'Estimating the Economic Effects of Fair Use and Other Copyright Exceptions: A Critique of Recent Research in Australia, US, Europe and Singapore'

Abstract

Since 2002 the World Intellectual Property Organization (WIPO) has supported research on assessing the economic contribution of industries which are dependent on copyright and related rights protection – “the copyright industries” (CRI) . In 2003 WIPO published common guidelines on carrying out such research throughout the world (WIPO 2003, 2012a, 2012b).

This paper presents a critique of a number of recent studies which have departed from the widely accepted WIPO approach outlined above and instead attempted to estimate the economic effects of what they call copyright exceptions industries (CEI) that rely on exceptions to copyright law . These studies in effect attempt to challenge the approach of the WIPO and assert that exceptions to copyright law might make a larger economic contribution than copyright law itself.

The Computer & Communications Industry Association (CCIA) CCIA issued the first of these “copyright exceptions” or “fair use” studies in 2007, under taken by Capital Trade Inc (CT) which purported to measure CEI in the US during the period 2002-2006. CCIA has since commissioned CT to update this study in the US twice, first in 2010 , and then in 2011. In 2010 the CCIA further commissioned a study of the European Union (EU) this time by SEO Economic Research which adapted and applied the same approach used by CT in the US. Recently in September 2012 the Australian Digital Alliance (ADA) similarly commissioned and released two reports written by Lateral Economics (LE) that adapted and applied the methodology used in the US and EU to Australia.

We focus our critique in this paper primarily on the LE Australian study as it is the most recent attempt to measure copyright exceptions by applying the methodology developed in the US. Our critique of the LE approach however can be readily generalised to the older US and EU studies.

The main conclusions of the LE study of Australia we shall focus on then are that:

• “flexible copyright ‘exceptions’ and better crafted ‘safe harbours’ would make a substantial contribution to Australia’s economic growth and innovation with negligible downsides for rights holders; and • the recommended changes would improve productivity growth. Over time the additional value added to the Australian economy is conservatively estimated to grow to around $600 million annually.

This paper identifies three fundamental flaws in the LE’s papers analysis that make the analysis unreliable and its recommendations irrelevant.

• The first is fundamental weaknesses in the theoretical economic analysis of the costs and benefits of broadening copyright exemptions;

• The second is fundamental weaknesses in the empirical analysis and in particular the methodology it adopts from earlier US and European Studies;

• The third is fundamental weaknesses in the legal analysis.

Contrary to the LE reports this paper suggests that any weakening in the enforcement of copyright, through introduction of ill defined exceptions and safe harbours of the kind promoted in the LE reports, would have significant negative economic costs, and little or no benefit.

Economic theory further suggests that if there are flexible copyright ‘exceptions’ and better crafted ‘safe harbours’ that would make a substantial contribution to Australia’s economic growth and innovation, with negligible downsides for rights holders, then in all likelihood they would have already been agreed to in the market or may be expected to emerge over time through automated market based electronic payment systems.

Keywords: copyright law, economics, copyright exemptions, fair use, copyright safe harbours

JEL Classification: K11, K29