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3 Research Directions In this chapter we propose four sets of research questions that reflect the issues raised repeatedly in the committee’s meetings and workshop and relate directly to policy debates playing out in domestic political, legal, academic, and social as well as international venues. These ques- tions have a bearing on pattern and scope of creative expression as well as the structure and profitability of copyright-affected industries. The ques- tions are not exhaustive, but the committee believes that they should form the core agenda of a well-funded, long-term empirical research enterprise. 1. Impact of digitization on incentives to make, develop, promote, distribute, consume, and maintain the integrity of creative works B  y assigning creators limited rights, copyright aims to incentivize the creation development and dissemination of creative work and to preserve its integrity. How have these incentives been affected by digitization? Similarly, how have copyright and digital technology affected the incentives of other participants in the copyright environ- ment, including consumers? 2. Enablers of and impediments to voluntary transactions A  lthough granting rights initially to creators, copyright law allows creators to assign or license those rights to others—potentially enhancing the value and public benefit of the copyrighted works by permitting broader use, dissemination, and subsequent creative activ- ity. What are the costs associated with such copyright transactions, and what mechanisms help to overcome these costs? How have trans- actional impediments and enablers changed with digital technology? 35

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36 COPYRIGHT IN THE DIGITAL ERA 3. Enforcement costs and benefits C  opyright enforcement mechanisms include civil penalties, crimi- nal sanctions, technical requirements, and intermediary obligations. What are the costs and benefits of these and alternative mechanisms? How well do they address new challenges in the digital age, includ- ing those posed by unauthorized access to copyrighted works ema- nating from non-U.S. jurisdictions that lack effective enforcement mechanisms? 4. Exceptions, limitations, and balanced copyright design C  opyright law attempts to balance competing interests of creators and downstream users of copyrighted works through a variety of mechanisms—term limits after which works enter the public domain, enumerated exceptions to address specific policy objectives, general exceptions such as fair use, and compulsory licensing provisions. What is the role and effectiveness of these measures in different copy- right domains and what impact do they have on creativity? The following sections expand on these research topics along with some suggestions of research approaches appropriate for exploring them. CHANGING INCENTIVES As explained above, the leading justification for copyright in the United States has always been to motivate and disseminate creative expression for the public benefit by providing creators and/or their agents with a degree of market power they would not otherwise enjoy. Although this market power can translate into supra-competitive prices for consumers of copyrighted works and into constraints on those who use them as the basis for subsequent creativity, copyright strives to limit these costs to those necessary to generate and disseminate the works upon which subsequent creativity depends. This conventional theory of copyright has been explored in generations of copyright scholarship. But empirical research documenting the actual impact of copyright on incen- tives of creators, distributors, and consumers is quite limited and thus a key direction for future investigation. Creator Incentives The digital age appears to have profoundly affected creator incentives in at least two ways. First, advances in technologies for producing and disseminating expressive works have reduced the barriers to entry and the costs of creation and distribution for some categories of works. On the other hand, the ease with which works can be distributed over the Inter-

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RESEARCH DIRECTIONS 37 net without authorization or compensation threatens to diminish invest- ment in some creative activities, especially those involving substantial production costs. It is important to know how these changes have affected the spectrum of creators and enterprises engaged in the generation and distribution of creative works. For example, it would be valuable to know more about the expenses involved in different aspects of creative productivity, including both ini- tial authorship and subsequent dissemination to the public, across differ- ent sectors, and the different business models by which those expenses might be recouped. Studies along these lines might document that some types of creative production remain quite expensive in the digital age. It seems likely, however, that digital tools make other types of creativity and dissemination much less costly. These costs should in turn be under- stood in relation to better understandings of the copyright- and non- copyright-dependent sources of motivation for creative production. Some types of creative production may require investments that are difficult to recoup other than by exploiting copyright protection. Other creators may be motivated by alternative sources of monetary and/or non-monetary compensation—ranging from sales of ancillary products and services, such as live concert performances, to reputational benefits to the simple pleasure that so many Internet uses seem to derive from creating and sharing their own creative expression online without any apparent expec- tation of exploiting their exclusive rights for monetary gain. We do not mean by these suggestions to prejudge the results of stud- ies of the costs and motivations of creative expression and dissemination but merely to indicate how such studies would enrich our understanding of the factual basis for the assumptions built into the theoretical justifi- cation for copyright and of how those facts may be changing as digital technology affects both the costs of creative production and the power of non-copyright-dependent motivations. Information about creator moti- vations and costs would not only illuminate theoretical justifications for copyright. It might reveal differences in incentives and costs among types of works such as works for entertainment and scholarly and educational works. Such data would be critical to informed judgments about the merits of differentiated copyright protection—whether, for example, the duration of copyright protection should vary from one type of creative work product to another. User Incentives Another set of motivations is highly relevant to copyright policy: the motivations of various types of users and potential users of creative works. Users include people who currently pay to purchase copies or

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38 COPYRIGHT IN THE DIGITAL ERA otherwise acquire authorized access to copyrighted works for purposes of consuming and/or creatively building upon those works; people who undertake these activities in lawful accord with a copyright limitation or exceptions; people who undertake these activities in violation of copy- right law; people who forgo these activities because of the risks and bur- dens that copyright law imposes; and people who use copyrighted works in ways that fall within areas of legal uncertainty. By “users” we do not only mean end-users but also commercial firms that make use of copy- righted works in the process of supplying other goods and services. With the data called for below regarding patterns of consumption of creative works, studies could be designed to better understand who falls in these various categories and why, and whether and how copyright influences their behavior. For example, it would be valuable to know more about how user motivations and behavior are affected by enforcement efforts— including the extent to which effective enforcement encourages users of infringing copies to turn to legal alternatives. ENABLERS OF AND IMPEDIMENTS TO VOLUNTARY TRANSACTIONS The exclusive rights that copyright law bestows on creators may be voluntarily transferred from creators to others through licenses on either exclusive or non-exclusive terms. This transferability is consistent with copyright’s purpose of promoting creativity for the public benefit. It allows creators to derive revenue from their investments in creativity while permitting others to use, disseminate, and build upon their works. Digital technology promises to expand authorized access and iterative creativity, but not if rights are not easily transferred because of transaction costs and other barriers to voluntary exchange. Where such impediments are significant, they may justify policy interventions aimed at facilitating transactions or adjusting aspects of copyright law. Successful examples of voluntary transactions, by contrast, might provide lessons about what works well in the current legal environment. Questions about the extent and persistence of copyright-related trans- action costs and related market failures have been raised and explored in both academic and policy analysis relying on case studies, interviews, and other types of qualitative evidence illustrating both copyright exchange failures and successes. To date, however, there have been few efforts at broad and systematic data collection to support policymaking. Consider the transaction cost hurdles to voluntary exchange associ- ated with “orphan works,” works for which the copyright holder cannot be readily identified or located for the purpose of entering into a volun- tary exchange agreement. Even if the author and publisher are found,

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RESEARCH DIRECTIONS 39 rights to the content may be unclear. To assess the magnitude and policy implications of the orphan works problem, it would be useful to have data on the share of copyrighted works for which the owner cannot be located and how this share is changing over time. But such works are not comprehensively listed or collected anywhere. This data gap may be especially severe with regard to documentaries and other remixed or “user-generated” content. Despite this difficulty, a number of promising research avenues seems worth pursuing. One approach is to focus on an identifiable subset of copyrighted works and attempt to measure the percentage of difficult-to- license works within that corpus. If, for example, one could estimate the share of difficult-to-license photos in the collections of cultural heritage institutions, that could inform an understanding of both the scope of the problem and the challenge of digitizing such collections for preservation and public education. Another approach to studying enablers of copyright transactions is to survey participants in the copyright market about their experiences. Questions can probe the costs as well as the frequency of problems and can document and attempt to identify factors that have made some efforts to assemble large authorized collections of licensed works relatively suc- cessful for some categories of copyright work. For example, retailers such as Amazon and Apple, among many others, offer digital storefronts featuring massive collections of digital works which they do not own, but have licensed. Especially valuable would be comparisons of U.S. experience with other countries, before and after policy changes aimed at solving orphan works problems or other challenges associated with works for which licensing is possible but practically difficult. These include various forms of compulsory and/or collective licensing. Voluntary collective licensing organizations and other intermediaries that seek to help individuals overcome barriers to exchange are worthy of further study in their own right. Relevant intermediaries that are active in the United States include American Society of Composers, Authors, and Publishers (ASCAP) and other performance rights organizations. Other examples are promulgators of public licenses (e.g., Creative Com- mons and the Free Software Foundation), universities that have adopted uniform practices for the licensing of faculty work, and funding entities that specify the terms on which the copyrighted scholarship they sponsor will be released and used. Some of these institutions and practices have foreign counterparts that may be illuminating. A different approach to these questions would use the insights of experimental psychology, which have contributed to the study of transac- tion cost economics and could be applied more extensively in the study

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40 COPYRIGHT IN THE DIGITAL ERA of copyright markets. This work is based not on observational data about actual market practices but on carefully designed experiments to illumi- nate sources of bargaining breakdowns and strategies to overcome them or, on the other hand, circumstances in which creators are motivated to license their works in the interest of wider distribution or follow-on use. These research approaches could advance understanding of a num- ber of important policy-related questions: Are licensing markets more successful in some sectors than others and why? What if any special problems are encountered in books, photographs, scientific research, user-generated content, mash-ups, and other derivative works? Where does inadequate notice of copyright status and rights-holder identity and preferences impede voluntary licensing? How has this changed with changes in government registration and the advent of private registries? How have transaction costs changed with new technological, business, and legal developments? How is technology being used and in what ways might it be improved to facilitate the tracing of copyright ownership and licensing terms? What roles can public and private institutions play in voluntary transactions? ENFORCEMENT COSTS AND BENEFITS Many recent policy debates have focused on copyright enforcement, with advocates of enhanced penalties, new enforcement mechanisms, and enhanced international enforcement coordination citing the cost and ineffectiveness of enforcement mechanisms available under current law and, in particular, the difficulty of preventing the infringing distribu- tion of copyrighted works from websites located in jurisdictions that lack effective enforcement mechanisms. Opponents in these debates raise concerns about the potential for zealous enforcement to discourage legiti- mate activities and chill technological innovation. These disagreements highlight gaps in our knowledge about the effectiveness, costs, and unin- tended consequences of different tools for copyright enforcement. The debates raise a number of important research questions: How much money do governments, copyright owners, and intermediaries spend on copyright enforcement? How are resources focused on individ- ual infringers versus intermediaries, domestic versus foreign infringers? What are the profiles of enforcement targets, including organized transna- tional criminal enterprises? What remedies are sought and applied? What are the effects of these efforts in terms of compensation, prevention, edu- cation, and deterrence? How is the effectiveness of enforcement efforts changing with advances in technology and ever faster digital networks? Are better and more effective enforcement technologies available today than were available when the DMCA was enacted? What new forensic

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RESEARCH DIRECTIONS 41 services and related vendors have entered the market? What are the costs and benefits of new enforcement mechanisms introduced in some sectors and jurisdictions, including enhanced secondary liability, “graduated response,” filtering, domain blocking, and targeting of “rogue” websites? How are these costs and benefits distributed among copyright owners, developers and operators of platforms and technologies used for the dis- semination of copyrighted works, public enforcement agencies, and other entities? How are distribution of costs and benefits shaped by the safe har- bor provisions of the DMCA and related legal standards regarding sec- ondary liability? Are there new business models that are less vulnerable to infringement and therefore less reliant on enforcement efforts? What is the role of voluntary inter-industry arrangements to reduce infringe- ment levels? What legal impediments do such arrangements encounter and how can these be removed, lowered, or accommodated? What have been public reactions to increased enforcement efforts? And what is the speed of enforcement, especially in cases where infringement is obvious? In other words, how long can a flagrant infringer operate and profit? Questions about enforcement overlap with questions described above regarding the motivations of copyright users and other participants in the copyright environment. Do enforcement efforts motivate users to acquire copies of works through authorized channels instead of via infringement? When do enforcement efforts hinder legitimate activities and techno- logical innovation? Do enforcement limitations encourage enterprises that contribute to infringement to turn a blind eye to illegal activity they could help to prevent? To what extent should enterprises that facilitate consumer access to copyrighted content be held responsible for illegal activities carried out by users? Should this determination depend on their ability to control the activity in question? Enforcement questions seem especially amenable to international comparative analysis. The international legal framework for copyright, consisting of treaties administered by the World Trade Organization (WTO), World Intellectual Property Organization (WIPO), and a mul- titude of bi-party and multi-party agreements, sets broad parameters and minimum standards for national copyright enforcement efforts. But the agreements allow for local variation in practice and countries com- ply with their terms differently. Although these characteristics represent opportunities for comparative analysis of enforcement regimes, to date there has been negligible comparative research assessing the cost and efficacy of different approaches and their effects on economic output and investment. A first-order priority is to compare enforcement practices over time in jurisdictions that have been relatively successful in reducing the prevalence of high-volume copyright infringement and those in which the problem has been more intractable. Further research could study how

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42 COPYRIGHT IN THE DIGITAL ERA these enforcement differentials have impacted local creators and other participants in the creative environment. EXCEPTIONS, LIMITATIONS, AND BALANCED COPYRIGHT DESIGN As explained above, the exclusive rights that copyright law grants to encourage creativity can impose costs in terms of reduced access and cumulative creativity. The exceptions and limitations to copyright can be understood as attempts to contain these costs and maintain an overall bal- ance in copyright policy. Fully evaluating copyright policy requires that we understand not only how well the law motivates creativity, and how well the rights it creates are enforced and transacted, but also how its lim- its operate. Copyright needs to be seen as part of a larger policy environ- ment related to creativity and innovation, an environment that includes other mechanisms that may serve as complements or even alternatives for copyright’s particular mechanism of promoting creativity. One way copyright law balances competing interests is by term limi- tations; another is by permitting certain uses of copyrighted works with- out permission from their owners under various exceptions and limita- tions. These include some narrow exceptions that allow very specific uses of certain types of works by statutorily-identified classes of users. Other exceptions—including the fair use and first sale doctrines—are more gen- erally applicable. Valuable research could build upon initial attempts to quantify the benefits of exceptions and limitations in terms of the economic outputs and welfare effects of those individuals, businesses, educational institu- tions and other entities that rely on them. These include search engines whose practices (e.g., embedding thumbnail versions of copyrighted images in search results) have survived copyright challenges on the basis of fair use, for example; used book sellers and movie rental businesses that rely on the first sale doctrine; libraries that rely on fair use; publishers of books for which copyright has expired; and a variety of music outlets that rely on the complex scheme of limitations and compulsory licenses applicable to music copyrights. A variety of practices in the education and library contexts are also shaped by fair use, first sale, and other excep- tions. Assessing the effects of copyright limitations would also require studying how, if at all, they affect copyright holders. Research should also aim to understand these benefits and costs dynamically, exploring how copyright and its limitations affect the emergence of innovative and/or disruptive technologies and platforms. Limitations may also be affected by developments in technology and business practices. Where the sales of books to libraries are replaced by

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RESEARCH DIRECTIONS 43 limited grants of permission to access e-books, for example, limiting doc- trines like first sale may be less effective than in the past. Research about how contractual practices are interacting with and perhaps displacing copyright’s limitations and exceptions would be valuable to better under- stand this and other developments. Harder to quantify but nonetheless critical are the effects of copyright exceptions and limitations on indi- vidual welfare, autonomy, and freedom of expression, as well as the role of libraries and archives as cultural custodians, preserving digital books, journals, archives, datasets, music, and film for consultation, scholarship, and study. PRINCIPLES TO GUIDE RESEARCH Finally, we want to reiterate two guiding principles of research on copyright. First, irrespective of whether their research relies on quan- titative data collection or survey or experimental methods, investiga- tors should consider undertaking studies that are comparative across countries, industries, and time. Cross-cultural comparisons should by no means be limited to enforcement questions. They should broadly explore how content is created, developed, disseminated, and used in countries with different copyright regimes as well as different levels of enforcement. Perhaps institutions such as the Organisation for Economic Co-operation and Development (OECD), United Nations Educational, Scientific, and Cultural Organization (UNESCO), and international scientific organiza- tions can help address data access issues which are no doubt different than but possibly as challenging as they are in the United States. Cross- country comparisons pose a challenge to the researcher in understanding the political and social context of policy changes in each of the countries being studied. Likewise, cross-sectoral studies require an understanding of how each of the industries works. Neither challenge is insuperable and the reward is a richer understanding of the different policy choices and economic contexts. A second principle that investigators as much as policy makers should bear in mind is that technological change will continue to drive changes in content creation, distribution, and consumption, including infringement. They should be attentive to technologies and trends that should prompt re-thinking of long-held assumptions about creativity and the logic on which copyright protection is based.

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