Fair use and copyright protection: a price theory explanation (original) (raw)

2002, International Review of Law and Economics

Copyright scholars suggest that computer technology has reduced transaction costs associated with copyright transfer, allegedly eliminating the need for the fair use doctrines that were developed to allow limited use of copyrighted material in situations where the transaction costs of securing authorized use would be prohibitive. According to this emerging view, in an ideal world with no contracting costs, third party use of copyrighted material could realistically only take place with the express consent of the copyright holder. This would give the author absolute power to dispose of his work, including the right to veto uses, without the possibility of a fair use "override" of any sort. This paper shows the limits of such transaction-cost based arguments. If transaction costs provide the dominant economic justification of "fair use" doctrines, an exogenous reduction of such transaction costs would limit the scope and application of the defense of fair use. Nevertheless, in this paper we demonstrate that, when viewed in light of the anticommons theory, fair use doctrines retain a valid efficiency justification even in a zero transaction cost environment. Fair use defenses are justifiable, and in fact instrumental, in minimizing the welfare losses prompted by the strategic behavior of the copyright holders. Even if copyright licenses can be transferred at no cost (for instance, in a "click and pay" frictionless computer world), the strategic behavior of the copyright holders would still create possible deadweight losses. In this context we identify a number of critical variables that should guide and constrain the application of fair use doctrines. These variables include (a) the number of copyright holders; (b) the degree of complementarity between the copyrighted inputs;(c) the degree of independence between the various copyright holders in the pricing of their licenses; and (d) ability to price discriminate. When new technological advances in the dissemination of information conflict with the precepts of standard copyright law, the doctrine of fair use, which delineates limited circumstances under which the work may be used without the author's permission, is called upon to reconcile the two. Proponents of new technology and copyright holders generally stand 3 Generally, the key role of fair use in resolving tension between new technology and traditional copyright is well appreciated, see Marsh (1984) at 635: 'Successful resolution of the resulting tension between products of the new technologies and copyright law will depend largely on the doctrine of fair use.' 4 See Bell (1998) arguing that fair use will, to a large extent, be replaced by 'fared use', where automated rights management (ARM) will become the dominant instrument for copyright transfer; Kitch (2000), examining the potential effect of both a structural approach (denying fair use treatment when the copyright owner could have established Internet permission) and a transactional one (fair use falters only in situations that Internet permissions are easily available) in leading to a reduced scope of fair use; Merges (1997), pondering the reduced role of fair use, while proposing a new, subsidy-oriented, foundation for the fair use doctrine that would better emphasize the doctrine's redistributional concerns; Post (1996), arguing that automated rights management techniques drastically reduce transaction costs of negotiating licence fees, thereby calling into question the role of fair use. But see, Dowell (1998), examining the prospect of fair use in the context of fragmented literal copying of small chunks of content, concluding that the cost-minimization function of automated licensing does not take into consideration the public benefit purpose of fair use. 3 diametrically opposed when it comes to determining the proper scope of the fair use defense 3 in the information age. The mass popularization of the Internet and continued technological advances in information dissemination has produced a new argument that goes one step further: fair use will become obsolete in a world where one-click technology provides instantaneous communication between copyright holders and users 4. Universally accessible Internet gateways will allegedly provide copyright holders the opportunity to charge users of their works licensing fees in quasi-automatic fashion, eliminating the transaction-cost argument that provides one of the main pragmatic justifications of fair use. In turn-the argument goes-the traditional rationales for the existence of fair use doctrines will lose their persuasive power. In this paper, we revisit the economic justification of fair use doctrines, providing an alternative positive hypothesis for the emergence, and adoption, of the fair use doctrine and comparable rules in various legal systems. We find flawed arguments that the economic rationale for fair use doctrines has been lost because such claims unduly simplify the nature of the costs which explain the emergence and success of the doctrine of fair use. Offering insights from the concept of the Tragedy of the Anticommons, we argue that fair use remains valuable even in the digital context of automated rights management. We conclude that any claim of the demise of the fair use in this context is that of the tunnel visioned enthusiast.