CS

Peter Ollier
(Asia editor, Managing IP magazine)

First of all, the correct metric to use when trying to analyse this issue is whether copyright infringement has affected the production of new creative material (not the loss of sales – although that is often used as a proxy for the “incentive effects”). The right counterfactual (as David notes) is: would this creative work have been created in the absence of any IP protection? I think it is worthwhile bringing this point to the fore (note that our analysis of the Kookaburra case in a previous issue of the Fortnightly Review didn’t make this argument clearly, primarily because of the idiosyncrasies of the case itself).

Second, one of the key facets of this debate that is continually overlooked here – particularly as it relates to copyright – is that copyright protection does inhibit knowledge diffusion (copying, imitation, …) and therefore it entails some cost to society. That is not an argument for saying that creative material should be given away for free or that we should permit piracy – far from it – we are merely pointing out that like all forms of IP protection, there are benefits and costs associated with copyright. The costs of copyright protection are somewhat more nebulous than the costs associated with patent protection, primarily because it is far easier to see the costs to society associated with restricting access (via the prices charged by patent owners) to potentially life-saving pharmaceuticals. Put simply, some people who can’t afford the patented drugs will simply die. With regard to copyright, it’s far harder to understand the loss to society associated with the fact that some people cannot afford the $15 charged at the cinema to see Avatar. But that doesn’t mean that the costs are zero.

Third, it seems apparent that, on balance, copyright does provide some incentive to invest in creative content. David’s example of Avatar – a movie which cost hundreds of millions of dollars to make, market and distribute – is an excellent one since it highlights an obvious case where creative content simply wouldn’t get made in the absence of copyright protection. However, the simple metric used by judges which is referred to as “restitution scholarship” – that all ‘gains’ to users from infringement are ‘costs’ to owners – seems facile. What matters from an economic perspective is whether the damage caused by infringement is great enough to cause damage to the incentive to create new works, not whether any damage has been caused at all. There must be something threshold below which the infringing behaviour is of no real concern (of course, it is always of concern to the copyright owner, but it is of no concern to the public policy maker). Ideally, all we want out of IP policy is to provide just enough incentive – and not a scintilla more – than is necessary to produce the socially optimal level of innovative and creative output!

Fourth, the logic of legal analysis that seeks to justify itself internally without recourse to the costs and benefits to society at large seems flawed. For example, justifying current decision making based on a past decision (i.e. ‘This restitutionary idea has been applied in intellectual property cases since as long ago as the 1867 patents decision of Penn v Jack where Page Wood VC..’) appears to perpetuate errors made back in 1867! Such circular logic doesn’t lead to improvements in policy formulation: to do so requires us to consider what the law “ought to be”, not simply what the current law “is”. We accept that judges in a common-law country like Australia follow “legal precedent”, but surely legal academic scholars should be concerned with more than this – they should provide us with a framework for determining which laws are good for society and which laws aren’t (and the reasons why).

Finally, economic scholarship on IP protection is all about trying to balance the costs and benefits of IP. From David’s discussion, it is not at all clear where (or whether) this balancing act appears in the law. In particular, if the legal scholarship on restitution is correct, where are the limits? Is there any legal rationale for time-limiting copyright protection? If people continue to infringe – and thus cause damage to the copyright owner – why not simply allow them to claim these damages in perpetuity? From our perspective, this seems flawed especially when you consider that the value of $1 in 100 years time is less than one cent today (appropriately discounted). Thus, damages paid way in the future have very little, or no, effect on current investment decisions.

Paul & Beth

Assoc Prof. Beth Webster is Professorial Fellow at the Melbourne Institute of Applied Economic and Social Research and Director of IPRIA.

Assoc Prof. Paul Jensen is Principle Research Fellow at the Melbourne Institute of Applied Economic and Social Research.