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Three Myths about Copyright Law

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  1. This is the html version of the file http://rsc.jordan.house.gov/uploadedfiles/rsc_policy_brief_--_three_myths_about_copyright_law_and_where_to_start_to_fix_it_--_november_16_2012.pdf.
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  4. Page | 1 RSC Policy Brief:Three Myths about Copyright Law and Where to Start to Fix it:November 16, 2012RSC Staff Contact: Derek S. Khanna, Derek.Khanna@mail.house.gov, (202) 226-0718This paper will analyze current US Copyright Law by examining three myths oncopyright law and possible reforms to copyright law that will lead to more economicdevelopment for the private sector and to a copyright law that is more firmly based uponconstitutional principles.1. The purpose of copyright is to compensate the creator of the content:It’s a common misperception that the Constitution enables our current legal regime ofcopyright protection – in fact, it does not. The Constitution’s clause on Copyright andpatents states:“To promote the Progress of Science and useful Arts, by securing for limited Times toAuthors and Inventors the exclusive Right to their respective Writings and Discoveries;”(Article I, Section 8, Clause 8)Thus, according to the Constitution, the overriding purpose of the copyright system is to“promote the progress of science and useful arts.” In today’s terminology we may saythat the purpose is to lead to maximum productivity and innovation.This is a major distinction, because most legislative discussions on this topic, particularlyduring the extension of the copyright term, are not premised upon what is in the publicgood or what will promote the most productivity and innovation, but rather what thecontent creators “deserve” or are “entitled to” by virtue of their creation. This lexicon isappropriate in the realm of taxation and sometimes in the realm of trade protection, but itis inappropriate in the realm of patents and copyrights. Strictly speaking, because of the constitutional basis of copyright and patent, legislativediscussions on copyright/patent reform should be based upon what promotes the
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  6. Page | 2 maximum “progress of sciences and useful arts” instead of “deserving” financialcompensation.2. Copyright is free market capitalism at work:Copyright violates nearly every tenet of laissez faire capitalism. Under the currentsystem of copyright, producers of content are entitled to a guaranteed, governmentinstituted, government subsidized content-monopoly. It is guaranteed because it is automatic upon publishing. It is a system implemented and regulated by the government, and backed up by laws thatallow for massive damages for violations. These massive damages are not conventionaltort law damages, but damages that are vastly disproportionate from the actual damage tothe copyright producer. For example, Limewire was sued for $75 trillion, based uponSection 504(c)(1) of the Copyright Action enabling such large fines per violation. Thispotential award is more money than the entire music recording industry has made sinceEdison’s invention of the phonograph in 1877, and thus in no way corresponds to theactual demonstrated “damages,” to the record industry. By Congress creating an arbitrarystatutory fine for damages the government has implemented its own system fordissuading copyright violation, above and beyond conventional tort law for a perceived“property” like right.In addition, it is a government-subsidized monopoly in another sense. Copyrightviolators can face jail time, and government agencies are tasked with investigatingcopyright violations and stopping these activities. This may be a good decision or a baddecision, but, it is a form of the government subsidizing the costs of recovering assetsthat may or may not be considered to have been “stolen.” There are other industrieswhere the government has also chosen to subsidize in a similar manner, but the point hereis that this is not a strictly laissez faire capitalistic institution.3. The current copyright legal regime leads to the greatest innovation andproductivity:There is surely an argument in favor of copyright, and it is the argument that ourFounding Fathers were familiar with. While the size and scope of current copyrightviolations are vastly disproportionate to anything in previous history, in the 18 th centuryour Founding Fathers were familiar with copyright violation. In fact Great Britain wasquite angry at what was perceived to be rampant theft in the colonies of their intellectualproperty in the form of literature.
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  8. Page | 3 With this in mind, our Founding Fathers wrote the clause in the Constitution onprotecting content. But they knew that there was a very serious cost for this government-instituted monopoly. It is a balancing test to ensure that we have the maximum amount ofproductivity overall. With no copyright protection, it was perceived that there would be insufficient incentivefor content producers to create new content – without the ability to compensate them fortheir work. And with too much copyright protection, as in copyright protection thatcarried on longer than necessary for the incentive, it will greatly stifle innovation. Inaddition, excessive copyright protection leads to what economists call “rent-seeking”which is effectively non-productive behavior that sucks economic productivity andpotential from the overall economy. This Goldilocks-like predicament – not too little and not too much – was what ourFounding Fathers had in mind with the phrase “securing for limited Times.” Current status of Copyright Law?:Under the Copyright Act of 1790, the first federal copyright act, it stated that the purposeof the act was the “encouragement of learning” and that it achieved this by securingauthors the “sole right and liberty of printing, reprinting, publishing and vending” theirworks for a term of 14 years, with the right to renew for one additional 14 year termshould the copyright holder still be alive. This is likely what our Founding Fathers meantwhen they wrote in the Constitution for a “limited time.” Gradually this period began toexpand, but today’s copyright law bears almost no resemblance to the constitutionalprovision that enabled it and the conception of this right by our Founding Fathers. • Original Copyright Law: 14 years, plus 14 year renewal if author is alive.• Current Copyright Law: Life of author plus 70 years; and for corporate authors 120 years after creation or 95 years after publication.Critics of current law point out that the terms of copyright continue to be extendedperpetually, ensuring that works never actually enter the public domain – particularlyWalt Disney’s production of Steamboat Willey, the first Mickey Mouse film. If this istrue, if copyright is to be indefinitely extended, then that would effectively nullify ArticleI, Section 8, Clause 8 of the Constitution which provides protection only for “limitedtimes.”Can we ever have too much copyright protection?:
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  10. Page | 4 Yes. The Federal government has gotten way too big, and our copyright law is asymptom of the expansion in the size and scope of the federal government.Today’s legal regime of copyright law is seen by many as a form of corporate welfarethat hurts innovation and hurts the consumer. It is a system that picks winners and losers,and the losers are new industries that could generate new wealth and added value. Wefrankly may have no idea how it actually hurts innovation, because we don’t know whatisn’t able to be produced as a result of our current system. But we do know that ourcopyright paradigm has:A. Retarded the creation of a robust DJ/Remix industry: Many other countries have a robust culture of DJ’s and remixing, but the UnitedStates, quite perplexingly as the creator of a large portion of the world’s content, isfar behind. DJ/remix culture is a democratizing system where self-starters cancompete based upon merit. In other countries, every 16-year-old with a computer and“Virtual DJ” software can remix various songs and compete based upon talent. As aresult there are thriving DJ/remix markets in Turkey and other countries. These DJ’sput their content online or sell mix-tapes (no longer tapes) and there is a meritocraticsystem that continues to innovate. However, in the United States this culture is heavily retarded.DJ’s in the United States are mainly live performers, as there are heavy restrictions onwhat they are allowed to release and sell as mix-tapes. There are convoluted rules areon what parts of songs that they can sample, often requiring input from lawyers toavoid massive fines or lawsuits. As a result, in the United States there are great liveperformer DJ’s, but selling most “real” mix-tapes by small level DJ’s is illegal anddisincentivized. This stifles most forms of mash-ups or selling of remixed songs byindependent artists. This does not completely eliminate the remix market. While the producing artiststhemselves can remix their own songs, and major DJ’s or other artists can remix otherpeople’s songs and pay high level royalties in the $100,000’s-per-song range.However, this prohibitively high price range stifles most average DJ’s from legallyreleasing their own mash-up or remixed songs. While there is an underground remixblack market, this market is nothing like it would be if this were legalized.Since these prospective new remixes would not replace the original songs, but merelysupplement them and perhaps even increase sales of the original songs, overallproductivity is greatly hampered by making production of these materials effectivelyillegal.
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  12. Page | 5 B. Hampering scientific inquiry:Scientific papers from the early portion of the 20 th century are still under copyright. . .This is illogical, as the purpose of most scientific papers is to further intellectualinquiry, and the goal of most authors of scientific papers is to advance their field andto be cited in other publications. Many professors are assessed upon the number ofcitations for their major works. For these reasons, keeping their work in what areeffectively locked vaults defeats the purpose of much of their work. Obviously these producers need to be compensated to justify the cost of theirresearch, but after around14 years, most, if not nearly all, of the earning capacity oftheir work has been exhausted, and at that point the overriding interest is in ensuringthat these works are available for others. While there are exceptions in the law for theuse of this material for good faith exceptions, there are numerous examples wherefor-profit entities want to use published journal articles but are unable to do sowithout negotiating a payment to the producer of the content.If however, these older papers were available online for free on Google Scholar toanyone to access and use after a reasonable period of time then it would greatlyincrease the availability and utilization of scientific analysis.C. Stifling the creation of a public library:Many of our country’s smartest and most successful people were autodidacts whotaught themselves far beyond that of conventional studies through intellectual inquiryof their own and a voracious appetite for reading. Benjamin Franklin conceived theidea of a subscription library because libraries allow for information to bedemocratized to the masses. Today the sheer amount of information available to theaverage person is several orders of magnitude beyond that available in 1990, let alonein 1790. But still today an enormous amount of intellectual knowledge in lockedbehind physical books, rather than accessible on the general internet. Project Gutenberg is trying to change that by becoming an online repository for areadable/downloadable version of every book available without copyright. ProjectGutenberg’s full potential will be to provide the greatest amount of intellectualknowledge ever assembled in the history of the world to any person with the click ofa button. But this potential of knowledge drops off around 1923 when materials are not in thepublic domain. Imagine the potential for greater learning as a result of obtainingbooks from the 1920-1980 periods. Assigned books in high school classes could beall downloaded to a student’s Kindle, rather than bought in a book store. The
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  14. Page | 6 threshold cost for learning will virtually vanish, and with that, the potential for greaterlearning would skyrocket. From a technological perspective, the data size of books is very small - for example,every book in the Kindle store could fit on one of the largest available consumer harddrives – thus in a few years it may be technologically possible to have every bookever written on our computer or IPAD at the click of a button (though not necessarilyworthwhile because it’s easier to just access the books you need when you need themonline).D. Discouraging added-value industries:While the current paradigm may work great for content producers, it doesn’t workgreat for the creation of other industries. There is enormous potential for other added-value industries on top of existing media. For example, in a world where movies,television shows and books that were 30+ years old were available in the publicdomain, you would likely see new industries crop up to offer a new experience on topof this media.A. Reading a book with pop-up text on extra information on given topics.B. Watching a movie with “VH1 Pop-up video” add-ons to provide trivia andrelevant information. There would be thousands of fan generated contentanalyzing Star Wars by providing commentary and analysis.E. Penalizes legitimate journalism and oversight:This effect is perhaps the most extreme effect of our current copyright law and themost unacceptable. Current copyright law allows for producers of written materials,such as memos or other documents, to claim copyright when they are seeking to hideincriminating information. While these materials can be produced in court, producingthis information in the media or through an oversight organization is often illegal.Imagine if there were a memo published by a well-known DC think-tank duringWorld War 2 and this memo was on the topic of endorsing Nazism and AdolphHitler. Likely if it were published in the 1940’s, few memos would still be around,and it would likely fade into history never to be remembered. But if an enterprisingreporter or political organization were to find a copy of these memos they would stilllikely be protected by copyright. If that reporter or political organization put thememo on their website as proof of the think-tank endorsing Nazism and Hitler, thenthey are liable for significant damages for copyright violation. The think-tank is likelyto sue them or threaten to do so to avoid the memo going public in the first place.
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  16. Page | 7 This is a disgusting use of copyright, yet there are numerous examples of copyrightbeing used in this manner – in order to stifle oversight and hide incriminatinginformation. This is not the purpose of copyright, and our democracy functions bestwhen the fourth estate is able to provide this type of information to the public. Potential Policy Solutions: 1. Statutory Damages Reform:Copyright infringement has statutory damages, which most copyright holders can and douse in litigation (rather than having to prove actual damages). The government sets arange – which is $750 to $30,000 per infringement – but that goes up to $150,000 if theinfringement is "willful." Evidence suggests that the content holder almost always claimsthat it is willful. This fine is per infringement. Those rates might have made sense incommercial settings (though even then they arguably seemed high), but in a world whereeveryone copies stuff at home all the time, the idea that your iPod could make you liablefor a billion dollars in damages is excessive.Further, this system creates a serious clogging of the courts, because copyright holdersnow recognize that they can accuse anyone of infringement, and include the threat of$150,000 awards per violation. But in reality, most people then settle for less than thatsum, say $3,000. Scaring a large number of potentially innocent people into settlingshould not be an effect of copyright law.Copyright awards were meant to make the copyright holder whole – they were notsupposed to be punitive. Reforming this process is an important element of federal tortreform, which unlike other forms of tort reform is clearly within the federal prerogative. 2. Expand Fair Use: Right now, it's somewhat arbitrary as to what is legally fair use based upon judiciallycreated categories. One example: parodies are considered protected by fair use but satireis not. There's an excellent book (and a shorter paper) called Infringement Nation thatdetails how things you do every single day are infringing and leave every single personliable for billions in damages each year(http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1029151). 3. Punish false copyright claims:Because there is minimal or nearly non-existent punishment for bogus copyright claimstoday, false takedown requests are common and have a chilling effect upon legitimatespeech. While those filing a takedown request have to swear on the threat of perjury, thatswearing is only in regard to whether the work is theirs but not whether the work is
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  18. Page | 8 actually infringing. The court has said that their needs to be “subjective bad faith” inorder to be sanctioned for false takedown requests. This often leads to de factocensorship.4. Heavily limit the terms for copyright, and create disincentives for renewal:Because of the reasons explained in this paper, the constitutional conception of copyrightwas for a limited period of time. For our Founders this was 14 years for copyright with apotential renewal for another 14 years if the author was alive. Current public policy should create a disincentive for companies to continue theircopyright indefinitely because of the negative externalities explained in this paper. Unlikemany forms of government revenue, generating revenue by disincentivizing activitieswith negative externalities is one way for the government to pay for its operations. This isa far superior way for the government to generate revenue rather than having a tax systemthat disincetivizes work.Below is a suggestion for one such proposal:A. Free 12-year copyright term for all new works – subject to registration, and allexisting works are renewed as of the passage of the reform legislation. If passedtoday this would mean that new works have a copyright until 2024.B. Elective-12 year renewal (cost 1% of all United States revenue from first 12 years– which equals all sales).C. Elective-6 year renewal (cost 3% of revenue from the previous 12 years).D. Elective-6 year renewal (cost 5% of revenue in previous 6 years).E. Elective-10 year renewal (10% of ALL overall revenue – fees paid so far).This proposal would terminate all copyright protection after 46 years. This is obviously asteep cliff, particularly from the extension of copyright from 36 to 46 years. But the pointis to discourage indefinite copyright.Conclusion: To be clear, there is a legitimate purpose to copyright (and for that matter patents).Copyright ensures that there is sufficient incentive for content producers to develop content, butthere is a steep cost to our unusually long copyright period that Congress has now created. OurFounding Fathers wrote the Constitution with explicit instructions on this matter for a limitedcopyright – not an indefinite monopoly. We must strike this careful Goldilocks-like balance forthe consumer and other businesses versus the content producers. It is difficult to argue that the life of the author plus 70 years is an appropriate copyright term forthis purpose – what possible new incentive was given to the content producer for contentprotection for a term of life plus 70 years vs. a term of life plus 50 years? Where we have
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  20. Page | 9 reached a point of such diminishing returns we must be especially aware of the known andpredictable impact upon the greater market that these policies have held, and we are left towonder on the impact that we will never know until we restore a constitutional copyright system. Current copyright law does not merely distort some markets – rather it destroys entire markets.
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