Copyright as Contract

• Publication year: 2015

Copyright As Contract

Jeffrey L. Harrison
University of Florida College of Law

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Harrison: Copyright As Contract

JOURNAL OF INTELLECTUAL PROPERTY LAW

ARTICLES

COPYRIGHT AS CONTRACT

Jeffrey L. Harrison^*

Table of Contents

I. INTRODUCTION..........................................................................................281

II. THE BARGAIN AND ITS TERMS................................................................284

A. OPPORTUNISTIC COPYRIGHT AND CLAIMS OF INFRINGEMENT...................................................................................287
B. GRANTS OF MONOPOLY POWER.......................................................288

III. THE BREACH...............................................................................................290

IV. REMEDIES.....................................................................................................293

A. THE AUTHOR'S BREACH......................................................................293
B. BREACH BY THE PUBLIC.....................................................................296

1. PROPERTY OR LIABILITY RULES?..............................................................296
2. THE ARGUMENTS FOR AND AGAINST PROPERTY AND LIABILITY RULES.........297

A. THE PREFERENCE FOR PROPERTY RULES...............................................297
B. WHY THE OBJECTIONS TO LIABILITY RULES DO NOT APPLY IN COPYRIGHT................................................................................... 299

3. THE PROPERTY RULE IN THE CONTEXT OF COPYRIGHT..................................302

A. TRANSACTION COSTS ...................................................................... 302
B. BARGAINING UNDER CONDITIONS OF UNCERTAINTY ............................. 304
C. SOURCES OF UNCERTAINTY UNDER COPYRIGHT.....................................306

4. IS THERE A KNOWN PROTECTABLE INTEREST?..............................................306
5. FAIR USE...........................................................................................308
6. THE PROPERTY RULE.............................................................................309

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V. PROPOSALS...................................................................................................311

A. THE IMPORTANCE OF FORMALITY...................................................311
B. APPLYING THE BARGAIN PRINCIPLE................................................312
C. THE CONCEPT OF BREACHING AUTHORS SHOULD BE DEVELOPED AND FORMALIZED.......................................................313
D. THE REMEDY FOR INFRINGEMENT SHOULD BE DAMAGES.........314

VI. FINAL THOUGHTS......................................................................................314

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I. Introduction

Copyright is essentially a contract between the author and the public with the government acting as the agent of the public.¹ The consideration received by authors is defined by duration and breadth of exclusivity.² The consideration for the public is the creation of a "work" that will be available on a limited basis for the life of the author plus seventy years and then available without limit after that.³ If there were no transaction costs at all, it would be possible to "pay" authors different amounts of exclusivity. Perhaps a greeting card would get one holiday season of exclusivity, if anything. Works that are not original and do not demonstrate a modicum of creativity would not qualify as consideration and receive no exclusivity in return.⁴ And, in some cases, an author—say one writing a book that will be a guaranteed best seller—could be required to pay a considerable amount of the right to exclusivity that makes those earnings possible. By necessity the contract in question is a form contract which, unlike other forms, is drafted to the disadvantage of the drafter.⁵

This Article tracks the similarities of copyright law and contract law and suggests that viewing copyright as basically contractual would result in a much more rational system of copyright law. The analysis focuses on three specific areas. Part II is about the "bargain" principle of contract formation. In contract law this means there is reciprocity between what each party contributes to the exchange. In the context of copyright, as in any contractual arrangement, this would mean each party should attempt to strike the best bargain from its perspective. It makes sense for this to be true of the bargain struck by the

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government on behalf of the public. In fact, the cost of copyright to the public is comparable to tax and should be as low as possible to achieve the desired end.

Part III takes on the notion of a breach. From a contractual perspective an infringement is comparable to a breach by the public because it is inconsistent with the promise of exclusivity. A breach by the author is a more difficult concept but can be viewed as a breach of the author's promise to create an original work that represents a modicum of creativity.⁶ An author who claims exclusivity but does not deliver has, in effect, breached the copyright contract. The relative lack of formality in the case of the copyright contract as opposed to a conventional contract adds to the complexity of this analysis.⁷

Part IV considers remedies and argues for a remedy like the one used in contract law. The current basic monetary remedy works like a property rule as opposed to a liability rule.⁸ It does this by firmly steering the secondary user into a negotiation with the copyright holder as a matter of self interest. In so doing, it protects interests that the Copyright Act does not grant.⁹ Specifically, the current remedy is an indirect way of protecting moral rights,¹⁰ which play only a minor role in U.S. copyright law.¹¹ In addition, current remedies are unnecessarily costly and inappropriate in a context in which the rights owned by the parties are ill-defined.¹²

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Part V reviews specific lessons from contract law that, if adopted, would result in a more rational system of copyright law. They include: (1) incentives for greater formality;¹³ (2) distinguishing copyright dependent works from those that are not; (3) sanctions for the false claims of copyright; and (4) the use of a liability rule as opposed to a property rule in instances of infringement.

Before beginning the analysis and primarily for the benefit of those who may not understand the underpinnings of U.S. copyright law, a few observations may be useful. one of the reasons why contract law is an appropriate standard for copyright law is that U.S. Copyright law is utilitarian in nature. This follows from the Constitutional enabling provision that the purpose of copyright is to "promote the Progress of Science and Useful arts" and it achieves this by granting exclusive rights to "authors and inventors."¹⁴ In short, copyright protection is not awarded to authors unless it is consistent with promoting public welfare.¹⁵ Authors are a means to an end just as each party to a contract is a means to achieving his or her counterpart's ends. Not only does this invite a contractual approach to copyright, it also makes for an analysis that, unlike that in a context of moral rights, has a more economic orientation. For example, in theory, since exclusivity is granted to encourage creativity and that exclusivity is a cost to the public, it makes little sense to grant exclusivity beyond that necessary to bring forth the creative effort. This theme is unavoidable when assessing U.S. copyright law and will be reflected in the analysis that follows.

A final important point is that some of what is discussed below with respect to the deviation of U.S. copyright law from a contract law model is dictated by international agreement. These cases will be indicated throughout the analysis. The suggested revisions proposed in the final section are designed to comply with these international accords.

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II. The Bargain and Its Terms

Copyright law is obviously necessary to offset the free riding effects that would mean there would be little motivation for many authors to be productive.¹⁶ If authors are dependent on income from their works and unable to internalize the value because it can be taken freely by others, it seems clear the net effect on society would be negative. The fact that copyright law is necessary does not mean, however, it should become untethered to the fundamental reality that those granting exclusivity are doing so in order to benefit the public and that exclusivity is a cost to the public. There is no policy reason the cost to the public should be more than the minimum necessary.

In this transaction, government can fairly be viewed as both buyer and seller. The government sells exclusivity in order to buy the availability of an author's works. Authors, in turn, sell access and buy exclusivity. Nevertheless, there is no serious discussion suggesting that the duty of the agent is to authors as opposed to the public.¹⁷

Copyright law is necessary to achieve the desired ends primarily because of transaction costs. It would be impossible for authors through a massive system of private contracts to achieve the exclusivity necessary to protect any serious investment in their creative efforts. Thus, the starting point for assessing the copyright contract is a default position that represents what would happen in the absence of transaction costs. Presumably the (government) seller and the author would meet. The author would indicate what is offered—a greeting card rhyme, a song, a compilation, a great work of fiction—and the agent would indicate what would be offered in terms of duration and breadth of exclusivity to ensure the work would come into being. In short, the negotiation would focus on the value of the work and the amount of exclusivity—as measured by time and breadth—that would be "paid" for the work.

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In this hypothetical negotiation a number of things might be...