Copyrights, criminal sanctions and economic rents: applying the rent seeking model to the criminal law formulation process.

• Jurisdiction: United States
• Author: Saperstein, Lanier
• Date: 22 June 1997

I. Introduction

Few, if any, public choice theorists(1) have applied the rent seeking

model(2) to the criminal law formulation process.(3) This is particularly

odd given that rent seeking is such a prevalent model in examining

the formulation of civil legislation.(4) On first inspection, public choice

theorists may posit that the benefits of criminal law are public goods.(5)

For example, streets which are free from criminal activity offer

benefits that are nonexcludable and nonrivalrous. Accordingly, interest

groups have little incentive to organize on the ground that the

benefits of their collective action would be available to the public at large,

yet they would have to bear the entire cost of organization. This may

well be true for some aspects of criminal law, in particular policies of

general deterrence. On closer inspection, however, there are areas of

criminal law which enable organized interests to use the mechanism

of government to create or protect economic rents. These areas lend

themselves to rent seeking analysis.

In order to clarify the argument, this Comment will examine the

changing nature of copyright law. Copyright law is making increased

use of criminal sanctions to punish transgressions.(6) Prior to 1976, for

example, the maximum criminal sanction for the willful infringement

of a copyright by an individual constituted a misdemeanor penalty of

$1,000 and one year in prison.(7) After 1992, by contrast, the maximum

criminal sanction for the willful infringement of a copyright by an

individual constituted a felony penalty of $250,000 and five years in

prison (for first time offenders) and ten years (for second time

offenders).(8) Thus, there has been a clear and dramatic shift toward

stiffer and more stringent criminal penalties for copyright infringement.

This Comment posits that the traditional public choice model of

rent seeking can explain the increase in criminal sanctions for

copyright infringements. As the value of intellectual property rights has

increased with the emergence of new technology, particularly in the

area of computer software, the incentives for interests to expend

resources in order to gain monopolies over these products have also

increased.(9) This Comment argues that Congress' decision to increase

criminal penalties was driven by interest groups seeking copyrights

protected by criminal sanctions as a means of restricting entry into an

increasingly profitable market. Indeed, given the nature of

intellectual property, criminal sanctions are the most effective means of

restricting competition and realizing economic rents. Thus, this

Comment extends the methodology of public choice from the civil to

the criminal law formulation process. To public choice theorists such

an argument may not seem particularly controversial. To legal

scholars, however, such thinking may be quite revolutionary.

The fundamental purpose of the Comment is thus to

demonstrate that the criminal law formulation process does not occur in a

political vacuum; namely, it is not a frictionless process void of interest

group activity. Given that quotas, tariffs and regulations are coveted

by economic interests,(10) it would seem reasonable to suggest that

certain criminal sanctions are also coveted by economic interests. The

secondary purpose of the Comment is to suggest that copyright

protection may be inappropriate for certain works. Specifically,

government-conferred copyrights enable the holder to realize economic

rents, and these rents offer an incentive for interest groups to expend

resources in order to gain these copyrights. This process of rent

seeking means that there are greater costs associated with the current

system of copyrights than the present literature suggests. Indeed, when

these costs are factored into the equation, the benefits of copyright

protection may not, on balance, outweigh the costs. It is important to

emphasize, however, that the Comment's analysis is predominately

positive (i.e., non-normative) and specific policy choices are beyond

its scope.

In order to develop the above thesis, section II explores the

increasingly criminal nature of copyright law and the legislative history

behind the three most recent amendments to the Copyright Act.

Section III explains the rent seeking model in some detail. Section IV

gives a brief overview of the economics of intellectual property.

Section V discusses the need for criminal sanctions as a means of

deterring entry into a lucrative market for copyrighted material. This

section applies the rent seeking model to the legislative history of the

Copyright Act. Section V does not claim to prove a causal connection

between interest group demands and the resulting law, but rather a

conceptual correlation.(11) Some readers may view this section as pure

assertion, and indeed, there is considerable scope for future research.

This Comment, far from being the final word on the phenomenon of

rent seeking in the area of copyright law, is meant to suggest the need

for empirical research and further study. Finally, Section VI

concludes.

II. The Increase in Criminal Sanctions for Copyright Infringement

For more than one hundred years, the federal government did

not impose criminal penalties for copyright infringement.(12) In 1897,

Congress amended the federal copyright law and, for the first time,

promulgated criminal sanctions for those who infringed protected

copyrights.(13) The actions giving rise to criminal sanctions, however,

were limited to unlawful performances and representations of

copyrighted dramatic and musical compositions. The newly amended

Copyright Act provided, "[i]f the unlawful performance and

representation be willful and for profit, such person or persons shall be guilty

of a misdemeanor and upon conviction may be imprisoned for a

period not exceeding one year."(14) Other forms of copyright

infringement such as the unauthorized reproduction or distribution of a

copyrighted work continued to be resolved through civil litigation.(15)

The first attempt to broaden criminal sanctions for copyright

infringement occurred during the general copyright revision of 1909.(16)

The process that led to the Copyright Act of 1909(17) was driven by

industry representatives with a vested interest in copyright law.(18) In

order to revise the copyright laws, the Librarian of Congress convened a

series of conferences.(19) Invited to the conferences were

representatives of industries protected by copyright legislation.(20) The draft

bill generated out of these conferences, however, encountered opposition

from other interest groups not represented at the conferences.(21) This

conflict was resolved by subsequent negotiations between the various

groups, and it was this interest group compromise that became the

1909 statute.(22) The 1909 Copyright Act applied criminal

infringement provisions to all types of copyrighted works except sound

recordings.(23) The Act provided misdemeanor penalties of up to one

year in jail or a fine between $100 and $1,000, or both, for "any

person who willfully and for profit" infringed upon a protected

copyright.(24)

By 1971, there was a substantial increase in unauthorized record

and tape duplication. For example, the House of Representatives

Judiciary Committee estimated that the annual volume of unauthorized

record and tape duplication exceeded $100 million.(25) The

Committee traced the problem to the exclusion of sound recordings from

criminal copyright infringement provisions.(26) As Mary Jane Saunders

notes, "[i]n response to demands from the sound recording industry,

Congress extended general federal copyright protection to sound

recordings with the Sound Recording Act of 1971."(27) Criminal

sanctions, for the first time, were available against those who willfully and

for profit infringement upon the copyright of protected sound

recordings.

Apart from the Sound Recording Act of 1971, which represented

an incremental adjustment, criminal copyright law remained largely

unchanged from the original Copyright Act of 1909.(28) Indeed, in

1976 the House of Representatives Judiciary Committee noted that

"[t]he present copyright law ... is basically the same as the act of

1909."(29) There had been, however, dramatic changes in technology.

Since 1909, a wide range of new techniques for capturing and

communicating printed matter, visual images and recorded sounds had

emerged.(30) These technical advances generated new industries and

new methods for the reproduction and dissemination of copyrighted

works.(31)

Despite the rapid change in technology and the growth of new

information-based industries, Congress did not provide a comprehensive

revision of the copyright law until 1976.(32) The legislative history

behind the Copyright law until of 1976(33) is long and complex.(34) There

were more than thirty studies, three reports issued by the Register of

Copyrights, four panel discussions issued as committee prints, six

series of subcommittee hearings, eighteen committee reports, and the

introduction of at least nineteen general revision bills over a period of

more than twenty years.(35)

Most commentators agree that the final version of the Act was the

result of interest group negotiations and compromise through

congressional institutional structures.(36) As Professor Litman observed,

"[m]ost of the statutory language was not drafted by members of

Congress or their staffs at all."(37) Rather, the language evolved through a

process of negotiation among authors, publishers, and other parties

with economic interests in the property rights that the statute

created.(38) Indeed, by the time the House and Senate subcommittees

began holding hearings on copyright revision legislation, the

participants in the pre-hearing negotiations had reached agreement

on the bill's basic structure.(39) "Members of Congress openly

acknowledged their limited substantive expertise and their largely supervisory

role in the drafting process."(40)

The...