Assessing Economic Impacts of Copyright Reform on Selected users and Consumers

IV. Photographs

1. Current law and policy options

The Copyright Act identifies the author of a photograph as the person who "(a) was the owner of the initial negative or other plate at the time when that negative or other plate was made, (b) was the owner of the initial photograph at the time when the photograph was made where there was no negative or other plate".

The original owner of copyright in a photograph is generally the photogr apher. However, when a photograph is ordered for valuable consideration and paid for, the person commissioning the photograph or employing the photographer – a natural or moral person – is deemed to be the first owner of the work. This rule applies only in the absence of any agreement to the contrary. Also, when the photograph is made in the course of an employment relationship, copyright ownership will, absent an agreement to the contrary, belong to the employer.

Before 1997, copyright in photographs subsisted for fifty years from the end of the calendar year of the making of the initial negative, and if there was no negative, from the making of the initial photograph. The 1997 amendments replaced this treatment by the standard regime of life plus 50 years. However, the amended rule applies only where the original owner is a natural person or a corporation in which the person who would have qualified as the author holds the majority of voting shares. When the owner of the initial negative is a corporation that is not majority–owned by a natural person, the term of protection remains fifty years from the end of the year in which the negative was made.²¹

The WIPO Copyright Treaty stipulates that in respect of photographic works, the contracting parties shall not apply Article 7(4) of the Berne Convention. The latter gives parties to the Convention the freedom to determine the term of protection of photographs. It imposes only a minimum term of 25 years from the making. The implication is that signatories of the WIPO Copyright Treaty (WCT) must give photographs a standard protection term equal to life of the author plus fifty years. This applies to future works and existing works.

Industry Canada has raised the following questions in regard to photographs:

1. What is the effect of applying the standard rule of author’s life plus fifty years to all photographs not yet in the public domain?
2. If the standard rule applies to all photographs, should there be a provision for fair dealing in the case of unpublished photographs? Should any such fair dealing exception be limited to photographs produced by Canadian photographers?

2. Extending the protection term for works owned by corporations

²²The working hypothesis underlying our analysis is that the current rule in regard to the ownership of rights in photographs made by employees of corporations or commissioned by corporations will be maintained.²³

Effect on the motivation to create

Under the assumption that a photograph generates a constant income stream, one easily determines that adoption of the protection period mandated by the WCT increases the present value of royalties earned by a forty–year–old photographer by 3.04%.²⁴

Photographs ordered by corporations are generally intended for a single use that immediately follows production. For the great mass of photographs the probability of re–use 50 years after creation is virtually nil. Although 3.04% is larger than the increase calculated in section III, taking into account the typical time path of use of photographs implies that extension produces a negligible incentive to create.

Effect on the use of existing photographs

Term extension would raise the cost of using some works. It could increase the cost of using works older than fifty years at the time of intended use, known to have initially belonged to corporations, and whose author has died less than fifty years ago. Under the projected amendment, the rights in works belonging to that "age group" will receive a lease on life. We will refer to them as LOF works.

Amendment of the protection term could also affect the cost of using works that users, including LAMs and educational institutions, believe to possibly have had a corporation as the initial owner and possibly be LOFs. ²⁵

For expository purposes, it is useful to analyze separately the case where the user has full information about a photograph and the case where information is not available or incomplete. Full information means that the user knows the following about the photograph: The year it was made; the name and address of the right holder; and the name and address of the photographer including the year of death if no longer alive.

Consider first the case where a potential user – a museum perhaps – has full information about a LOF work. Because there is no need to trace the right holder, term extension can burden transaction cost only if it increases the cost negotiating with the corporation owning the photograph. ²⁶ Eventual additional costs are royalties.

In practice though, the extra cost is likely to be smaller. The reason is that in order to save on negotiation cost and possibly royalties, users may to choose a less costly option. They could use a public domain photograph or a photograph downloaded from a stock photography site. Users may also choose to have a new photograph made for them. It seems reasonable to consider that unless a simple phone call is sufficient to obtain permission and agree on a fee, users will opt for a substitute work. If so, the additional user cost resulting from term extension is the expense associated with the chosen alternative plus the eventual "harm" ensuing from use of picture that is less fitting. ²⁷

Consider now the problem faced by a user who knows that the photograph is a LOF work but doubts whether its initial owner was a natural person or a corporation. ²⁸ Such user cannot escape the cost of locating the right holder. The latter, however, is true whether or not one amends the term of protection. Adjusting the term does not affect the cost of locating the right holder. It can only contribute to negotiation cost and royalties if the search reveals that a corporation was the initial owner.

Consider next the case where a user has no doubt that the work is owned by a corporation but is uncertain whether the work is a LOF. The question whether transaction costs are higher under the amended rule now depends on whether the user knows for sure that the photograph has existed for more than 50 years. When such certainty exists, the amended rule creates an additional cost of locating the right holder if the identity of the owner is not known. ²⁹ The user may also be forced to incur negotiation costs and pay royalties for works found not to have entered the public domain.

If the user is not sure that the work is older than 50 years, extension of the term does not add to the cost of locating right holders. The reason is that even under the current rule users who want to avoid the risk of infringement cannot sidestep that cost. For reasons already mentioned, users who are not sure that a photograph is a LOF work may choose substitute photographs under the current and the amended regime.

The only remaining case is where the user is uncertain about ownership and considers that the work might be a LOF. It is clear that regardless of the applicable protection term, users who wish to avoid the risk of infringing will have to incur the cost of locating the right holder.

It is important at this point to stress that in all cases where information about a work is not complete the option of using substitute works is more attractive. The reason is that it allows users to save on the cost of locating right holders.³⁰ And, when the consumer opts for a substitute, changing the protection term cannot affect transaction cost.

In summary, amending the protection term of works owned by corporations will not increase users’ cost of locating right holders unless the following conditions are met: 1) Users know that the work is older than 50 years; 2) users know that a corporation was the initial owner (and may still be the owner) but do not know the identity of the owner; 3) and users are not sure whether the photograph has entered the public domain or remains a LOF work.

When the cost of locating right holders in a LOF work is high compared to the loss suffered as a result of using a lesser alternative, users will opt for the latter under the amended regime as they do at present. But then, changing the term of protection cannot affect user cost.

Amending the current rule imposes an additional cost of negotiation and possibly royalties on users of LOF works owned by corporations in those cases where a substitute work is not a desirable option. The meager information that is available suggests that such additional cost would be incurred on rare occasions. This is because LOF works owned by a corporation are rarely used. As indicated, the vast majority of works owned by corporations are intended for an immediate single use.

A further question is whether the cost of determining if a work has entered the public domain is higher under WCT rule. There is no unambiguous answer to this question. When the author is unknown, the current rule appears to entail a lower cost because it is often possible to determine the approximate date a picture was taken from the subject matter that appears in it. However, when the author is known, a rule of life plus fifty is less demanding because the rights to all his works expire on the same date.

A final issue relevant to users’ decision whether to engage in a search for corporate right holders is whether corporations possess all the data required to manage their rights under the revised rule. The analysis so far has assumed that they do. In reality corporations may have information on dates of production but not on authors. They may hold photographers’ names but be unaware as to whether they are still alive. Some photographs may not carry any identifying marks. Corporations would presumably be willing to incur the expense of collecting and keeping identifying information if they could justify doing so in cost–benefit terms. The latter depends on the protection given to photographs under the amended law when this information is missing.

3. Fair dealing and publication

³¹ The Copyright Act limits the power of right holders in special situations. There is a fair dealing limitation when works are used "fairly" for purposes of research, private study, criticism and news reporting. There are limitations that apply to particular uses of certain types of works. One example is the right to make a back–up copy of a computer program. There are also are limitations that apply to some users and some uses of all works. E.g., educational institutions may make unauthorized copies of material or perform works under conditions that would otherwise constitute infringement.

The literature provides an efficiency rationale for such limitations on copyright. The most commonly cited rationale is that if transaction cost did not stand in the way, right holders would have consented to free use. If so, granting the exception gives users a benefit without imposing a cost on right holders. This is welfare enhancing.

A closely related argument is that right holders’ agreement to allow use is implicit. Landes (1992) argues that writers value reviews that give them exposure. However, the public will only read reviews that it considers impartial. Impartiality is not likely when authors can put obstacles in the way of reviewers by invoking copyright in material inserted in the reviews. It would be inefficient to require reviewers to negotiate with authors. Doing so would undermine the value of reviews and result in less informed purchasing decisions. For that reason one must presume that if authors were asked, they would agree to have their works reviewed.

An alternative rationale is that specific uses by identifiable individuals generate a gain society that is considerably larger than the benefit accruing to these individuals. Absent a limitation on the right of authors, these persons would acquire copyrighted material until their private benefit from additional use equals transaction cost plus royalties. At this point though, the benefits to society from further use would remain large. One wants to limit the right of authors in order to encourage such additional uses, e.g. for educational purposes.³²

Publication is relevant to the question whether right holders would have consented to the use of their work if transaction costs did not stand in the way of negotiations. Publication allows an inference that right holders would like their works to be used. It points to an intention to exploit them commercially, or donate then an institution where they produce a public benefit.

A similar intent is not revealed when a work has not been published. Therefore, there is no basis to extend the aforementioned limitations on copyright to unpublished works.

Then again, the mere absence of publication does not imply that the right holder is averse to all the uses of published works protected under the Copyright Act. For instance, a gift of unpublished material to a museum or an educational institution probably entails an implicit agreement to have that material used in a manner typical for that institution.

These considerations apply to all works including photographs. Although the unauthorized use of unpublished photographs may produce benefits to third parties, they seem insufficient compared to possible damages to right holders, to justify a fair dealing exception. This conclusion applies equally to works authored by Canadian and foreign photographers.

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²¹ The law does not preclude negotiations between corporations and photographers about a reassignment of rights in the photograph.

²² In the remainder of this section the term corporation is used to denote corporations in which the photographer does not own the majority of shares.

²³ The question how users are affected by a resolution to base the term of protection of works owned by corporations on the life of the photographer is not the same as the question how users would fare under a rule that assigns to photographers copyrights in works commissioned by corporations or made by their employees. Those who support a rule that would grant photographers the rights in works commissioned by corporations to photographers take the view that such grant implies a protection period of life plus fifty years.

²⁴ As in section III (of this study...) the calculation assumes a 7% discount rate and a life expectancy of 80 years.

²⁵ The cost of using photographs known not to be LOF works or known not to have been owned at first by a corporation cannot be affected by the required change.

²⁶ Or with the natural person who may have acquired the rights that were initially owned by the corporation.

²⁷ The substitute is less likely to be available when the user needs a photograph taken on a particular date e.g. the photograph of an historical event. Some commercial users of photographs – magazines in particular – maintain that they will not revise their approach to acquiring photographs in response to a change of the duration of protection or of the rule that establishes ownership of copyright. The reason is that it is simpler to commission new photographs or use photographs from sources where one can be confident that rights have been cleared, than to look for right holders and negotiate with them. When use is made of existing photographs, these users often proceed as if the person from whom they obtain permission to utilize the work has cleared all the rights. Every so often users take steps to ascertain ownership of rights, particularly when the subject matter of the photograph is a work of art such as a sculpture or painting. However, users appear reluctant to go through this process when locating right holders or/and obtaining authorization entails more than minimal bother.

²⁸ The date of production could appear on the back of the photograph or be inferred from the subject matter.

²⁹The user may be aware that the work has a corporate initial owner but may not know which corporation is the owner. The corporation that originally owned the work may be identified on the back of the picture but may have been absorbed by another entity.

³⁰ This component of transaction cost is likely to be greater than the other components.

³¹ The arguments in this section draw on Landes W.M, ( 1992), Copyright Protection of Letters, Diaries, and other Unpublished Works: An Economic Approach, Journal of Legal Studies, vol. XXI, 79–113.

³² See W.J. Gordon and R.G. Bone, Copyright, In Boeckaert and De Geest, Encyclopaedia of Law and Economics . In some sense, the fair dealing provision is akin to a subsidy granted by right holders to users and to the third parties who benefit from that use. Transaction costs explain why the potentially numerous beneficiaries cannot be forced to pay. It may be costly to identify them and impossible to ascertain how much they benefit from the work.