Copyright as Entry Policy: The Case of Digital Distribution

• Author: Randal C. Picker
• Date: 01 June 2002
• DOI: 10.1177/0003603X0204700207
• Published date: 01 June 2002
• Subject Matter: Article

The Antitrust Bulletin/Summer-Fall 2002 423

Copyright as entry policy:

the

case

of

digital

distribution

BY RANDAL C. PICKER*

The point

of

entry

of

a new product or new service is especially

important for a successful economy. Entry creates the possibility

of fresh competition with existing products. At least as important,

we know that new products have been acritical

source-if

not

the

critical

source-of

new value, for both consumers and sharehold-

ers. In this article, I want to consider how copyright law influ-

ences entry in digital distribution

of

music and video. The subject

encompasses past and current successes in

distribution-cable

TV

and the

VCR-current

and recent

controversies-Napster

and the

pending cases addressing its

successors-as

well as possible next

steps in distribution, such as Web radio, interactive music services

and the digital video recorder.

Much

of

the relevant distribution entry policy is set through

copyright law. With some frequency, copyright law has important

competition consequences, but the relevant inquiries in copyright

may not track the issues that are

of

interest to competition law.

Copyright law entry policy reflects an amalgam

of

statutory inter-

ventions-as

part

of

the restructuring

of

the copyright statute in

* Paul and Theo Leffmann Professor of Commercial Law, The Uni-

versity of Chicago Law School. Senior Fellow, The Computation Insti-

tute of the University of Chicago and Argonne National Laboratory.

AUTHOR·S NOTE: I thank William Landes and Douglas G. Lichtman

for

comments

and

the Sarah Scaife Foundation

and

the Lynde &Harry

Bradley Foundation for their generous research support.

© 2002 by Federal Legal Publications. Inc.

424

The antitrust bulletin

1976 and then subsequently in a series

of

quite context-specific

tailored

statutes-and

judge-made copyright law addressing third-

party

liability

for

copyright

infringement

and

the

doctrine

of

copyright misuse.

The copyright statutes reflect substantial path dependence, as

well as the play

of

powerful interests. Fluke exclusions, such as

that for sound recordings, result in the Digital Performance Right

in

Sound

Recordings Act

of

1995, a complex statute to be sure,

but

one

that,

especially

after

the Digital

Millennium

Copyright

Act! gets done with it, creates substantial entry barriers for online

radio.

This

is a space in which the key entry

barrier-scarce

spec-

trum-has

been

largely

supplanted

by the

ready

expansion

of

bandwidth,

and

yet

we

have

erected

new

legal

entry

barriers

seemingly designed to strangle at birth the online radio entrants.

We

could

have

gobs

of

entrants

in

online

radio-and

to some

extent

do-but

we have adopted policies that favor over-the-air

radio with the consequence

of

minimizing this entry.

In contrast,

for

new

devices

that facilitate

distribution-the

VCR, Napster

and

the

DVR

(digital video

recorder)-key

features

of the reigning

copyright

test are not sufficiently demanding

of

entrants.

The

Sony? test for contributory copyright

infringement-

whether

the

object

in

question

is

capable

of

substantial

nonin-

fringing

uses-is

far too weak and fails to take into account at all

the scope

of

the infringing uses that will result.

It

is bad third-

party copyright policy. Sony may fare better as a matter

of

inde-

pendent

entry

policy

and

the

flexible

fair

use

doctrine

of

copyright

law creates

room

for courts to operate in setting that

policy

in an

economically

sensible fashion." We are at a

point

where the

technology

makes online

distribution

of

music easy,

as Napster and its followers make crystal clear.

The

hard part is

Pub.L. No. 105-334 (Oct. 28, 1998).

2Sony Corporation

of

America v. Universal City Studios, Inc., 464

U.S. 417 (1984).

As Wendy Gordon emphasized early on. See Wendy J. Gordon,

Fair Use as Market Failure: A Structural and Economic Analysis

of

the

Betamax Case and Its Predecessors, 82

COLUM.

L.

REV.

1600 (1982).

Digital distribution :425

creating an institutional framework that works: institutional engi-

neering is frequently more difficult than computer engineering.

In some ways, the core issue is one

of

articulating the scope

of

the rights held by the copyright holder. As currently configured,

antitrust does agood

job

of

imposing

"don'ts"-don't

collude,

don't

price

fix-but

has an undeveloped sense

of

when affirma-

tive

licensing

obligations

are

required

for

individual

firms.

Antitrust typically affects entry through

indirection-if

you

can't

enter this way, maybe you will instead enter that

way-or

by try-

ing to ensure that incumbents

don't

affirmatively

block

entry,

through,

for

example,

strategic

entry

barriers

or

the

threat

of

predatory pricing.

Antitrust is on shakier ground when it turns to

affirmative

duties to deal by individual firms. The essential facilities doctrine

proper is

of

dubious status- and the kissing cousin seen in

Aspen

Skiing'

is hard to square with prior antitrust doctrine. That is not

to say that

Aspen

is

wrong-an

issue I

don't

consider here, though

many certainly think

s06-but

more that copyright seems to hold

the

comparative

advantage

on

these

issues.

Whatever

Sony's

flaws, it ultimately should be understood as an effort at defining

entry policy for the distribution

of

copyrighted works. The copy-

right misuse doctrine as it is now appearing in

Napster

is again

about

using copyright doctrine to articulate the scope

of

copy-

rights-and

the corresponding permitted

uses-and

in so doing

set policy for distribution entry.

More generally-ironically-antitrust deals poorly with monopoly.

We know how it works: monopolies, if obtained legally, are fine,

it is monopolization that is problematic.

Antitrust

really is

not

about calibrating the returns from an innovation or copyrighted

4Phillip Areeda, Essential Facilities: An Epithet in Need

of

Limit-

ing Principles, 58 ANTITRUST L.J. 841 (1989).

Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585

(1985).

6Dennis W. Carlton, A General Analysis

of

Exclusionary Conduct

and

Refusal

to

Deal-Why

Aspen

and

Kodak

Are

Misguided,

68

ANTITRUST

LJ.

659 (2001).