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Assessing the Economic Impact of Copyright Reform on Authors, Makers, Photographers and Publishers in Canada in Reference to Two New Copyright-Related Treaties: WIPO Copyright Treaty (WCT), WIPO Performances and Phonograms Treaty (WPPT)
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The Specific Economic Analysis of the Different Measures on the Different Stakeholder.
In order to assess, in the context of the present mandate,
- The impact on publishers in Canada of extending the term of protection of photographs from "50 years" to "the life of the author plus 50 years", introducing legal protection measures for technological protection such as encryption, and introducing legal protection measures for rights management information used to identify works and other subject maters;
- The impact on audio-visual producers, multimedia and movie makers in Canada of introducing legal protection measures for technological protection such as encryption, and introducing legal protection measures for rights management information used to identify works and other subject maters;
- The impact on software makers in Canada of introducing an explicit distribution right, introducing legal protection measures for technological protection such as encryption, and introducing legal protection measures for rights management information used to identify works and other subject maters;
- The impact on authors, composers and artists in Canada of introducing legal protection measures for rights management information used to identify works and other subject maters;
one must consider three aspects: the impact on the creator and copyright holder, the value of the copyrighted work for the user public, and the harmonization with international rules.
Regarding the impact on the creator and copyright holder, there are two relevant aspects to consider, one being the incentive for the creator (photographer, audio-visual producer, multimedia and movie maker, software producer, author, composer, artist) to create and produce innovative high quality works, the other being the incentive to maintain the availability of the created works and to protect them from decaying. This is the expressed objective behind the Sono Bono Copyright Term Extension Act of 1998 in the U.S.
Let us consider the different measures in the following sequence. In the next sub-section, we will discuss measure #1 for publishers. In the following sub-section, we will address measures #3 and #4 for the four groups of stakeholders since they concern, in the current project, all groups (except for one measure for one group). Finally, we will analyse measure #2 for software makers in a third section.
The Copyright Term for Photographs.
We consider in this sub-section the impact on publishers in Canada of extending the term of protection of photographs from "50 years" to "the life of the author plus 50 years". On the one hand, there is clearly not much to gain from extending the term of copyright in terms of incentive for creation and production. As rightly stressed by Akerlof et alii (2002), the net present value of the creative work at the time of creation is very little affected by the royalties which may be paid after the term of 50 years. The mathematics of discounting gives very little weight and value to the payments to be received after 50 years. However, an increase in the lifespan of the copyright may be justified by the fact that life expectancy has increased significantly. If it was reasonable to have a 50-year term in the past, it may be justifiable for the same implicit reasons to have a longer term now and in the future.
On the other hand, the incentives to maintain the availability of the valuable photographs and to protect them from decaying is a dynamic incentive which may be considered relatively constant over time and little affected by discounting. Hence, extending the term of protection may be a significant incentive for those copyright holding individuals or organizations to maintain over time the availability and quality of the photographs taken in the distant past. One may also claim not without reasons that the proliferation of publications of all kinds and sorts has made the maintenance of the availability of the valuable photographs even more important than before and certainly a more important reason for extending the term of copyright from "50 years" to "the life of the author plus 50 years".
Finally, there is value in simplifying the copyright rules by treating similarly all types of photographs and by harmonizing the Canadian rules with the international rules under the new WIPO treaties and this for two reasons. First, it makes the application of the copyright law easier without creating countervailing difficulties for the users. Second, it makes sure that Canadian copyright holders will benefit from the use of their copyrighted photographs in a way similar to how other national copyright holders will be able to do under the new rules.
Hence, the extension of the term of protection of photographs from "50 years" to "the life of the author plus 50 years" seems on balance to be beneficial to society at large: relatively small benefits for the creators themselves but significant benefits in terms of maintaining the stock of old photographs over time. Although these may represent additional costs (payments for copyrights) for publishers, archivists, and the general public, it seems that on balance, they themselves may benefit from a better stock of available photographs.
The recent decision (January 2003) of the Supreme Court of the U.S. in the related case "E. Eldred et al. vs. Ashcroft" goes in the above direction in spite of a strong Brief in favour of the petitioners by a highly regarded group of economists, acting as amici curiae. The Court affirmed a lower Courts decision that the extension by Congress, under the Copyright Term Extension Act of 1998, of the copyright from "the life of the author plus 50 years" to "the life of the author plus 70 years" was, not only constitutional (that is compatible with the constitutional provision that copyright granting control and monopoly are given for a limited time), but also in the best interest of the promotion of science and useful arts.
The discussion here deals very clearly with the fine balance between copyright (and all the virtues coming with it) and free expression (and all the virtues coming with it). Almost every participant in this debate recognizes the benefits of copyright laws in terms of inducing creation, in terms of allowing the maintenance of copyrighted works, and more generally in terms of favouring the advancement of arts and culture as well as science. And many examples can be given to support every aspect of this view. On the other hand, almost every participant in this debate recognizes the impediments that 'extended' or arbitrarily long term copyright may create for artistic and cultural development as well as scientific discoveries. Again, many examples can be given to support every aspect of this alternative view.
In fact, it seems that the main battleground is that of the 'optimal' term of copyright. In the U.S., the copyright term was originally set at 14 years (plus a possibility of extension for another 14 years) in 1790, then it went successively to 28 years (plus a possibility of extension for another 14 years) in 1831, to 28 years (plus a possibility of extension for another 28 years) in 1909, to "life of the author plus 50 years" for individuals and their estates and to the minimum between "75 years from publication" and "100 years from creation" for corporations which holds the copyrights on works created by their employees, to "life of the author plus 70 years" for individuals and their estates and to 95 years for corporations (See Heins 2002). As long as some copyrights remain commercially attractive after such terms, one may expect that Congress is going to be under pressure to extend copyright terms again.
For many observers, the term extensions are untenable because they add little if any incentive for creation and, although they may favour maintenance by copyright owners (some individuals, but mainly organizations and corporations), such maintenance could be better achieved at lower costs (especially the cost of identifying and finding the copyright owner or owners in many cases) by letting the works in question fall into the public domain and letting artistic and cultural associations as well as public library archivists take care of them. For the opponents to extending copyright term protection, the beneficiaries of such extensions are not the artists or creators themselves but rather corporations who by the time the copyright term expires are in fact the copyright owners on most of the works which would otherwise have fallen in the public domain.
Therefore, the two main issues being raised seem to be first the proper compensation for creators and second the efficient way to ensure the maintenance of artistic and cultural works over long periods of time. Clearly, a copyright term somewhere between 25 years and 50 years would appear acceptable by most of the objectors/petitioners in the Eldred vs. Ashcroft supreme court case, in terms of ensuring proper compensation for artistic and cultural works. Similarly, a legally enforced requirement that some Public Arts and Cultural Maintenance and Enhancement Office be responsible for maintaining and enhancing works whose copyright term has expired would probably convince most of the general public that the copyright owners should be forced to let their works fall in the public domain possibly under the assurance that the integrity of the original works will be preserved. But as long as a satisfactory solution to these two issues, proper compensation for creation and maintenance, is lacking, debate will remain active.
Alternatively, a procedure could be defined in such a way that works whose copyright have not been explicitly maintained and properly filed with some Copyright Clearance Authority every 15 years from the time of creation, thereby indicating a loss in perceived commercial value, would be considered to have fallen irreversibly in the public domain. This would reduce significantly the cost of identifying the copyrights owner or owners. Similarly, copyright payments for works created more than 50 years ago could be shared between the copyright owners and the general public in a way that preserves the commercial value of the copyrighted works. For instance, an individual or corporation receiving copyright payments could be asked to give away to public institutions (libraries, schools, amateur orchestras for instance) an equivalent value in free use of the copyrighted works.
Legal Protection for TPM and for RMI.
If there is some discussion regarding the value of extending the copyright term, the discussion is shorter regarding the following two changes, namely the introduction of legal protection measures for technological protection such as encryption, and the introduction of legal protection measures for rights management information used to identify works and other subject maters. We consider both measures together for the four groups of stakeholders because the serve to fill the same function although in a slightly different way. However, TPM and DRM are different and serve different but related goals although in many cases, DRM rely on and include some form of TPM.11
Here the rather clear-cut argument is that if rights are not well defined and well enforced, there can be no viable or at least reasonably efficient markets on which they can be transacted. The role of copyrights is not only to protect the creators but also to allow the emergence of markets on which willing sellers (creators) can interact with willing buyers. The emergence of those markets is an important factor in making the works of creators available to the general public. In the absence of well functioning markets, there is no guarantee that creations of all sorts and forms will be made available to the public except in a rather chaotic way. Even if the price may be very close to zero in the latter case, there is no reason to expect that this would make the interested public more adequately served. Indeed, the efficient functioning of markets requires adequate resources in order to make the transaction costs as small as possible. Unless the property rights are well defined and enforced, efficient market most likely not going to emerge, whether we are dealing with physical goods or information goods.
The role of TPM and RMI are essential to the efficient functioning of markets (some yet to emerge) because they allow the proper protection of copyrights and second they make sure that the proper information is available at a low cost to prospective buyers. In addition to institutions, rules and procedures surrounding TPM and RMI, we need market makers who will ensure that transactions can be done at low costs These are the main ingredients necessary for the creation and development of efficient markets in copyrights. Who may play the role of those market makers? One example is Access Copyright, the Canadian Copyright Licensing Agency, which is a not-for-profit agency established in 1988 by publishers and creators to license public access to copyright works. The agency now represents a vast international repertoire along with more than 5,300 Canadian writers, photographers, and illustrators as well as 490 newspaper, book and magazine publishers. This stated objective of this agency is to make the transactions on copyrights as easy as possible and to make dealings with copyright owners as user friendly as possible. Other institutions could play such a role also, such as CIPO and WIPO, but there is clearly an advantage to specialize in a way to capture economies of scale and scope in copyright management.
A similar position is adopted by the Writer Guild of Canada and the TRACE coalition12 supporting the goal of the Electronic Copyright Fund and calling for support from the Fund in favour of a Canadian registry for the International Standard Audio-Visual Number (ISAN), as stated in Sandra Macdonald & Associates (2002): "The stated goal of the Fund is to develop tools which will permit prospective users of Canadian cultural works to obtain the necessary permissions from copyright owners is a user-friendly way; preferably through on-line interaction with a single information source, or at least, a single source for the genre in question. There is a desire to support initiatives which can deliver results in the relatively short term, and there is a premium placed on the interoperability of the system, both the ensure compatibility with the government's other "on-line" initiatives and with international standards."
i) the specific options considered with regard to RMI
As mentioned above, the specific options considered regarding RMI are as follows: Option (a): Tampering or altering RMI for the purpose of furthering or concealing infringement would be prohibited. The prohibition would apply to passive infringement only (this refers to tampering with RMI, such as the information that identifies the work, the owner of any right in the work or information about the terms and conditions of use of the work and any numbers or codes that represent such information). Terms and conditions would not be protected and protection would not extend to false or misleading RMI. Option (b): As with (a), but the prohibition would extend to terms and conditions. Option (c): Protection would extend to the integrity of a rights management system, such as systems that allow rights holders to track the use of copyright material. Option (d): Regardless of the approach above, provide an exception from liability that would apply in respect of bona fide activities that affect RMI, carried out for the purposes of ensuring inter-operability, reverse engineering and security testing.
The main arguments for better defined and designed copyright laws and procedures (through the new WIPO treaties) stem from three different considerations and objectives: first, to ensure a proper incentive compatible system to promote creation and innovation; second, to protect the works so created from decaying if possible; third, to favour the emergence of efficient competitive markets on which all surplus generating trades can be realized, including trades on the copyrights themselves.
It is difficult to see how these objectives can be achieved unless tampering or altering RMI for the purpose of furthering or concealing infringement are prohibited. The case is much less clear when we consider the possibility of extending the prohibition to terms and conditions. Doing so would make the trades on copyrighted works more difficult and could prevent the emergence of efficient markets. The stakeholders, and the creators in particular, would not be served by such an extension. Insofar as the information that identifies the work, the owner of any right in the work or information about the terms and conditions of use of the work and any numbers or codes that represent such information is protected, it is in the best interest of creators that their works be available without further complications, and similarly for the extension to the integrity of a rights management system. One can express fears here that the useful consumption (understood in the most general way) of copyrighted works would be significantly diminished if rights holders were allowed to track unduly the use of their copyright material. Insofar as RMI is appropriately protected against tampering or altering, there is no benefit in terms of incentives, protection against decay and/or emergence of efficient markets, in making the legal and appropriate use of the copyrighted material tractable by the rights holders. However, within the above protections, it is important to allow for an exception from liability that would apply in respect of bona fide activities carried out for the purposes of ensuring inter-operability, reverse engineering and security testing. Again, this would potentially generate important benefits for stakeholders and rights holders in particular by making the markets more efficient and serving the consumers in a better and more efficient way.
Regarding remedy options, it seems that civil sanctions with the possibility of criminal sanctions if large-scale infringement or infringement done for commercial purposes would serve the purpose of properly enforcing distribution rights. Indeed, large-scale infringement or infringement done for commercial purposes should be more severely punished than less serious individual and occasional infringement which may be done without intention to bypass copyrights. Moreover, large-scale infringement or infringement done for commercial purposes is equivalent to large-scale theft by organized crime groups. Hence the criminal sanctions for such offences. Both the option to remedy copyright infringements through civil sanctions only or the option to remedy copyright infringements through criminal sanctions only seem exaggerated, the former on the light side, the latter on the serious side. In the first case, civil remedy only would favour large scale tampering and altering of RMI by those groups organized to benefit from these activities. In the second case, there will likely be too much hesitation on the part of law abiding citizens to consume copyrighted works because of the fear of the serious consequences that copyright infringement may bring, thereby reducing the development and growth of the markets in copyrighted works to the detriment of creators and the consumers alike. For those reasons, the preferred remedy option appears to be civil sanctions with the possibility of criminal sanctions for large-scale infringement or infringement done for commercial purposes.
ii) the specific options considered with regard to TPM
As mentioned above, the specific options considered regarding TPM are as follows: Option (a): Amend the Canadian Copyright Act to prohibit the act of circumvention of TPM done for the purpose of infringing copyright. This prohibition would not apply to circumvention done pursuant to an exception or with respect to material in the public domain. Option (b): As in option (a), but do not allow circumvention for the purposes of private copying under s.80 of the Copyright Act. Option (c): Prohibit not only the circumvention of TPM, but also the manufacture and trade of devices that may be used to circumvent. Option (d): As in option (c) but include an obligation to make the works or means to access or use the works available to users who benefit from specific exceptions or where the work is in the public domain. Option (e): Regardless of the approach above, provide an exception from liability that would apply in respect of bona fide activities that affect TPM, which are carried out for the purposes of ensuring inter-operability, reverse engineering and security testing.
Again, let us recall that the main arguments behind the new WIPO treaties is to contribute to the development of copyright industries by allowing the emergence of institutions which would make possible the open and legal trading of copyrighted works in an efficient way. In so doing, those institutions would contribute to the well being of all Canadians. Efficient trading of copyrighted works implies proper incentives for creation and dissemination and proper maintenance of created works. Technologies and activities, which allow a larger diffusion and consumption of copyrighted works, should be encouraged as long as copyright owners are adequately protected. It is clear that the Canadian Copyright Act should be amended to prohibit the act of circumvention of TPM done for the purpose of infringing copyright. Otherwise no efficient market could emerge.
However, given that the markets for copyright works can be made viable and sustainable through TPM, it is desirable first to make sure that TPM are adequate safeguards against piracy and illegal copying and second, to make sure that the markets be made as efficient as possible through reductions in transaction costs. In that respect, it seems preferable to allow private copying in the spirit of the legal reform of 1996/7. The private copying under s.80 of the Copyright Act was enacted to make the best of a difficult situation: the level of private copying was increasing at an alarming rate and to protect the rights of creators, the Government allowed (properly limited) private copying in exchange for a levy on blank media to be determined by the Copyright Board. At this time, the authors/composers interprets and makers of pre-recorded music works can get compensation through different collectives as allowed by the Copyright Board. This system, which is just beginning to function in a somewhat efficient manner, should be kept in place. Therefore circumvention for the purposes of private copying should not be prevented.
The new technological devices by which copies can be made should not be made illegal because they can be very important in the development of new markets for copyrighted works and therefore in the development of proper incentives for creators. The important point here is that those new technologies, if they can be properly used and regulated, could be a significant source of value for copyrighted works and therefore a significant source of revenues for creators. Rather than making the new technologies illegal, it seems much better to design a proper set of laws and regulations to make sure that they do contribute to the development of markets rather than prevent that development. What is at stake here is not the protection of past technologies but the protection of copyright owners. Technologies will keep on competing with each other for the betterment of all Canadians. Let the best technologies win. It is quite possible that these new technologies will allow new forms of market trading by which consumers deal directly with copyright owners one way or another. This should be encouraged but properly "regulated" to make sure that they are indeed factor of growth through new forms of production and distribution rather than factors of stagnation through the prevention of innovations.
As argued before in the case of RMI, TPM should be such that the works or means to access or use the works should be made available to users who benefit from specific exceptions or where the work is in the public domain. Moreover, an exception from liability should apply in respect of bona fide activities that affect TPM, which are carried out for the purposes of ensuring inter-operability, reverse engineering and security testing.
Regarding remedy options, it seems, for the same reasons as in the case of RMI, that civil sanctions with the possibility of criminal sanctions if large-scale infringement or infringement done for commercial purposes would serve the purpose of properly preventing the circumvention of TPM. Indeed, large-scale infringement or infringement done for commercial purposes should be more severely punished than less serious individual and occasional infringement which may be done without intention to bypass or circumvent TPM. Both the option to remedy TPM circumvention to infringe copyright through civil sanctions only and the option to remedy TPM circumvention to infringe copyright through criminal sanctions only seem exaggerated. The former would favour large scale circumvention of protective technologies such as encryption while the latter may be conducive to lower market efficiency through much hesitation on the part of law abiding citizens to consume copyrighted works because of the fear of the serious consequences that TPM circumvention may bring, thereby reducing the development and growth of the markets in copyrighted works to the detriment of creators and the consumers alike. For those reasons, the preferred remedy option appears to be civil sanctions with the possibility of criminal sanctions for large-scale infringement or infringement done for commercial purposes.
The Explicit Distribution Right for Software Makers.
Again in this case of an explicit distribution right, it is difficult to see how a reasonably efficient market for copyrights can develop and survive of the creator does not control the distribution of his or her works. Insofar as the publication right can in Canada cover this right, the amendment to the Copyright Act should be rather minor.
However, one may wonder what economic thinking can be raised that would help to differentiate between the two options considered.
One option (option (b) above) is to create a full distribution right in all copies while the second option (option (c) above) is to create a full distribution right in all copies but to state that if the purchaser has lawful exclusive possession, he (or she) will be deemed to be the owner.
Indeed, from a transaction cost point of view, it may be more efficient to go with the second option, option (c), insofar as the possibility to allow family and/or friends to have access to one's copy of copyrighted material is unlikely to prevent the creators from capturing the economic value of their works and could even allow the typical buyer of copyrighted software to pay a (higher) price which would include such a right. On the other hand, a creator could always prevent such a lawful exclusive possession right by expressly stating so in a formal contract. This could apply to the cases where the buyer is a commercial operator but is unlikely to be of interest to the creator when the buyer is an individual.
11 See Kerr, Maurushat and Tacit (2002) for an excellent discussion of DRM and TPM as well as circumvention technologies.
12 The TRACE coalition comprises The Alliance of Canadian Cinema, Television & Radio Artists (ACTRA), the American Federation of Musicians (AFofM), l'Association des producteurs de film et de télévision du Québec (APFTQ), l'Association des réalisateurs et réalisatrices du Québec (ARRQ), the Canadian Association of Broadcasters (CAB), the Canadian Broadcasters Rights Agency (CBRA), the Canadian Broadcasting Corporation (CBC), the Canadian Film & Television Production Association (CFTPA), the Canadian Screenwriters Collection Society (CSCS), the Directors Guild of Canada (DGC), the Directors Rights Collective of Canada (DRCC), the National Archives of Canada (NAC), the National Film Board (NFB), the National Library of Canada (NLC), la Société des auteurs et compositeurs dramatiques (SACD), la Société des auteurs de radio, télévision et cinéma (CARTeC), the Society of Composers, Authors and Music Publishers of Canada (SOCAN), la Société Radio-Canada(SRC), the Writers Guild of Canada (WGC), l'Union des artistes (UdesA).
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