Copyhype

On November 19, the International Intellectual Property Alliance (IIPA), released its latest report that shows the value added by copyright industries each year to the US economy. This was the 14th such report IIPA has released since 1990, and for the first time, core copyright industries ¹Defined in the report as it is defined by WIPO in its Guide to the copyright and related rights treaties administered by WIPO and glossary of copyright and related rights terms: “The core copyright industries are those industries whose primary purpose is to create, produce, distribute or exhibit copyright materials. These industries include computer software, videogames, books, newspapers, periodicals and journals, motion pictures, recorded music, and radio and television broadcasting.” contributed over one trillion dollars.

Among the marquee findings, the report concludes that copyright industries:

• Employed nearly 5.4 million U.S. workers – nearly 5% of the total private employment sector – with jobs paying an average of 33% more than the rest of the workforce.
• Grew at an aggregate annual rate of 4.7%, more than twice the rate of growth for the U.S. economy.
• Accounted for $142 billion in foreign sales and exports, far more than sectors such as aerospace, agriculture, food, and pharmaceuticals and medicines.

The reaction from copyright skeptics about the report’s conclusions that copyright contributes significantly to the US economy was, essentially: “Does not.”

The spin seems to be that, yes, industries that create and disseminate copyrighted works may make substantial contributions to the US economy, but that does not necessarily mean that the success is a result of copyright itself. Jonathan Band, writing at the CCIA’s Project DisCo, says, “The report itself does not in any way attribute the success of these industries to copyright protection.”

It’s an odd argument — that the fundamental building block of a market for expressive works doesn’t play a role in the success of that market. How sound is it?

One way to test the argument would be to take a comparative look at the economic contributions of copyright industries between jurisdictions with different levels of copyright protection. If copyright protection is related to the economic contributions of copyright industries, then we would expect countries with stronger copyright protections to have a higher economic contribution from copyright industries compared to countries with weaker copyright protections.

And that, in fact, is exactly what happens.

Since 2002, WIPO has supported and collected reports on the economic contributions of copyright industries in nearly forty countries around the world. Last year, it released a report, WIPO Studies on the Economic Contribution of the Copyright Industries, that analyzed and compared the data from these reports.

One of the things WIPO looked at was how the economic contributions of copyright industries in countries related to those countries rankings on the International Intellectual Property Index, a study prepared by the Property Rights Alliance (PRA) that looks at data from 129 countries. The study “measures the significance of both physical and intellectual property rights and their protection for economic well-being. The Index focuses on three areas: legal and political environment, physical property rights, intellectual property rights.” Among the metrics the PRA looks at is the strength of IP law and how well it is enforced.

WIPO’s conclusion: “The analysis suggests a strong and positive relationship that exists between the contribution of copyright industries to GDP and the IPR Index.” That is, copyright industries contribute more to a country’s GDP when they are better protected. ²It’s worth noting the other conclusions from the report. WIPO also found the following: “There is a positive relation between the contribution of copyright industries to GDP and the GDP per Capita”; “Contribution to Copyright industries to GDP exhibits strong and positive relationship with the Index of Economic Freedom”, which measures “economic openness, competitiveness and the rule of law, such as business freedom, trade freedom, fiscal freedom, property rights, freedom from corruption, etc.” — WIPO explains, “Countries that score well demonstrate a commitment to individual empowerment, non-discrimination and the promotion of competition. Their economies tend to perform better, and their populations tend to enjoy more prosperity, better health care and more positive measures on a variety of quality-of-life indices”; “Contribution of Copyright industries to GDP exhibits strong and positive relationship with the Freedom from Corruption indicator,” an index prepared by Transparency International; “The analysis suggests that there is a strong and positive relationship between the contribution of copyright industries to GDP and the Global Competitiveness Index,” an index prepared by the World Economic Forum; and INSEAD’s Global Innovation Index “has a positive and highly significant relation with performance of the creative industries.”

Okay, that’s settled. But the question remains: why is it that copyright skeptics have such a knack for making obvious points like “incentives do more when they work better” sound counterintuitive?

Fundamental economic logic of property systems

Earlier this month, influential and distinguished legal scholar Richard Epstein spoke at a Federalist Society event titled “Intellectual Property, Free Markets, and Competition Policy.” Though his talk focused primarily on patents, his concluding remarks are just as applicable to copyright. Said Epstein:

One of the great tragedies of modern time is we have too much scholarship with respect to intellectual property. And the problem about this scholarship is it becomes deeply introspective, and what it does is it takes a perfectly beautiful structure, puts it under a microscope and sees every pore and deformity in the system at this minor level and then blows them up out of all proportion. What people need to do is take a tranquilizer to relax … That’s because they’re overstating difficulties, and they overstate difficulties because they do not understand the fundamental economic logic of all property systems, and therefore they don’t understand it with respect to intellectual property. So count me as a dissenter from the modern establishment on this area.

Copyright, like any other form of property, is an economic asset. For many creators, it is often the only economic asset they bring to the table, whether they are negotiating with a “traditional” entity like a film studio or record label or a newer distributor like YouTube. It also serves a building block for an entire marketplace for cultural, educational, and scientific works. All the features of a free market are present: property, private ordering, and nondestructive competition. The result is that the value of these works is maximized, and their creation and dissemination are promoted.

Part of the misunderstanding of the logic of copyright may come from the focus of skeptics on only the incentive to create, to the exclusion of the incentive to disseminate. ³See, e.g., Rob van der Noll & Joost Poort, Assessing the Economic Contribution of the Copyright-Based Industries, CCIA (2011): “From an economic perspective, the incentives for creative production are the main rationale for the existence of copyright.” The Supreme Court has been clear this is not the case:

Nothing in the text of the Copyright Clause confines the “Progress of Science” exclusively to “incentives for creation.” Evidence from the founding, moreover, suggests that inducing dissemination—as opposed to creation—was viewed as an appropriate means to promote science. Until 1976, in fact, Congress made “federal copyright contingent on publication[,] [thereby] providing incentives not primarily for creation,” but for dissemination. Our decisions correspondingly recognize that “copyright supplies the economic incentive to create and disseminate ideas.” ⁴Golan v. Holder, 132 S. Ct. 873, 888-889 (2012); see also Adam Mossoff, How Copyright Drives Innovation in Scholarly Publishing, forthcoming (2013).

Copyright’s contribution to the public benefit

Another big reason for misunderstanding the fundamental economic logic of copyright is a myopic look at the public benefit of copyright. All property rights serve the public benefit. ⁵See, e.g., State v. Shack, 58 N.J. 297, 303 (NJ 1971), “Property rights serve human values”; Armen A. Alchian, Property Rights, The Concise Encyclopedia of Economics (Library of Economics and Liberty) “Private property rights do not conflict with human rights. They are human rights.” James Madison, who proposed and drafted the Copyright Clause of the US Constitution explicitly recognized this same principle in copyright law. Writing in the Federalist Papers, Madison said of the Clause, “The utility of this power will scarcely be questioned. The copyright of authors has been solemnly adjudged in Great Britain, to be a right of common law. … The public good fully coincides…with the claims of individuals.” Copyright skeptics often see only the exceptions and limitations on copyright as the parts that benefit the public while ignoring the inherent public benefit of recognizing individual, exclusive rights in creative works.

This leads to the oft-quoted fallacy that copyright law only “makes reward to the owner a secondary consideration.” That this quote is the result of a misreading of case law should be enough to put it to bed. However, one commentator has explained why, accepting it on its face, it is premised on faulty logic:

It would be similarly fallacious to say that in a real estate transaction, the money paid to the seller is only a secondary consideration, with the primary value of the transaction consisting of the conveyance of the parcel to the buyer. Both the money and the land in such a transaction are consideration; neither is more important to the public, although at the time of the transaction the money is more important to the seller and the land is more important to the buyer. The value to society consists merely in the existence of a market for the land so that property may be obtained by those who are likely to put it to better use. Likewise, for intellectual property; the value to society consists in the existence of a market for the authors’ writings. The money paid to the author is by no means secondary. Rather, it is the unavoidable result of the creation of a market because a market cannot exist without the promise of reward to owners of property who choose to place that property on the market. ⁶David A. Householder, The Progress of Knowledge: A Reexamination of the Fundamental Principles of American Copyright Law, 14 Loyola L.A. Entertainment Law Review 1, 35-36 (1993).

More recently, the Supreme Court has explicitly rejected this erroneous secondary consideration reasoning, reiterating the basic economic logic of copyright in Eldred v. Ashcroft:

JUSTICE STEVENS’ characterization of reward to the author as “a secondary consideration” of copyright law understates the relationship between such rewards and the “Progress of Science.” As we have explained, “[t]he economic philosophy behind the [Copyright] [C]lause … is the conviction that encouragement of individual effort by personal gain is the best way to advance public welfare through the talents of authors and inventors. Accordingly, “copyright law celebrates the profit motive, recognizing that the incentive to profit from the exploitation of copyrights will redound to the public benefit by resulting in the proliferation of knowledge…. The profit motive is the engine that ensures the progress of science.” Rewarding authors for their creative labor and “promot[ing] … Progress” are thus complementary; as James Madison observed, in copyright “[t]he public good fully coincides . . . with the claims of individuals.” JUSTICE BREYER’s assertion that “copyright statutes must serve public, not private, ends,” similarly misses the mark. The two ends are not mutually exclusive; copyright law serves public ends by providing individuals with an incentive to pursue private ones.

So, yes, it is accurate to say that meaningful and effective copyright protection plays a critical role in the success of creative industries that produce and disseminate works protected by copyright. And with one trillion dollars in value added to the US GDP and employment of over five million workers at above-average wages, that success is no small feat.