwania]

Ross, I have a few questions about your plan. I think in the world you are creating, there are no derivative rights to a work. (Correct me if I’m wrong.)

First, what if the author really doesn’t want his work extended in any way? For example, let’s say Dostoevsky saw Crime and Punishment as the beginning and end for his characters. He really doesn’t want someone changing his characters in any way.

Second, do you worry about people masquerading as the author in the market? So let’s say Bill Gates writes a book. Another person named Bill Gates also writes a book based off the previous book and sells it as a “sequel” fooling the market into thinking the original wrote it—basically leeching off the name. Maybe this wouldn’t be as much of a problem if there aren’t that many similar names or maybe there are other remedies (such as misappropriation or something). But it seems like a legitimate derivative work.

Lastly, do you worry that the reduction in incentives to create may be greater than from 10 to 8? The original creator could worry that the derivative works (all 100 of them) may cannibalize the market for his own original work, leaving him with very little. So currently, let’s say the original work has a market value of $100 million and the sequel a market value of $50 million. But allowing a free for all in derivative rights may not only take away that $50 million but also substantially reduce the original $100 million market value. And, of course, that would happen to everyone down the line—the second user would face a smaller market and have reduced incentives to innovate. Also, with 100 works floating around, all competing, maybe the price of the work would go down to the one that exists in a perfectly competitive market—the marginal cost. As Netanel notes, marginal cost for intellectual property is essentially zero, thus destroying the market for creative works as a whole.

[Ross Tucker]

1. I'm not saying there should be no derivative rights. I don't have a concrete framework in mind, though I'm more concerned with restrictions where the original author has no plans to create a given derivative work. A few others have talked about a compulsory licensing scheme, which might work in some situations. A broader de minimis exception would also be helpful (such as with the documentary with the Simpsons clip. In other situations, a broader fair use right should allow more creative works that don't displace the market for the original work (or derivative works that the original author plans on making).

Regarding your Crime and Punishment example, I'm not a big fan of moral rights. Just as I think no one should be able to suppress criticism of their works, they shouldn't be able to suppress parodies, for example. I think one of the tradeoffs for obtaining a copyright on a work is that you give up some control of what can be done with the work. Occasionally that may lead an author to lock his work up in a closet instead of publishing. That's a risk I'm willing to face, because I think only rarely will that occur.

You may be right with your last point. That is certainly the argument that movie studios, record labels, and publishing houses will make (I can picture Metallica going to Congress again to argue this). But I think this is a slippery slope argument, considering I'm not advocating stripping authors of all derivative rights, just some. Fans have been making tons of crappy Star Wars videos for years, but they don't seem to have eroded the market for the George Lucas' six Star Wars movies (or all the related merchandising, the Saturday morning cartoons, etc).

Overall, I think the major players overstate the disincentives to them that will result from paring back the copyright regime, and undervalue the benefit to society from the follow-on works that will result from a narrower copyright.

[Vikas Didwania]

With my Crime and Punishment example, I was thinking more about sequels rather than criticisms and parodies. The latter have some social benefit--increasing our democratic discourse--so we are hestitant to let moral rights impede. But with sequels, the subsequent creator is in it mostly for the commercial benefit (and free riding on the prior creation). To me, it's uderstandable that I, as an author, would be averse to futher commercial exploitation of my creation that I in no way had intended or wanted. I'm reminded of Bill Watterson. He never wanted to commercialize Calvin & Hobbes away from the comic books, because he had a certain fondness for his characters. Yet, others stole the characters for decals (like the one of Calvin peeing you often see on cars) and other commercial goods. I think Watterson just wasn't aggressive in pursuing the infringement.

This personal / emotional harm to Watterson, which may increase under the regime you propose, may not necessarily change incentives. No matter what, he would not have locked up the comic books in a closet. But I think we should care about more than incentives to create. We should also respect the wishes and dignity of the author to some extent.

[Ross Tucker]

Once again, I'm not exactly sure where I would put the boundaries of the ideal derivative rights regime. However, I think even unauthorized sequels could have social benefits as well. Maybe the author doesn't want any sequels because he has a certain conception of the story. A lot of people may still want to see a Star Wars 3.5: "Jar Jar Get Canned" or a Lord of the Ring 4: "We're Just Kidding, Sauron's Not Really Dead", even though George Lucas or the Tolkien estate may not like these ideas. The wishes and dignity of authors sometimes conflict with societal welfare. In exchange for getting a copyright, authors give up some control. Authors would certainly like as many rights as they can get, but that's not how copyright works.

I think we see a helpful parallel in patent law. Generic drug manufacturers can experiment on patented drugs in order to reverse engineer them without running afoul of patent law. Drug companies with lots of patents don't really like this, but society benefits because it means that generic drugs can be developed prior to patent expiration and then marketed to the public immediately upon patent expiration. (The legislation regarding generic drugs has more to it than what I explained, but that's one of the important parts.) This just a tradeoff of patent law -- patent holders don't get to exclude every possible use of their patented item or process. That's why patents and copyrights are considered limited rights.

[Vikas Didwania]

I think the first question is the effects of any changes on incentives to create. I think we've hashed that out and there's probably little to add there without any empirical work.

The second is about individual rights and dignity. So often times what best protects rights and dignity also maximizes social welfare. Look at the Bill of Rights. We can imagine the free speech, free assembly, etc. serve two purposes. First, they are good for our democracy and for social progress. Second, they protect the individual's dignity and well-being regardless of effects of social welfare. For example, the right to privacy (to the extent it exists in the Constitution), may advance social welfare (as Solove notes that it allows people to express radical ideas to others) but may also be about preserving personal dignity (all of Solove's anecdotes).

What I'm trying to say is that we may just have different perspectives. Laws / rights are certainly about trying to maximize social welfare. But I don't think that should be at any cost. People shouldn't be treated as cogs in the utilitarian machine. To the extent that at points where such dignitarian rights clash with maximizing social welfare by maximizing incentives (as they may well here), I don't think I would always come down on the side of the latter.