Fair Use and Copyright Overenforcement

AuthorThomas F. Cotter
PositionProfessor of Law and Solly Robins Distinguished Research Fellow, University of Minnesota Law School
Pages02

Page 1273

Professor of Law and Solly Robins Distinguished Research Fellow, University of Minnesota Law School. I thank Professors Pamela Samuelson and Robert Merges for inviting me to present an earlier version of this paper at their Intellectual Property Scholarship Seminar at the University of California at Berkeley in September 2006; participants at that seminar, at a faculty workshop at the University of Minnesota, and at the 2007 Intellectual Property Scholars Conference at DePaul University, for their comments and criticism; Brett Frischmann, Shubha Ghosh, James Gibson, Mark Lemley, Lydia Loren, and Michael Risch, for their thoughtful observations; and Sharada Devarasetty for research assistance. Any errors that remain are mine.

I Introduction

A frequently voiced criticism of the U.S. copyright system is that it enables persons claiming copyright interests to "overclaim"-that is, to successfully assert rights over content, despite the fact that either (1) the content at issue is not subject to copyright protection at all, perhaps because it has fallen into the public domain, or because it comprises uncopyrightable facts, ideas, scenes à faire, or de minimis fragments of expression, or (2) a specific use of that content is permissible under, for example, the fair use doctrine.1 Although some of the criticism is directed at courts' alleged misapplication of the governing legal rules and standards, much of it has begun to focus on structural features that sometimes compel would-be users to give in to copyright owners' expansive interpretations of the scope of the owners' rights. Among these features are the potentially high costs of fending off even weak copyright infringement suits; endemic risk aversion on the part of all parties involved, including the providers of errors and omissions ("E&O") insurance; and, relatedly, the often complex, fact- Page 1274 specific, and hence relatively unpredictable nature of the governing standards themselves. In response, copyright scholars have suggested a variety of reforms, many of which are directed towards making the fair use doctrine more effective in accomplishing its assumed purpose of encouraging the unauthorized use of copyrighted material under circumstances in which unauthorized use is expected either to cause the copyright owner no harm or to produce positive social benefits (externalities) that outweigh that harm. Depending on the circumstances, these externalities may flow from uses for purposes such as criticism, reporting, or research or for other educational or transformative endeavors.

What is often missing in the literature, however, is an appreciation of the many different reasons why fair use (and other copyright doctrines) sometimes crumbles in the face of expansive assertions of copyright rights; how these reasons relate to one another; and how various proposed reforms might alleviate some (but probably not all) of the underlying problems. Focusing principally on fair use as a doctrine that, in the opinion of many critics, often is underenforced in the presence of copyright overclaiming, this Article argues below that one reason fair use may fail to achieve its intended purposes is inherent in the doctrine itself: to the extent fair use rests upon the positive externalities justification, it relies on individuals (users) to champion the public interest in the production of those externalities without providing them with a sufficient incentive to do so. Put another way, the fair use doctrine suffers from an "appropriability" problem similar to the one that is often used to justify intellectual property protection itself.2 Copyright rights, for example, are often rationalized on the ground that, in their absence, would-be creators of expressive works would be unlikely to produce and publish the socially optimal amount of such works, due to others' ability to appropriate much of the works' value without having invested in their creation. But fair use suffers from a similar problem, insofar Page 1275 as potential users whose uses would give rise to positive externalities have less-than-optimal incentives to engage in such uses to the extent the uses would primarily benefit others. As a result, one would expect fair use to be an underutilized right even when many real-world complications-including the costs of litigation, potential damages liability in uncertain cases, and risk aversion-are ignored. When these latter complications are added to the analysis, fair use seems even less likely to attain its posited goals, giving credence to the need for substantial reform. Unfortunately, many of the proposed reforms threaten either to cause negative consequences that outweigh the benefits or, if adopted and implemented in a more modest fashion, to have only a correspondingly modest impact. Efforts to reform the fair use doctrine can only accomplish so much, given the inherent limitations of the doctrine itself. Perhaps policymakers would be better advised to devote less attention to remedying fair use and other related problems and instead to devote greater attention toward more fundamental (though, for now, politically sensitive) measures, such as reducing the effective term of copyright through the reintroduction of formalities or other measures,3 devising alternative ways to compensate content producers,4 or limiting copyright rights to cases involving commercial exploitation.5

Part II presents a simple economic model of the fair use doctrine, and Part III presents a model of the factors one would expect copyright owners and users to take into account in deciding whether to acquiesce, license, or litigate, on the one hand, or to use, license, or forgo use, on the other. The models suggest that, even in the absence of many real-world complications, users will forgo use in some cases in which fair use should apply under the positive-externalities rationale. The presence of these complications further exacerbates the underutilization problem. Part IV then examines six different types of possible reforms, namely (1) increased reliance on liability rules as an alternative to the present reliance on fair use or injunctive relief; (2) changes to copyright damages rules; (3) increased use of penalties such Page 1276 as the copyright misuse doctrine in response to bad faith efforts to block fair uses; (4) changes to the standards used for awarding attorney's fees in copyright litigation; (5) measures designed to increase the accuracy of fair use determinations; and (6) measures designed to increase the predictability of these determinations. Part V concludes by arguing that although many of these reforms are desirable in moderation, their selective adoption may not bring about substantial improvements to the current system. Absent more fundamental reform of the copyright system, the risk of copyright overenforcement remains a serious and intractable one.

II A Model Of Fair Use

The best place to begin is with a model of fair use-that is, of the policies it is intended to serve, as opposed to a wooden restatement of the standard fair use factors.6 The model assumes that copyright in general gives Page 1277 rise to net social benefits, either by encouraging the production and distribution of new works of authorship or by conferring social recognition upon the labor and artistic judgment that goes into the act of authorship (or both). The premise that copyright in general gives rise to net social benefits in turn may support a general rule that users who would like to copy or adapt copyrighted expression should negotiate with copyright owners for permission. When the value a potential user (U) expects to derive from a use (call this VU) exceeds the value the owner (O) accords to excluding that use (call this VO)-that is, when VU > VO-a straightforward application of the Coase Theorem suggests that U and O will strike a bargain under which O will permit the use for a fee, absent transaction costs or other bargaining obstacles. Alternatively, when O values exclusion more than U values use- that is, when VO > VU-no bargain will be struck and the use will not occur, or if it does, it will be deemed infringing, and a court will enjoin U and award damages. This result is optimal as long as the central assumptions underlying copyright are valid-that copyright entitlements in general confer a net social benefit and that VU captures all or most of the social value of the use. Further analysis indicates, however, that users should be free to make unauthorized uses of copyrighted works in at least two instances.

A The Transaction-Cost Rationale

Initially, U should be permitted to engage in unauthorized use in cases in which the transaction costs of bargaining for use discourage U from seeking permission, despite the fact that, in a transaction-cost-free world, VU would exceed VO. In other words, TCU > VU > VO, where TCU denotes U's expected cost of negotiating for the use.7 In the absence of fair use (or some other exception that would permit unauthorized use), the short-run result is Page 1278 that U will either (1) forgo the use or (2) infringe.8 Forgoing use, however, is Pareto-inferior to unauthorized use, insofar as neither party is better off, and U is worse off, than in the case in which unauthorized use is permitted. O receives no royalty in either case, and he would have consented to the use in a transaction-cost-free world. Infringement in this type of case therefore might appear preferable to nonuse, insofar as infringement would have no...

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