Tag: copyright

Where Should Libertarians and Conservatives Be on Copyright? (Event 12/6)

Last week, an influential House Republican group made a feint toward supporting revamp of copyright law. On Friday, the Republican Study Committee issued a paper harshly criticizing copyright law as it stands today and calling for a variety of reforms. Then it quickly retracted the paper. On Saturday, the paper came down from the RSC site, and RSC Executive Director Paul Teller issued a statement saying that the paper had been issued “without adequate review.”

Today, it’s hard to find a source on the tech policy beat that isn’t writing about it: Politico, Hillicon Valley, C|Net, TechDirt, Ars Technica, and TechCrunch, for example. The American Conservative was on the story early, coming out with a highly laudatory comments on the RSC policy brief.

That was the beginning of the conversation. It continues on Thursday, December 6th when we’ll be hosting a book forum on the topic of copyright here at Cato.

The Mercatus Center’s Jerry Brito has edited a volume the thesis of which is evident in the title: Copyright Unbalanced: From Incentive to Excess. In addition to Brito, contributor (and Cato alum) Tom W. Bell will speak. And we’ll have able response and counterpoint given by Mitch Glazier, Senior Executive Vice President at the Recording Industry Association of America.

Jerry Brito has written more about the book in a Tech Liberation Front blog post this morning. Our book forum is on December 6th here at Cato. Register now.

A Dogged Insistence on Real Numbers

The Freakonomics blog has an excellent post on the bills in Congress popularly known as SOPA and PIPA. The “Stop Online Piracy Act” and the “Preventing Real Online Threats to Economic Creativity and Theft of Intellectual Property Act” aka the “PROTECT IP Act” would attempt to frustrate online copyright violations by tinkering with the inner workings of the Internet.

Would amending the Internet be justified? The post is called “How Much Do Music and Movie Piracy Really Hurt the U.S. Economy?”:

Supporters of stronger intellectual property enforcement … argue that online piracy is a huge problem, one which costs the U.S. economy between $200 and $250 billion per year, and is responsible for the loss of 750,000 American jobs. These numbers seem truly dire: a $250 billion per year loss would be almost $800 for every man, woman, and child in America. And 750,000 jobs – that’s twice the number of those employed in the entire motion picture industry in 2010. The good news is that the numbers are wrong …

Freakonomics’ authors picked up two good authorities: Cato’s own Julian Sanchez and Cato’s own (adjunct) Tim Lee. It’s nice to see Cato scholars getting high-profile credit for their dogged insistence on real numbers, something Congress routinely fails to exhibit.

Losses from violations of copyright law are hard to calculate.

There are certainly a lot of people who download music and movies without paying. It’s clear that, at least in some cases, piracy substitutes for a legitimate transaction … In other cases, the person pirating the movie or song would never have bought it. This is especially true if the consumer lives in a relatively poor country, like China, and is simply unable to afford to pay for the films and music he downloads. Do we count this latter category of downloads as “lost sales”? Not if we’re honest.

And there’s another problem: even in the instances where Internet piracy results in a lost sale, how does that lost sale affect the job market? While jobs may be lost in the movie or music industry, they might be created in another. Money that a pirate doesn’t spend on movies and songs is almost certain to be spent elsewhere. Let’s say it gets spent on skateboards — the same dollar lost by Sony Pictures may be gained by Alien Workshop, a company that makes skateboards.

The challenges go deeper: The theoretical arguments about intellectual property laws are a congeries. Libertarian advocates of statutory intellectual property protection will cite Ayn Rand, who was a stalwart on defending creations of the mind as property. But a coherent system of rights does not produce conflicting claims, and intellectual property laws seem to exalt the property of some at a cost to the liberty of others. The some, in this case, are the music and movie industries, the others, Internet content companies and users.

This area still needs a good deal of sorting out. For the time being, a firm insistence on real numbers is a good thing. Serious empirical work is sorely needed. Killing off bogus numbers can only go so far.

How Copyright Industries Con Congress

I’ve yet to encounter a technically clueful person who believes the Stop Online Piracy Act will actually do anything to meaningfully reduce—let alone “stop”—online piracy, and so I haven’t bothered writing much about the absurd numbers the bill’s supporters routinely bandy about in hopes of persuading lawmakers that SOPA will be an economic boon and create zillions of jobs. If the proposed solution just won’t work, after all, why bother quibbling about the magnitude of the problem? But then I saw the very astute David Carr’s otherwise excellent column on SOPA’s pitfalls, which took those inflated numbers more or less as gospel. If only because I’m offended to see bad data invoked so routinely and brazenly, on general principle, it’s important to try to set the record straight. The movie and music recording industry have gotten away with using statistics that don’t stand up to the most minimal scrutiny, over and over, for years, to hoodwink both Congress and the general public. Wherever you come down on any particular piece of legislation, this is not how policy should get made in a democracy, and it’s high time they were shamed into cutting it out.

The bogus numbers Carr cites—which I’ll get to in a moment—actually represent a substantial retreat from even more ludicrous statistics the copyright industries long peddled. In my previous life as the Washington editor for the technology news site Ars Technica, I became curious about two implausible sounding claims I kept seeing made over and over—and repeated by prominent U.S. Senators!—in support of more aggressive antipiracy efforts.  Intellectual property infringement was supposedly costing the U.S. economy $200–250 billion per year, and had killed 750,000 American jobs. That certainly sounded dire, but those numbers looked suspiciously high, and I was having trouble figuring out exactly where they had originated. I did finally run them down, and wrote up the results of my investigation in a long piece for Ars. Read the whole thing for the full, farcical story, but here’s the upshot: The $200–250 billion number had originated in a 1991 sidebar in Forbes, but it was not a measurement of the cost of “piracy” to the U.S. economy. It was an unsourced estimate of the total size of the global market in counterfeit goods. Beyond the obvious fact that these numbers are decades old, counterfeiting of physical goods imported in bulk and sold by domestic retail distributors is, rather obviously, a totally different phenomenon with different policy implications from the problem of illicit individual consumer downloads of movies, music, and software. The 750,000 jobs number had originated in a 1986 speech (yes, 1986) by the secretary of commerce estimating that counterfeiting could cost the United States “anywhere from 130,000 to 750,000” jobs. Nobody in the Commerce Department was able to identify where those figures had come from.

These are the numbers that were driving U.S. copyright policy as recently as 2008—and I’m still seeing them repeated in “fact sheets” circulated by SOPA boosters.  Finally, in 2010, the Government Accountability Office released a report noting that these figures “cannot be substantiated or traced back to an underlying data source or methodology.” Now, if a single journalist could discover as much with a few days work, minimal due diligence should have enabled highly paid lobbyists to arrive at the same conclusion. The only way to explain the longevity of these figures, if we charitably rule out deliberate deception, is to infer that the people repeating them simply did not care whether what they were saying was true. If I were a legislator, I would find this more than a little insulting

As Carr’s piece suggests, SOPA’s corporate backers have fallen back on new numbers, but they’re still entirely bogus:

The Motion Picture Association of America cites figures saying that piracy costs the United States $58 billion annually. Mark Elliot, an executive from the U.S. Chamber of Commerce, said in a letter to The New York Times that such piracy threatened 19 million American jobs

Only $58 billion! We’re making progress! So where does that figure come from? The source here is a paper released by the Institute for Policy Innovation, and authored by one Stephen Siwek, an MBA and principal of a consulting firm called Economists Incorporated that produces economic analysis for hire on behalf of (among others) businesses seeking to influence policy makers. That does not, in itself, invalidate the research, but we should at least begin with the recognition that we are not dealing here with impartial academic studies produced by a university or government research agency.

What does invalidate the “research” is the inappropriate use of “multiplier” effects to double—and triple—count loss estimates that were dubious to begin with. As the GAO report notes in its typically understated fashion:

Most of the experts we interviewed were reluctant to use economic multipliers to calculate losses from counterfeiting because this methodology was developed to look at a one-time change in output and employment.

In other words, Siwek is taking a method that’s useful for analyzing where in the economy we will likely see the effects of demand shifts, and pretending that it somehow reflects aggregate economic losses. As my colleague Tim Lee has pointed out, this is Bastiat’s Broken Window Fallacy on steroids:

[I]n IPI-land, when a movie studio makes $10 selling a DVD to a Canadian, and then gives $7 to the company that manufactured the DVD and $2 to the guy who shipped it to Canada, society has benefited by $10+$7+$2=$19. Yet some simple math shows that this is nonsense: the studio is $1 richer, the trucker is $2, and the manufacturer is $7. Shockingly enough, that adds up to $10. What each participant cares about is his profits, not his revenues.

So, to stay focused on movies, Siwek takes an estimate of $6.1 billion in piracy losses to the U.S. movie industry, and through the magic of multipliers gets us to a more impressive sounding $20.5 billion. That original $6.1 billion figure, by the way, was produced by a study commissioned from LEK Consulting by the Motion Picture Association of America. Since even the GAO was unable to get at the underlying research or evaluate its methodology, it’s impossible to know how reliable that figure is, but given that MPAA has already had to admit significant errors in the numbers LEK generated, I’d take it with a grain of salt.

Believe it or not, though, it’s actually even worse than that. SOPA, recall, does not actually shut down foreign sites. It only requires (ineffective) blocking of foreign “rogue sites” for U.S. Internet users. It doesn’t do anything to prevent users in (say) China from downloading illicit content on a Chinese site. If we’re interested in the magnitude of the piracy harm that SOPA is aimed at addressing, then, the only relevant number is the loss attributable specifically to Internet piracy by U.S. users.

Again, we don’t have the full LEK study, but one of Siwek’s early papers does conveniently reproduce some of LEK’s PowerPoint slides, which attempt to break the data down a bit. Of the total $6.1 billion in annual losses LEK estimated to MPAA studios, the amount attributable to online piracy by users in the United States was $446 million—which, by coincidence, is roughly the amount grossed globally by Alvin and the Chipmunks: The Squeakquel.

So in a fantasy world where U.S. movie pirates don’t just circumvent blockage with a browser plugin, and SOPA actually stops all online movie piracy by American users, we get a $446 million economic benefit to the United States in the form of movie revenues, and presumably comparable benefits in music and software revenues? Well, no. Remember our old friend the Broken Window Fallacy. It’s true that some illicit U.S. downloads displace sales of legal products. But what happens to the money the pirates would have otherwise spent on those legal copies? They don’t eat it! As that same GAO report helpfully points out:

(1) in the case that the counterfeit good has similar quality to the original, consumers have extra disposable income from purchasing a less expensive good, and (2) the extra disposable income goes back to the U.S. economy, as consumers can spend it on other goods and services.

As one expert consulted by GAO put it, “effects of piracy within the United States are mainly redistributions within the economy for other purposes and that they should not be considered as a loss to the overall economy.” In many cases—I’ve seen research suggesting it’s about 80 percent for music—a U.S. consumer would not have otherwise purchased an illicitly downloaded song or movie if piracy were not an option. Here, the result is actually pure consumer surplus: The downloader enjoys the benefit, and the producer loses nothing. In the other 20 percent of cases, the result is a loss to the content industry, but not a let loss to the economy, since the money just ends up being spent elsewhere. If you’re concerned about the overall jobs picture, as opposed to the fortunes of a specific industry, there is no good reason to think eliminating piracy by U.S. users would yield any jobs on net, though it might help boost employment in copyright-intensive sectors. (Oh, and that business about 19 million jobs? Also bogus.)

Does that mean online piracy is harmless? Of course not. But the harm is a dynamic loss in allocative efficiency, which is much harder to quantify. That is, in the cases where a consumer would have been willing to buy an illicitly downloaded movie, album, or software program, we want the market to be accurately signalling demand for the products people value, rather than whatever less-valued use that money gets spent on instead. This is, in fact, very important! It’s a good reason to look for appropriately tailored ways to reduce piracy, so that the market devotes resources to production of new creativity and innovation valued by consumers, rather than to other, less efficient purposes. Indeed, it’s a good reason to look for ways of doing this that, unlike SOPA, might actually work.

It is not, however, a good reason to spend $47 million in taxpayer dollars—plus untold millions more in ISP compliance costs—turning the Justice Department into a pro bono litigation service for Hollywood in hopes of generating a jobs and a revenue bonanza for the U.S. economy. Any “research” suggesting we can expect that kind of result from Internet censorship is a fiction more fanciful than singing chipmunks.

Justice Scalia Reads Cato’s Amicus Briefs

During Wednesday’s oral argument in Golan v. Holder (transcript here), Justice Scalia said something that was at once obvious and startling: 

It seems to me Congress either had the power to do this under the Copyright Clause or it didn’t.  I don’t think that powers that Congress does not have under the Constitution can be acquired by simply obtaining the agreement of the Senate, the President and Zimbabwe. I do not think a treaty can expand the powers of the Federal government. 

This proposition is obvious, because the Constitution vests Congress with limited, enumerated powers, which can only be increased by constitutional amendment, not by treaty.  But Scalia’s words were also startling because Justice Oliver Wendell Holmes said exactly the opposite almost a century ago—or at least that’s how his opinion has been read—in the canonical case of Missouri v. Holland.  We filed a brief arguing that Holmes was wrong, and we are delighted that Justice Scalia agrees.

Thanks to Tim Lee for pointing out this exchange to me before I had a chance to read the transcript and to Georgetown’s Nick Rosenkranz, the principal author of our brief.

Copyright Monkey Business

Given enough time, a monkey sitting at a typewriter will type out the complete works of William Shakespeare. Believe it or not, it’s called the infinite monkey theorem. A thousand monkeys at a thousand typewriters would cut the time in half … or something.

But would the monkey hold the copyright?

We may soon find out. Or at least we’ll be entertained by the tiff between TechDirt’s Mike Masnick and a person claiming to represent the owner of a photograph taken by, yes, a monkey.

The short answers are: 1) A photograph taken by a monkey probably isn’t copyrighted, and 2) if it were, displaying the photo in a discussion of its copyright status is probably fair use. The lesson is: many, many people don’t understand what the copyright laws are, or why they are.

Mike participated in our “Copyright Controversies” conference some years ago. Should there be a sequel, we’ll invite the monkey.

Copyright, Innovation, and Empiricism

If you like innovation, and if you’re interested in intellectual property, you probably already know about the Committee on the Impact of Copyright Policy on Innovation in the Digital Era. That’s a group assembled by the National Academies to, well, analyze the impact of copyright policy on innovation in the digital era.

Long-standing consensus holds that copyright, by creating artificial scarcity in information goods, allows creators to enjoy rewards from their creations sufficient to justify creating them. In other words, copyright’s incentive structure encourages creation and innovation, the end result being more and better information goods for the society to enjoy.

Information technologies such as digitization and the Internet are rejiggering the balance that copyright is supposed to strike and casting doubt on the consensus about copyright in some quarters. Technological change has driven down the cost of producing and distributing many creative works quite dramatically. This improves the profitability offered to creators by copyright’s protections, so maybe less such incentive to create is required. Except that the same technologies also permit copying of works on a quite large scale, which reduces the benefits available to creators.

Copyright violation is utterly rampant today. You probably violate copyright law many times a day (subject to arguable fair use rights) when you forward around emails with jokes, pictures, and videos in them, for example. The copyright violations that “matter,” of course, are the ones that undercut the living of those who have made production and distribution of copyrighted works their business or source of financial support.

A further complication: Copyright may do more than simply encourage new creation. It may impede the development of new works because creators can’t use existing copyrighted works to create more. Artists today can’t stand on the broad shoulders of artists from the 1960s, ’70s, and ’80s. If they are to riff on existing cultural themes, they have to use the shoulders of artists from the 1860s, ’70s, and ’80s, whose works are in the public domain.

This is the thicket into which the committee wades. Happily, it’s holding the copyright consensus up to the light and doing some empirical study of the role that copyright has in innovation. Gathered at a Web site for the project are a series of papers that authors presented at a panel last week, including:

These are but a few of the many subjects that economic study should explore if we are to fully understand the effects of copyright and other intellectual property laws. There’s no time like the present for the studying to begin.

Another New Supreme Court Term, Another New Justice

Today is the first Monday in October, the traditional start of the Supreme Court term.  While we have yet to see as many blockbuster constitutional cases on the docket as we did last term—which, despite the high profile 5-4 splits in McDonald v. Chicago and Citizens United actually produced fewer dissents than any in recent memory—we do look forward to:

  • Two big free speech challenges, one over a statute prohibiting the sale of violent video games to minors, another the offensive protesting of a fallen soldier’s funeral;
  • An Establishment Clause lawsuit against Arizona’s tax credit for private tuition funds (an alternative to educational voucher programs);
  • Regulatory federalism (or “preemption”) cases involving:
    • safety standards for seatbelts;
    • an Arizona statute regarding the hiring of illegal aliens; and
    • the forbidding of class-arbitration waivers as unconscionable components of arbitration agreements;
  • Important ERISA and copyright cases;
  • A case examining privacy concerns attending the federal government’s background checks for contractors; and
  • A criminal procedure dispute regarding access to DNA testing that may support a claim of innocence.

Cato has filed amicus briefs in several of these cases—and in various others which the Court may decide to review later this year—so I will be paying extra-close attention.

Perhaps more importantly, we again have a new justice—and, as Justice White often said, a new justice makes a new Court.  While her confirmation was never in any serious doubt, Elena Kagan faced strong criticism (including from me) on a variety of issues—most importantly on her refusal to “grade” past Court decisions or identify any specific limits to government power.  The 37 votes against Kagan were the most ever for a successful Democratic nominee, which is emblematic of a turbulent political environment in which the Constitution and the basic question of where government derives its power figure prominently.  

Given Kagan’s political and professional background, it is safe to assume that she’s not the second coming of Clarence Thomas.  And because she replaces the “liberal lion” Justice Stevens, her elevation from “tenth justice” (as the solicitor general is known) to ninth is unlikely to cause an immediate change in issues that most divide the Court—particularly because she is recused from nearly half the cases this term.  She could, however, add an interesting and nuanced perspective on a variety of lower-profile issues.  Only time will tell what kind of justice Kagan will be now that she is, seemingly for the first time in her ambitious life, unconstrained to speak her mind.

Here’s to another interesting, varied, and (hopefully) liberty-enhancing year!