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ARTICLE
RULES AND STANDARDS IN COPYRIGHT
Thomas B. Nachbar
ABSTRACT
In the last decade, calls to recalibrate the copyright system’s
mix of incentives have become nearly ubiquitous in copyright
scholarship. Most such proposals start from the point of
identifying a failure (systemic or market) and then offer a reform
that compensates (and hopefully remedies) that specific failure.
But, starting from the principle that copyright should provide
optimal incentives to create and ending with a particular failure
(and its cure), most reform proposals fail to distinguish between
the purposes of copyright writ large and the purposes of the legal
system that implements copyright. While copyright encourages
creative work, the copyright system does so through the limited
means of allocation, both by providing a rule for initially allocating
copyrights and by facilitating reallocation of those rights, either
through transactions or by allowing use. Thus, copyright is
essentially temporal in its focus, with important decision points at
the time of both the creation of a work and the decision of a
potential user of that work to reallocate part of the work through
a use. Similarly, rules and standards operate primarily by altering
the time at which information is needed in order to determine
whether a particular action is legal. Most reform proposals (which
can be classified as compulsory licenses, damages-only regimes, or
requirements for additional showings) would alter the mix of rules
and standards in the copyright system. The Article approaches the
reform question by seriously considering the timing of copyright

I would like to thank the participants at the 2014 University of Houston Law
Center’s Institute for Intellectual Property & Information Law Symposium for their
comments and suggestions, both during the symposium itself and in conversations before
and after.
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allocations and reallocations and the effect of reform proposals on
when information is available to copyright’s decision-makers
(promulgators, authors, users, and adjudicators). The Article
provides a concrete example in the history of the Audio Home
Recording Act (a compulsory license) to demonstrate how reform
proposals that ignore the dimension of time are likely to derail the
development of creative works and their associated technologies.
A better understanding of how the copyright system uses rules and
standards—and honestly confronting the limits of both—can
inform present and future reform proposals.
TABLE OF CONTENTS
I.
INTRODUCTION ............................................................... 584 II. REFORM IN COPYRIGHT .................................................. 585 III. COPYRIGHT AS A SYSTEM ............................................... 588 IV. RULES, STANDARDS, AND COPYRIGHT ........................... 593 A. Rules and Standards ............................................. 593 B. Rules and Standards in Copyright ....................... 596 V. RULES, STANDARDS, AND REFORM ................................ 601 A. Compulsory Licenses .............................................. 601 B. Damages-Only Regimes and Additional
Showings ................................................................ 607 C. Taking Rules and Standards Seriously ................ 609 VI. CONCLUSION .................................................................. 611 I.
INTRODUCTION
Copyright law is a frequent object of reform proposals, many of
which seek to enable increased access to works through either the
certainty of rules or the increased sensitivity of standards. Few such
proposals, though, take seriously the implications of shifting
copyright in the direction of either rules or standards. I proceed first
by describing several recent reform proposals in the terms of rules
and standards. Although motivated by policy concerns over
incentives and access, reforms do not modify “copyright” as a system
of incentives and access but, rather, modify the specific system of
copyright in which we operate—a system of allocations and
reallocations of the social wealth embodied in creative works. Having
described the system in which copyright rules and standards operate,
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I discuss rules and standards in greater detail. The choice of whether
to adopt a rule or a standard in a particular instance is one driven
largely by concerns over the time at which a determination should be
made, rules being ex ante determinations and standards being ex post
ones. Understood as a question about timing, the rules/standards
continuum presents three possibilities for when to make a
determination: at the time of promulgation by a rule maker, the time
at which an individual chooses to act, or the time of adjudication by
a factfinder. Adapted to our system of copyright, proposals to shift to
either rules or standards have effects on the decision-making of both
authors and users of works—effects I consider in the penultimate
section of the Article. When considered from the standpoint of rules
and standards, many policy proposals that attempt to assist users in
accessing works likely hinder users’ decision-making abilities with
little countervailing gain to the policy of access. I summarize my
findings in a brief conclusion.
II. REFORM IN COPYRIGHT
Copyright is widely understood to be justified by—and
therefore serve—the distinctly utilitarian end of maximizing
incentives to both create and distribute creative expression and
access to that expression.1 Given its utilitarian justification, it
is no surprise that copyright has garnered a steady stream of
proposals to make it more useful.2 Social wealth maximization
1.
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, 1604 (1982)
(“[T]he copyright system creates private property in creative works so that the market can
simultaneously provide economic incentives for authors and disseminate authored
works . . . .”). Copyright seeks to optimize the superficially paradoxical use of restrictions
on access in order to increase access through copyright’s incentive/access paradigm. See
Glynn S. Lunney, Jr., Reexamining Copyright’s Incentives-Access Paradigm, 49 VAND. L.
REV. 483, 498 (1996) (“[T]he incentives-access paradigm suggests that we can determine
copyright’s proper scope by balancing the need for additional incentives against the need
for access.”). Others have taken a more limited view, focusing much more on the incentives
of authors than on the role played by access. See, e.g., Shyamkrishna Balganesh,
Foreseeability and Copyright Incentives, 122 HARV. L. REV. 1569, 1571 (2009) (“Copyright
law’s principal justification today is the economic theory of creator incentives.”). This
particular view of incentives and access is distinct to common-law systems—it itself is
contingent on the surrounding economic order. See Jane C. Ginsburg, A Tale of Two
Copyrights: Literary Property in Revolutionary France and America, in OF AUTHORS AND
ORIGINS: ESSAYS ON COPYRIGHT LAW 131, 131–33 (Brad Sherman & Alain Strowel eds.,
1994). There are also other views that have much less to do with wealth maximization and
focus on other social values, such as free expression. See, e.g., NEIL WEINSTOCK NETANEL,
COPYRIGHT’S PARADOX 37–38 (2008). Although valid and interesting, such justifications are
outside the scope of my particular inquiry.
2.
See, e.g., David Fagundes, Efficient Copyright Infringement, 98 IOWA L. REV.
1791, 1836–37 (2013) (proposing eliminating certain damages remedies to make copyright
infringement more efficient); Christopher Sprigman, Copyright and the Rule of Reason, 7
J. TELECOMM. & HIGH TECH. L. 317, 338–41 (2009) (proposing a rule of reason test for
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is a single-scalar metric that can be enhanced any number of
ways, opening up the field to any number of proposals seeking
to improve copyright.3 Doctrinal developments, too, especially
the U.S. Supreme Court’s holding in eBay Inc. v. MercExchange,
L.L.C. that injunctive relief in patent cases is not automatic, 4
have sparked renewed discussion over the possibility of
adjusting the remedies available for infringement actions—to
adjust the absolute “exclusive rights” approach5 to copyright—
to more precisely tune the incentives/access tradeoff and
thereby increase the wealth-enhancing effects of copyright.6
Reform proposals come in several flavors. The first is
compulsory licenses, which substantially reduce transaction
costs by denying copyright owners the ability to refuse to enter
into licenses. The copyright statute itself includes several,
albeit for very limited purposes,7 and several scholars have
similarly proposed compulsory licenses for certain kinds of use.8
Compulsory licenses are prototypical rules—they are fixed at
the time they are adopted, which is (ideally, as a matter of
incentives) ex ante to the creation of any work and certainly to
determining plaintiff’s right in copyright cases in order to make copyright law more
efficient).
3.
See Gregory S. Alexander, The Social-Obligation Norm in American Property
Law, 94 CORNELL L. REV. 745, 748 n.8 (2009).
4.
eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 392–93 (2006).
5.
I am not suggesting that copyright, in its “natural” state ever contained anything
akin to an absolute right to exclude. No property system can be so described. Carol M. Rose,
Canons of Property Talk, or, Blackstone’s Anxiety, 108 YALE L.J. 601, 631 (1998) (“[P]roperty
as exclusive dominion is at most a cartoon or trope . . . .”).
6.
See Jiarui Liu, Copyright Injunctions After eBay: An Empirical Study, 16 LEWIS
& CLARK L. REV. 215, 222, 256–57 (2012).
7.
See 17 U.S.C. § 111(d) (2012) (retransmission by cable systems); id. § 114(d)(2)
(digital audio transmission); id. § 115 (nondramatic musical compositions); id. § 116
(jukeboxes); id. § 118(b)(4) (noncommercial broadcasting); id. §§ 119, 122 (secondary
transmissions by satellite).
8.
E.g., WILLIAM W. FISHER III, PROMISES TO KEEP: TECHNOLOGY, LAW, AND THE
FUTURE OF ENTERTAINMENT 202 (2004) (levy on equipment using creative works combined
with a license to use); Olufunmilayo B. Arewa, From J.C. Bach to Hip Hop: Musical
Borrowing, Copyright and Cultural Context, 84 N.C. L. REV. 547, 641–42 (2006)
(compulsory license to allow digital sampling); Mark A. Lemley & R. Anthony Reese,
Reducing Digital Copyright Infringement Without Restricting Innovation, 56 STAN. L. REV.
1345, 1406–10 (2004) (levy to solve problems of secondary liability for facilitators of digital
sharing); Glynn S. Lunney, Jr., The Death of Copyright: Digital Technology, Private
Copying, and the Digital Millennium Copyright Act, 87 VA. L. REV. 813, 912, 916 (2001)
(“limited tax on copying technology and storage media” combined with a compulsory
license); Neil Weinstock Netanel, Impose a Noncommercial Use Levy to Allow Free Peer-toPeer File Sharing, 17 HARV. J.L. & TECH. 1, 21 (2003) (levy combined with compulsory
license limited to peer-to-peer filing sharing); Robert M. Vrana, Comment, The Remix
Artist’s Catch-22: A Proposal for Compulsory Licensing for Transformative, SamplingBased Music, 68 WASH. & LEE L. REV. 811, 850 (2011) (sampling compulsory license to allow
“remix” of underlying works).
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any use by another. They resolve not only the legal
determination of whether a use is infringing but fix the level of
compensation for that use.9
The second is damages-only regimes.10 By denying
injunctive relief to copyright owners and relying exclusively on
damages for infringement, damages-only regimes are similarly
designed to reduce transaction costs because they eliminate the
possibility that a copyright owner could “hold out” and deny a
use that is wealth-enhancing.11 Damages-only proposals are
extremely flexible and can be based on any number of concerns.
Some are aimed at overcoming copyright owners’ ability to block
new uses generally.12 Others are more finely tuned to specific
problems, such as optimizing incentives,13 overcoming copyright
owners’ irrational refusals to license,14 or solving transaction
cost problems presented by particular uses15 and the changing
nature of works and use more generally.16 In the language of
rules and standards, these proposals shift copyright the
opposite way from compulsory licenses—toward more of a
standard because damages determinations would be made by
judges at adjudication and would depend on all the information
9.
FISHER, supra note 8, at 144–45.
10.
Such proposals are frequently termed “liability rules” to distinguish them from
“property rules,” but because “liability” is a distinct concept, I use the term “damages-only”
to describe proposals to limit copyright remedies to damages alone.
11.
See Mark A. Lemley & Philip J. Weiser, Should Property or Liability Rules Govern
Information?, 85 TEX. L. REV. 783, 792, 796–97 (2007).
12.
E.g., id. at 796–97 (covering both patent and copyright); see also Orit Fischman
Afori, Flexible Remedies as a Means to Counteract Failures in Copyright Law, 29 CARDOZO
ARTS & ENT. L.J. 1, 28–29, 37–38 (2011) (comparing generally the advantages of injunctive
relief and damages-only rules for infringement).
13.
See, e.g., Fagundes, supra note 2, at 1840–41 (proposing an “ex post compulsory
license,” which would essentially operate identically to a damages-only regime with the
measure of damages being the infringer’s profits).
14.
See, e.g., Christopher Buccafusco & Christopher Jon Sprigman, The Creativity
Effect, 78 U. CHI. L. REV. 31, 51–52 (2011) (discussing use of a damages-only regime for
copyright infringement in order to overcome the irrationally high valuation that creators
give to works they create); Christopher Buccafusco & Christopher Sprigman, Valuing
Intellectual Property: An Experiment, 96 CORNELL L. REV. 1, 33–35 (2010) (discussing use
of a damages-only regime for copyright infringement in order to overcome the irrationally
high valuation that copyright owners give to works they own).
15.
See, e.g., Thomas F. Cotter, Fair Use and Copyright Overenforcement, 93 IOWA L.
REV. 1271, 1292–94 & n.58 (2008) (proposing damages-only regime for infringement of the
derivative works right that falls short of fair use to maximize social welfare).
16.
E.g., Molly Schaffer Van Houweling, Author Autonomy and Atomism in Copyright
Law, 96 VA. L. REV. 549, 556–57, 640–41 (2010) (suggesting damages-only regime to solve
the problem of increasingly atomistic works and uses of works). Not all scholars advance a
damages-only regime on the grounds that it would increase social wealth. See Wendy J.
Gordon, A Property Right in Self-Expression: Equality and Individualism in the Natural
Law of Intellectual Property, 102 YALE L.J. 1533, 1573–76 (1993). Operating as I am in the
realm of wealth maximization, such proposals are outside the scope of my inquiry.
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available up to the point of adjudication, including information
not only about the work and the use but also about the effects
of the use on the work.
A third set of proposals would alter infringement
determinations themselves by requiring, in addition to the
traditional elements of copyright infringement, additional
information about the nature of either the work or the use—for
simplicity, I’ll call these requirements for “additional showings.”
Thus, some would limit infringement to those uses that the author
could have foreseen at the time the underlying work was created
(because only such uses would have formed the incentive that
induced that author to create the work),17 while others would
insist on not only copying but some “anticompetitive” harm to the
market for the work,18 or in the case of a derivative work, whether
the copyright owner itself would be likely to enter the market for
such a work.19 These proposals, like those for damages-only
regimes, shift copyright toward the “standard” side of the
rules/standards continuum, because they rely on additional ex post
information in making determinations. Some aspects of copyright
law, such as the fair use defense, arguably already incorporate
similar, standard-like, limitations on copyright.20
Given these several types of reform proposals, the question is
how do rules and standards inform our understanding of how
these proposals (and indeed copyright itself) work. But in order to
better understand how rules and standards work in copyright, we
need to consider how the copyright system actually works to serve
its wealth-maximizing ends.
III. COPYRIGHT AS A SYSTEM
Although it is a common habit to refer to the purpose of
“copyright” or “copyright law” as being to provide incentives to
17.
E.g., Balganesh, supra note 1, at 1571 (advancing “a test of ‘foreseeable copying’
to limit copyright’s grant of exclusivity to situations where a copier’s use was reasonably
foreseeable at the time of creation—the point when the incentive is meant to operate”).
18.
See, e.g., Christina Bohannan & Herbert Hovenkamp, IP and Antitrust:
Reformation and Harm, 51 B.C. L. REV. 905, 905, 989–90 (2010) (“We propose a concept of
‘IP injury’ that limits IP remedies to situations in which the IP holder has suffered or is
likely to suffer harm sufficiently linked to the purpose of IP law, which is to incentivize
innovation.”); Sprigman, supra note 2, at 338–39 (suggesting a “rule of reason” approach
that would require competitive harm to copyright owners in cases of nonliteral copying).
19.
E.g., Thomas F. Cotter, Transformative Use and Cognizable Harm, 12 VAND. J.
ENT. & TECH. L. 701, 751 (2010) (asking whether the market for the derivative work is a
“phantom” market to the author).
20.
See Christina Bohannan, Copyright Harm, Foreseeability, and Fair Use, 85
WASH. U. L. REV. 969, 977–78 (2007) (connecting fair use with competitive harms to
authors).
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create and distribute information (with a nod to the overall
maximization of social wealth),21 it would be difficult to connect
any rational policy interest to the bundle of rules that compose
modern copyright protection. For instance, much of the value of
copyrighted works lies not in their expression but in the ideas (or
facts) they contain—and thus, it would seem rational to provide
incentives for the creation and distribution of ideas and facts—yet
ideas and facts themselves are unprotected by the copyright
system.22 Thus, the copyright system is at least an imperfect
implementation of a broad policy of incentives and access, and
copyright lawyers are at some level constrained to confront that
system rather than the policy justifications underlying it. The
danger of ignoring the distinction is that it becomes easy to argue
that the policy of incentives and access that the copyright system
attempts to further should itself determine the rules of copyright.
That is an attempt to remake copyright law, not understand it,
although some areas of copyright law are certainly more
amendable to the importation of policy than others.23 Copyright is
hardly alone in this regard. Property law, for instance, has
frequently been justified on the ground that it provides incentives
for the productive use of resources, but no one would confuse the
Rule Against Perpetuities with a policy of social wealth
maximization.
Recognizing the existence of a gap between copyright as a
policy and our particular implementation of copyright (what I call
the “copyright system”) frees one to consider what it is that the
copyright system does, because it clearly does not provide anything
anyone would call “a system of incentives and access to maximize
the social wealth to be generated by creative effort.” Perhaps
somewhat mundanely, the copyright system at its base does only
two things: (1) allocates control over, and thereby maintains a
claim to the wealth generated by, certain creative effort; and
(2) enables reallocation of that control to others through a variety
of mechanisms.
The copyright system allocates control over certain creative
content by awarding copyright protection to authors for their
creative expression. The copyright system makes this initial
allocation by vesting copyright in authors, which is a characteristic
21.
E.g., Neil Weinstock Netanel, Copyright and a Democratic Civil Society, 106 YALE
L.J. 283, 285 (1996) (“Copyright law strikes a precarious balance. To encourage authors to
create and disseminate original expression, it accords them a bundle of proprietary rights
in their works.”).
22.
See 17 U.S.C. § 102(b) (2012) (ideas); Feist Publ’ns, Inc. v. Rural Tel. Serv. Co.,
499 U.S. 340, 344 (1991) (facts).
23.
Gordon, supra note 1, at 1604.
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of the system that many take for granted, but is itself a feature of
our particular system of copyright.24 One could just as easily vest
copyright in publishers, as the ancestor of our copyright system
itself did.25 That the system conducts an initial allocation of this
kind has great import because it directs all that follows. For
instance, relying on an initial allocation of control over the work26
to the author determines that the entire system will be dependent
on control and capturing wealth rather than some other means
(such as bounties or patronage).
The copyright system, perhaps even more importantly, also
enables reallocation, which is necessary unless one assumes that
the author of a work is also the party who most highly values the
work. If the copyright system did not enable reallocation of the
work (or aspects of the work), social wealth would suffer, because
transfers of the work can themselves increase social wealth.27 The
copyright system reallocates works in two primary ways: by
making the initial allocation transferrable through transactions (a
transactional reallocation—in our system through the use of
licenses) and by allowing for use of the work by others. Use itself
can be broken down to both consumptive28 uses of the work
(including, for present purposes, distribution of the work to others
for their consumption) and productive uses of the work. Either
form of use constitutes a reallocation of the underlying work as
well as a likely increase in social wealth, albeit in different ways
and with different consequences. Consumptive use (enjoyment or
use of the work in its own right) clearly increases social wealth (I
am richer after I read a book than I was before, and therefore, so
is society), but the increase in social wealth stemming from
consumptive use is frequently completely internalized to the
user.29 Productive use (the use of the work in creating another
work) can result in either an increase or a decrease in social wealth
24.
See 17 U.S.C. § 102(a)–(b).
25.
Thomas B. Nachbar, Intellectual Property and Constitutional Norms, 104 COLUM.
L. REV. 272, 320 (2004) (noting the copyright bestowed on the publisher, the Stationers’
Company).
26.
Throughout, I will simply refer to allocation and reallocation of the “work” as a
shorthand for “control over the work.”
27.
See Thomas B. Nachbar, Judicial Review and the Quest to Keep Copyright Pure,
2 J. TELECOMM. & HIGH TECH. L. 33, 71 n.135 (2003).
28.
Cf. Sprigman, supra note 2, at 335 (defining “consumptive infringement” as
“forms of infringement involving the reproduction and distribution of copies that are either
exact or near enough so that they are almost certain to compete with the original work for
patronage”). I am relying on a differing conception of “consumptive,” one that focuses not
on whether the use is similar enough to compete with the underlying work (because many
transformative uses can compete directly) but, rather, on whether the use is part of the
creation of a new work.
29.
Fagundes, supra note 2, at 1809.
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(an increase stemming from the new work or a decrease if the use
results not just in wealth reallocation but also rent dissipation30).
Unlike consumptive use, productive use frequently results in
wealth gains both to the user and those who consume the newly
produced (derivative) work.31 Consequently, productive uses have
received tremendous attention from copyright scholars,32 although
it is consumptive uses that tend to receive the bulk of the attention
from legislators.33 Many uses are the result of transactional
reallocations, but for my purposes, I will use the term “use”
distinctly to describe a reallocation without regard to whether
there is an underlying transaction. Uses can either be
noninfringing (such as reading a book) or infringing (such as
copying it), and thus it isn’t quite true that the copyright system
“enables” infringing uses, although it permits them through
imperfect enforcement.34
One might quibble with my description of a “use” like reading a
book as a reallocation of the work because the copyright system does
not initially allocate the right to prevent reading of a book in the
author in the first place; if the author never has this particular right
to the work, it cannot be reallocated through use. Rather, one might
argue, that the copyright system allocates some rights (such as
reproduction) in the author and other rights (such as reading) in the
public. The problem with using the language of exclusive rights when
considering allocations and reallocations is that the right to read a
work does not pre-exist the creation of a work, but more importantly,
neither does the social wealth to be gained from reading the work.
While the exclusive right to read may never reside in the author, the
social wealth to be gained by reading the work does, even if in latent
form. The copyright system reallocates that wealth from authors to
readers by refusing to protect an exclusive right to read. In this sense
30.
For example, a T-shirt featuring a picture of Mickey Mouse shooting heroin might
potentially reduce the value of Mickey as a character in creative works oriented toward
children.
31.
See Brett M. Frischmann & Mark A. Lemley, Spillovers, 107 COLUM. L. REV. 257,
285, 288–89 (2007).
32.
See, e.g., LAWRENCE LESSIG, REMIX: MAKING ART AND COMMERCE THRIVE IN THE
HYBRID ECONOMY 255–56 (2008); Frischmann & Lemley, supra note 31, at 285. Many
scholars can be forgiven for their obsession with the role of productive uses given the
copyright system’s emphasis on transformative uses as part of the fair use defense. See,
e.g., Cotter, supra note 19, at 703–04.
33.
Most modern changes to the Copyright Act (on the reallocation side rather than
allocation side) have revolved around consumptive uses, such as compulsory licenses for
cable television and rules to allow certain consumptive uses, such as digital transmission.
34.
Because work is reallocated whether the use is infringing or noninfringing, the
difference between infringing and noninfringing uses is irrelevant for the purposes of
considering reallocations, although the difference is certainly not irrelevant to authors and
users.
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the copyright system is not what allocates the social wealth from
reading to the author—creation of the work does—but the system
nevertheless operates on that wealth, even if in some cases only by
reallocating it. My use of “reallocation” to describe that shift
emphasizes that users cannot obtain that wealth until a point in time
after the author creates it; my aim is to describe the temporal
dimension of how value moves from authors to users, not to describe
copyright doctrine. In the case of a right protected by the copyright
system, such as the right to make copies of the work, the copyright
system leaves the social wealth to be gained from copying with the
author and permits, but does not force, reallocation.
To state what the copyright system does in such simple terms is
not to suggest it is a simple system. As described above, the copyright
system does not reinforce the initial allocation of all the social wealth
of a work to authors and does not cover every form of creative
expression (not to mention noncreative works and nonexpression,
both of which are completely outside the system35), and the various
means through which the copyright system works reallocation are
incredibly complex. But within its limited purview of creative
expression, the copyright system itself can be described quite simply
as a system of allocations and reallocations. It is wrong to view it as
more from the perspective of policy; the system of initial allocations
and reallocations is perhaps tuned to provide both incentives to
create that expression and access to that expression—but it is not
itself a system of incentives or access. It is similarly wrong to view it
as less from the perspective of mechanics; the many features of the
copyright system—detailed provisions regarding registration or
renewal or statutory damages—exist to support these initial
allocations and reallocations, but the end of the system itself is the
initial allocation and reallocation of works.
It is in the combination of initial allocations and reallocations
that the copyright system so closely resembles the property system
and is a likely reason for the resilience of the analogy to the “other”
property system and the oft-maligned36 term “intellectual
35.
Although patent is similarly a system of allocation and reallocations of created
content, rules and standards operate very differently in the patent system, and so I have
excluded it from consideration in this paper. The basic description here of the copyright
system in terms of allocation and reallocation does apply equally to the patent system.
36. See, e.g., Floris Kreiken & David Koepsell, Coase and Copyright, 2013 U. ILL. J.L.
TECH. & POL’Y 1, 32 (2013) (“[C]onstantly emphasizing the ‘property’ part of copyright makes
copyrighted goods seem more exclusive than they really are or can be.”); Stefan Larsson,
Metaphors and Norms: Understanding Copyright Law in a Digital Society, 36 LUND STUD. SOC.
L. 5, 103–04 (2011) (noting metaphor of intellectual property forces legal debate over copyright
into context of property). See generally DAVID R. KOEPSELL, THE ONTOLOGY OF CYBERSPACE:
PHILOSOPHY, LAW, AND THE FUTURE OF INTELLECTUAL PROPERTY (2000) (comparing intellectual
and tangible property rights).
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property.”37 In a liability-based system (such as tort), initial
allocations are either assumed (such as the initial allocation of the
right against bodily injury or the property rights underlying a tort
like conversion, which does not address itself the underlying
ownership interest) or irrelevant, and the system is not designed
to enable reallocation but is instead to compensate for admittedly
wrongful reallocations; no one would say that tort law “enables”
bodily injury through negligent conduct by insisting on
compensation for it.
IV. RULES, STANDARDS, AND COPYRIGHT
Having described the copyright system as one of initial
allocations and reallocations, the next question to consider is the
role of rules and standards in the operation of that system. Before
we can do that, though, we need a more detailed understanding of
rules and standards.
A. Rules and Standards
Few concepts are as widely bandied about in legal scholarship
as the familiar debates over rules and standards.38 I adopt here a
fairly simple conception of rules and standards developed by Louis
Kaplow in his seminal paper: Rules Versus Standards: An Economic
37.
Thus, it is this allocation/reallocation structure of property regimes, and not the
availability of injunctive relief, that distinguishes property regimes and liability regimes.
Cf. Lemley & Weiser, supra note 11, at 783 (“The foundational notion of property law is
that ‘the right to exclude’ is the essence of a true property right.”); Thomas W. Merrill,
Property and the Right to Exclude, 77 NEB. L. REV. 730, 730 (1998) (“[T]he right to exclude
others is more than just ‘one of the most essential’ constituents of property—it is the sine
qua non.”). Lemley, Weiser, and Merrill cite Kaiser Aetna v. United States for this
proposition. Lemley & Weiser, supra note 11, at 783; Merrill, supra, at 730. But the Court
in Kaiser Aetna concluded that the right to exclude is a necessary part of a property right,
not that the right to exclude distinguished property rights from other rights. See Kaiser
Aetna v. United States, 444 U.S. 164, 179–80 (1979).
Indeed, although the injunction-as-property meme has its intellectual origins in
the Calabresi and Melamed approach to entitlements, see Guido Calabresi & A. Douglas
Melamed, Property Rules, Liability Rules, and Inalienability: One View of the Cathedral,
85 HARV. L. REV. 1089, 1105–06 (1972), the view of property regimes as first allocating and
then providing rules for reallocating entitlements is a more complete description of their
approach. See id. at 1092 (“The state not only has to decide whom to entitle, but it must
also simultaneously make a series of equally difficult second order decisions. These
decisions go to the manner in which entitlements are protected and to whether an
individual is allowed to sell or trade the entitlement.”). Thus, Calabresi and Melamed’s
conception of entitlements is broad enough to capture the case of bodily integrity because
the awarding of, and the ability to transfer, an entitlement to both our bodies and tangible
property are economically—but certainly not legally—identical. See id. at 1091.
38.
I recognize that, by focusing on the temporal dimension of rules and standards, I
am considering an exceptionally narrow aspect of the dichotomy between rules and
standards. On rules and standards generally, see H.L.A. HART, THE CONCEPT OF LAW 124–
35 (2d ed. 1994).
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Analysis. As Professor Kaplow explains, what separates rules and
standards is not their relative complexity (there are some extremely
complex rules and some very simple standards) but, rather, the
degree to which they rely on ex ante or ex post determinations of
legality.39 A legal directive is “rule-like” if the determination of
legality is made before an act takes place and “standard-like” if the
determination of legality can only be determined after an act takes
place.40 Thus, a speed limit is an advance determination of a safe
speed for a car to travel, and a driver could determine with certainty
the legal limit on his or her behavior before setting out. Conversely,
a directive to drive at a “reasonable” or “safe” speed would require (or
allow) an adjudicator to factor in any number of considerations that
might be relevant to a particular driver’s traversing a particular
stretch of road at a particular time, and thus the actual legal limit on
speed could not be decisively determined until after a particular act
of driving took place.
There are any number of considerations that moderate the
rule/standard distinction. It is a commonplace in the
rules/standards literature that most directives fall along a
continuum between rules and standards.41 Most directives include
a combination of both rule-like and standard-like elements (the
tax code’s allowance of deductions for all “ordinary and necessary”
business expenses comes to mind42), and the existence of legal
precedent in applying a particular standard can give it a clarity
and predictability approaching that of a rule.43 As a general
matter, though, the distinction holds: rules rely for their
determinations on information available before the act takes
place, and standards require information that can only be obtained
in the commission of the act.
Because rules are based on information available ex ante and
standards on information available ex post, the availability of such
information is a key element in determining whether a rule or a
standard is the most appropriate form of legal directive in a
particular instance. Thus, if there is a great deal of information
about the conduct available ex ante (such as observations of the
likelihood of accidents at different speeds on roads similar to the
one being regulated), rules are more appropriate. Where
information can only be obtained ex post, standards work better.
39.
Louis Kaplow, Rules Versus Standards: An Economic Analysis, 42 DUKE L.J. 557,
559 n.2, 588–90, 599 (1992).
40.
Id. at 559–60.
41.
E.g., Russell B. Korobkin, Behavioral Analysis and Legal Form: Rules vs.
Standards Revisited, 79 OR. L. REV. 23, 30 (2000).
42.
See 26 U.S.C. § 162 (2012).
43.
Kaplow, supra note 39, at 564.
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In slightly more granular terms, what matters is the cost of
obtaining information relevant to the underlying legal
determination: whether it is costlier to obtain information about a
particular activity ex ante or ex post.44 According to Professor
Kaplow, those relative cost determinations are relevant at three
critical points in time: at the time of promulgation, at the time an
individual must predict how the directive is going to apply to his
conduct, and at the time of adjudication by a factfinder—costs
incurred at the time of promulgation, choice, and adjudication.45
Generally, rules are expensive to determine at the point of
promulgation and cheap to apply at the later points of choice and
adjudication, while standards are inexpensive to promulgate but
may be expensive for individuals to determine when they have to
choose their behavior and result in costly trials at adjudication.46
Certain aspects of behavior may make them more amenable
to either rules or standards. The cost of acquiring information
about (unknowable) future acts is particularly high at the point of
promulgation, and so rules generally make the most sense when
applied to conduct that recurs frequently—speeding laws being a
good example.47 The relative higher cost of promulgating the rule
is offset by the low costs incurred at the moment of choice and
during adjudication.48 On the other hand, it may simply not pay to
invest in determining rules for all the possible ways a directive
could be violated—as would be necessary in order to support a
rule—if the directive is rarely violated. Consequently,
heterogeneous behavior lends itself better to standards because,
although the cost at the later stages of choice and adjudication is
much higher than for the application of a rule, the frequency of
either choice or adjudication is low, and so, the reduced cost of
uncertainty is offset by the high cost of promulgating a rule.49 Of
44.
Id. at 562–63.
45.
Id. at 568.
46.
Id. at 568–70. Professor Kaplow focuses on the choice the individual faces in
deciding whether to acquire additional information (as from a lawyer), but I think it is
actually better to focus on the individual’s choice of whether or not to act given his
understanding of the directive, which is necessarily informed (and potentially determined)
by the individual’s understanding of the directive, with or without legal advice. That is, the
cost of determining the content of the directive is likely to affect equally not only the
decision of whether to invest in learning about the rule but, also, the decision of whether to
engage in the potentially illegal conduct (and have a greater deterrent effect if the
individual is risk averse).
47.
Id. at 563–64.
48.
Id. at 577. And some rules may benefit from analysis of similar conduct in other
contexts. Thus, a speeding rule may be inexpensively determined for a particular road
because the safety of driving at different speeds on other similar roads is itself a frequent
and readily observable event.
49.
Id. at 563–64.
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course, the costs of applying rules and standards can vary at the
different stages for reasons unrelated to whether information is
known ex ante or ex post. For instance, if the information necessary
for an accurate determination is in the parties’ control, the cost at
choice may be very low, but the cost at adjudication may be higher
(or the likelihood of an erroneous adjudication higher) because the
adjudicator will need to obtain the information in the parties’
control before making an accurate determination. If a driver is the
only one who knows how fast she was driving, it doesn’t matter
whether the directive is stated as a rule (a speed limit) or a
standard (reckless driving)—adjudication will likely be either
expensive or unreliable (or both).
B. Rules and Standards in Copyright
It should come as no surprise that the copyright system
utilizes both rules and standards in its operation. The copyright
system’s regulation for determining initial allocation—fixation—
is decidedly rule-like.50 One need know very little about an
individual’s conduct ex post (except perhaps whether the
expression was copied from someone else51 or is an unprotected
idea52) in order to know whether a particular fixation satisfies the
legal requirement for initial allocation of a work to its author.
Other aspects of the copyright system look more like standards,
such as the “substantial similarity” test for infringement53 (which
has been clarified to the point of near-rule-dom through decades of
precedent) and the notoriously indeterminate fair use defense54
(not so much).
For an author, there remain three relevant points in time:
promulgation (when Congress adopts a new provision of copyright
law), choice (in this case, the choice to invest in creative activity
that will result in allocation of the work to the author), and
adjudication (an independent determination of the validity of the
author’s copyright). When analyzing the behavior of authors (as
opposed to legislators and adjudicators), the most relevant
moment is the moment of choice. At that time, the author has to
decide whether to invest in creative activity that will be protected
by the copyright system or in some other behavior, and so at that
50.
See 17 U.S.C. § 102(a) (2012) (“Copyright protection subsists, in accordance with
this title, in original works of authorship fixed in any tangible medium of expression, now
known or later developed, from which they can be perceived, reproduced, or otherwise
communicated, either directly or with the aid of a machine or device.”).
51.
Id. § 103(b).
52.
Id. § 102(b).
53.
See Nichols v. Universal Pictures Corp., 45 F.2d 119, 121 (2d Cir. 1930).
54.
17 U.S.C. § 107.
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time, the author needs to know the content of the copyright law of
allocation. For instance, it would be important for a potential
author to know that if she invests in creating a compilation of
facts, the facts themselves will not be protected by the copyright
system because that information may affect her decision to invest
in creating the compilation. The three-period approach, as
confronted by an author deciding whether to invest in creation, can
be displayed on a timeline that looks roughly like this:
The nature of copyright, though, presents a complication to
Kaplow’s three-period approach to the application of rules and
standards. Because the copyright system enables reallocation
through use, a potential user also faces a choice: whether to engage
in a use of a work that has previously been allocated to an author.55
The points of promulgation and adjudication do not change (the
user is interested in both the law of allocation and the law of
reallocation, and those may be created at different times, but they
are both likely to have predated the original allocation, and so for
the parties’ purposes, they might as well be at a single point in
time prior to any choice, and in virtually all copyright
infringement cases, there will be a single point of adjudication to
determine the validity of both the initial allocation and the legality
of the reallocation), and so Kaplow’s three-period model can
accommodate the allocation/reallocation structure of the copyright
system by including not one but two points of “choice” relevant to
a legal determination regarding use of any particular copyrightprotected work:
(1) Promulgation
(2) Choice by an author to invest in authorship
(3) Choice by a user to engage in use
(4) Adjudication
55.
The copyright system also enables transactional reallocations, so it is possible
that the point of choice for a reallocation will be when a potential buyer of the work will
have to choose whether to purchase the work, and that point of choice similarly requires
information about the legal content of the copyright system. While my analysis similarly
applies to transactional reallocations, the informational problems facing buyers are
considerably lower than those facing users, so I will focus on reallocation through use rather
than transactional reallocation. Similarly, I will for the most part ignore potential
reallocations to buyers that occur between the time of the original allocation to the author
and the time of use, treating “author” and “rightsholder” as synonymous because such
transfers, while frequent, are largely irrelevant to my analysis.
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Thus, a model of ex ante and ex post information as applied to
the copyright system contains four rather than three stages, with
two separate stages of choice: Stage 2, at which time the potential
author chooses whether to invest in authorship that results in
allocation of the work to the author and Stage 3, at which time the
potential user chooses whether to engage in a use that results in
partial reallocation of the work to the user. The author-choice
three-period timeline thus adapted to include the possibility of use
(and reallocation) looks more like this:
Accounting for Kaplow’s recognition of the temporal
dimension to rules and standards, then, the question is not
whether the copyright system best functions using rules or
standards but, rather, the appropriateness of each at each of the
four time stages relevant to the creation and use of a particular
work. Moreover, what information is known as “ex ante” and “ex
post” at the point of choice is different for the author and the user
because the author’s choice occurs before the user’s. Outlining the
availability of information for the different parties on the list
above, it looks something like this:
Ex ante for information about both allocation and
reallocation
(1) Promulgation
Ex ante for information about both allocation and
reallocation
(2) Choice by an author to invest in authorship
Ex post for information about allocation (author)
Ex ante for information about reallocation (user)
(3) Choice by a user to engage in use
Ex post for information about both allocation and
reallocation
(4) Adjudication
Displayed along our timeline:
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If information were costless, the copyright system would provide
rules to both authors and users prior to their points of choice so that
they could make the most informed investment decisions.56 Thus, all
things being equal, the copyright system would utilize rules rather
than standards for both allocation and reallocation.57 As described
above, the copyright system provides rule-like legal directives
regarding allocation (the fixation standard), thus minimizing the
decision cost faced by potential authors at their point of choice. The
question, then, is how rule-like the regulations regarding reallocation
can be. Here, there is less consistency. Some reallocation directives
are generally rule-like and require little information about the
particular use (such as the exclusion of reading as one of the rights
allocated to authors) while others require much more information
about the particular use (such as the reach of the derivative works
right and the fair use defense). Generally, reallocations involving
consumptive uses tend to look more like rules and those regarding
productive uses tend to look more like standards, which makes sense
if the effect of productive uses on the underlying work is more highly
variable than the effect of consumptive uses. Mandatory reallocation
schemes, like compulsory licensing, provide rules for reallocation,
reducing the decision cost faced by users, but again, tend to be for
consumptive rather than productive uses. For instance, the
mechanical license to cover a previously published sound recording
expressly limits the degree to which the use can be productive (how
much the cover can creatively alter the underlying song) and still
qualify for the license.58
And here there is another point that requires some
clarification of Kaplow’s rules/standards framework: The Kaplow
framework is designed to describe how government creates law
in terms of information about legal content.59 But the relevant
information is information about how the legal directive will be
56. The situation is actually somewhat more complicated than even this simplified case
suggests. An “author” in one context is a “user” in another—very few authors write on a truly
blank slate (a feature I account for by including the case of productive uses). Thus, rather than
a timeline, a more complete picture would be a cycle in which a use becomes the fodder for the
next user/author’s creation. Introducing the complexity of a dynamic understanding does not
alter the essential temporal nature of the decision points faced by each author or user and
unnecessarily complicates matters, especially when one includes the points of promulgation and
adjudication. Consequently, I have ignored (or at least limited myself to first-order) dynamic
effects in my analysis.
57.
See Korobkin, supra note 41, at 41 (discussing the advantage of rules for
facilitating transactions).
58. See 17 U.S.C. § 115(a)(2) (“[T]he arrangement shall not change the basic melody or
fundamental character of the work . . . .”).
59.
Kaplow, supra note 39, at 568 (“[T]he problem of creating the law can be
interpreted as one involving the government’s acquisition and dissemination of
information.”).
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applied to any particular set of facts, and so Kaplow necessarily
includes information about the underlying facts with information
about legal directives in the abstract, as would any legislator
attempting to formulate a rule to apply to future sets of facts, any
lawyer providing advice to a client, or any judge rendering an
adjudication.60 We can assume that everyone has roughly similar
information about the underlying law throughout,61 but at Stage
3, when the potential user chooses whether or not to reallocate
through use, there is, in addition to the information about the
law of reallocation, a considerable amount of information about
the original allocation itself—not necessarily information about
the legal content of the allocation but information about the
amount of wealth created by the allocation (and therefore,
potentially available for reallocation through use). In the
language of copyright law, because potential infringers can
observe the value of previously created works, they can pick and
choose among the universe of works in order to avoid wasting
their time using (and possibly infringing) worthless ones.
Returning to the language of rules and standards, the
advantage of rules over standards is in allowing determinations to
be made without much information about an action, but the
universe of actions relevant to a use include not only the act of use
but, also, information about the original allocation, which suggests
that, as between authorship and use, use is more amenable to
application of a standard because more information is available
when the user chooses whether to use than was available when
the author chose whether to create. The same point is doubly true
after the use is made because, in addition to information about the
value of the original allocation, we now have information about the
value of the use itself. It is the increase in available information
following both creation and use that underlies calls to push
infringement towards a standards-based regime because a
standard will allow adjudicators to include that additional
information in their determinations.62
60.
See id. at 585 n.71 (“The term ‘information’ is used here to include anything
relevant to reaching a better decision, whether facts or understandings that can be
improved through greater discussion and reflection.”).
61.
The distinction between facts and law is more important in this case than in the
case Kaplow examined because it is information about facts that constitutes the primary
difference between the information that the author has at Stage 2 and the information the
user has at Stage 3.
62.
See Kaplow, supra note 39, at 616 (arguing that as information, conditions, and
perceived values change over time, standards are easier to keep up to date than rules). Of
course, the effect of this additional information (as discovered in work by some of the same
scholars who advance an increased use of standards for infringement determinations) could
be advanced as a reason to reduce the amount of information available to adjudicators. See
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Thus, at the point that the potential user chooses whether to
attempt a reallocation through use, whether a rule or a standard
is (relatively) superior depends on whether one looks at it from the
perspective of an author or a potential user. From the potential
user’s standpoint, a rule is preferable in order to allow him to
correctly evaluate whether to invest in use. From the author’s
standpoint, a standard is preferable because a standard will better
account for the wealth potential of the work as a whole and thus
the magnitude of the effects of any future use.63 Even better for
the author would be information about the future use itself
because different uses will have different wealth effects.
Information about the use doesn’t yet exist at Stage 3—we won’t
know about the actual use and its wealth effects until Stage 4.
What does exist at Stage 3 is information about the potential
user’s future intent, but that information is held by the potential
user and is not readily discoverable without the potential user’s
cooperation.
V. RULES, STANDARDS, AND REFORM
Having a model of how rules and standards work in copyright,
the question remains what rules and standards have to say for
recent reform proposals. I take the three types of proposals in turn:
compulsory licenses, damages-only regimes, and requiring authors
to provide additional information, usually about the work, the use,
or the markets for either.64
A. Compulsory Licenses
Even a cursory understanding of how rules and standards work
in the copyright system’s allocation and reallocation of works
demonstrates that rule-based proposals for reform such as
compulsory licenses are ill-advised. As rules, compulsory licenses can
rely on information available only at Stage 1: when the rule is
Shyamkrishna Balganesh, Irina D. Manta & Tess Wilkinson-Ryan, Judging Similarity, 100
IOWA L. REV. (forthcoming 2014) (arguing that, because experiments show that information
about the nature of use and users can affect substantial similarity determinations, the
substantial similarity test is itself inherently subjective).
63.
One might argue that an author might also prefer a rule marginally less because
she is not at a point of choice and so does not benefit from the determinacy of a rule as much
as the potential user does, but that is not so. First, the author values determinacy for the
same reasons the potential user does—to know what the overall allocation is, which is
information necessary to engaging in transactional reallocation. Second, the author herself
may be considering a future use (such as the creation of a derivative work) and will want
to know the degree to which she can capture the additional wealth created by that work,
much as would another user. For simplicity, I will assume the simple case as between
authors and users, ignoring that authors may themselves be users of their own works.
64.
See supra text accompanying notes 7–20.
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promulgated. When it comes to industries developing as rapidly as
content industries (and the associated technologies for creating,
distributing, and consuming content), there is simply too much
information that develops (a great deal of it between Stage 1 and
Stage 2, much less between Stage 1 and Stage 3, when users must
make use decisions) to countenance the rigidity of a rule.65
History is strewn with examples of attempts to engineer rulebased reallocation regimes that have either failed or succeeded in
pushing creative industries in completely unforeseen and
unintended directions.66 For instance, the Audio Home Recording
Act (AHRA)67 established a technology-based levy engineered to
allow the use of a wondrous, new technology—digital recording
media—to make nearly perfect copies of music without destroying
the recording industry—a regulatory model that was essentially
dead-on-arrival because of the limited demand for the media
subject to the AHRA levy.68 The recording media subject to the
AHRA levy have almost completely disappeared from the market
in favor of computer-based recording technologies, which are not
covered by the AHRA.69 The error represented by the AHRA is
doubly disconcerting because it is impossible to determine whether
the shift to computer-based recording is independent of the
AHRA’s levy (representing a mistaken prediction by Congress in
1992 about the technological direction of audio home recording) or
is partially the result of it (that the AHRA levy itself has harmed
the ability of non-computer-based audio home recording to
compete with its un-taxed cousin). This second, endogenous,
65.
Cf. Korobkin, supra note 41, at 33–34 (describing the heterogeneity that generally
militates in favor of standards, including the “chronological heterogeneity” of technological
change).
66.
E.g., Robert P. Merges, Compulsory Licensing vs. the Three “Golden Oldies”:
Property Rights, Contracts, and Markets, POL’Y ANALYSIS, Jan. 15, 2004, at 1, 9; see also
Robert P. Merges, Contracting into Liability Rules: Intellectual Property Rights and
Collective Rights Organizations, 84 CALIF. L. REV. 1293, 1308–16 (1996) [hereinafter
Merges, Contracting into Liability Rules] (describing the durability of the sub-optimal
mechanical license, which was intended to permit a diverse market for piano rolls, but now
serves as a below-market-price source of content for record companies).
67.
Audio Home Recording Act of 1992, Pub. L. No. 102-563, 106 Stat. 4237 (codified
at 17 U.S.C. §§ 1001–1010 (2012)) (requiring implementation of a system that prevents
serial copying of works recorded on digital audio recording media and a royalty payment
system).
68.
See, e.g., Lemley & Reese, supra note 8, at 1407 (explaining that the AHRA has
not been used “because the digital audio recording systems covered by the Act never caught
on”); Netanel, supra note 8, at 33 (“The AHRA might serve as useful precedent for the NUL,
but its levy provisions have largely remained a dead letter because the market for digital
cassette recorders and other single-purpose devices for digitally recording music never
developed.”).
69.
See Recording Indus. Ass’n of Am. v. Diamond Multimedia Sys. Inc., 180 F.3d
1072, 1078 (9th Cir. 1999).
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potential effect of the AHRA highlights just how ill-conceived
government price-setting in innovation markets really is. In terms
of rules and standards, the problem is that, at Stage 1, legislatures
may have no idea that the use at Stage 3 will even exist, making
it likely that compulsory licenses will necessarily favor uses that
already exist at Stage 1 and privilege those existing uses over the
creation of new uses.70 The failed lessons of compulsory licensing
as an innovation strategy are frequently lost on compulsory license
proponents; some who advocate a levy system not only mention the
AHRA as a model but, also point out that it is essentially defunct
because of the limited demand for the media subject to the AHRA
levy,71 apparently without appreciating that the AHRA’s failure is
itself reason to reconsider the approach it embodies.
The wide variety of both works and uses means that while
rule-based regimes are likely to either be irrelevant, or worse
derail progress, they are certain to incur tremendous cost at the
point of promulgation. There is no better example of the
incalculable costs of government rate-setting in copyright markets
than the recent experience of the webcasting compulsory
licenses.72 In 1995 and 1998, respectively, Congress passed the
Digital Performance Right in Sound Recordings Act (DPRA)73 and
the Digital Millennium Copyright Act (DMCA),74 which, in
combination, established an exclusive right to perform sound
recordings by digital transmission75 as well as a compulsory
license available to webcasters who wish to perform those sound
recordings over the Internet.76 The new statute also established a
70.
See Thomas B. Nachbar, Monopoly, Mercantilism, and the Politics of Regulation,
91 VA. L. REV. 1313, 1374–75 (2005).
71.
See supra note 68.
72.
As I use the term, “webcasting” is the transmission over the Internet (usually the
World Wide Web) of sound recordings. The sound recordings are sent piecemeal over the
Internet and reassembled on the user’s computer for playing, but they are not stored on the
user’s computer and cannot (theoretically) be copied to other media or played again at a
later time.
73.
Digital Performance Right in Sound Recordings Act of 1995, Pub. L. No. 104-39,
109 Stat. 336 (codified at 17 U.S.C. §§ 106, 114–115 (2012)).
74.
Digital Millennium Copyright Act, Pub. L. No. 105-304, 112 Stat. 2860 (1998)
(codified in scattered sections of 17 U.S.C.).
75.
See 17 U.S.C. § 106(6). There is no exclusive right to perform sound recordings by
analog transmission. Analog radio stations, for instance, are not required to pay any
royalties to the owners of copyrights in the sound recordings they play; they need a license
from, and consequently pay royalties to, only the owners of the copyrights in the underlying
compositions. See id. § 106(4).
76.
My exposition is a dramatic oversimplification of the provisions, which are several
pages long. See id. § 114. My discussion touches upon only one form of webcast service:
noninteractive, nonsubscription webcasting. Subscription services and interactive services
(which allow the user to specify the selection and order in which the songs are played) are
treated differently under the statute. See id.
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mechanism for determining the compulsory license rates: First, it
provided the recording industry with an exemption to the antitrust
laws that allowed the major record companies to negotiate and set
prices as a single block.77 Second, the Act provided for a period of
negotiations, and in the event of their failure, the establishment
of a Copyright Arbitration Royalty Panel (CARP) to set license
rates for a two-year period based on the rates it imagined “a
willing buyer and a willing seller” would agree to in a wellfunctioning market.78
As the (statutorily required) negotiation began, the
(statutorily created) cartel’s negotiating strategy was to
unfailingly insist on a license rate for small webcasters of $.004
per performance (almost six times the final license rate) in an
attempt to generate high-priced agreements as precedent for the
CARP proceedings certain to follow.79 As anticipated by all, the
negotiations fell through, and the first CARP was quickly called.80
To approximate the hypothetical willing-buyer/willing-seller
rates, the CARP looked to the twenty-six agreements that the
(statutorily created) cartel of record companies had successfully
negotiated as part of its plan to influence the outcome of the CARP
proceedings.81 Of the twenty-six existing agreements, the CARP
disqualified all but one,82 effectively setting the rates to be charged
all webcasters based on a single agreement between the Recording
Industry Association of America (RIAA) and Yahoo!, one of the
77.
Id. § 114(e)(1).
78.
Id. § 114(f)(1)(A), (2)(B), (C)(ii) (2000). Of course, the very need for a compulsory
license establishes that the as yet nonexistent market contained neither willing buyers nor
willing sellers.
79.
Rate Setting for Digital Performance Right in Sound Recordings and Ephemeral
Recordings, Docket No. 2000-9, CARP DTRA 1 & 2, Interim Public Version at 47–50 (Feb.
20, 2002) (U.S. Copyright Office, Report of the Copyright Arbitration Royalty Panel),
available at http://www.copyright.gov/carp/webcasting_rates.pdf [hereinafter CARP
Report].
80.
Digital Performance Right in Sound Recordings and Ephemeral Recordings, 64
Fed. Reg. 52,107, 52,107–08 (Sept. 27, 1999); CARP Report, supra note 79, at 10–11. The
CARP was supposed to set the royalty rates for the period 1998–2000, but that CARP took
so long in constituting itself that those proceedings were consolidated with the proceedings
for 2000–2002. See CARP Report, supra note 79, at 105.
81.
CARP Report, supra note 79, at 45–46.
82.
Twenty-one of them were disqualified because the webcasters either had paid
little or no actual royalties under the agreements or had ceased operating. Id. at 51–54.
Two more were disqualified because the webcasters had agreed to the licenses under
exogenous, idiosyncratic time constraints that prevented them from waiting for the results
of the CARP proceeding itself. Id. at 54–56. One was disqualified because it was in
settlement of litigation and contained a most-favored-nation clause that made pricing
dependent on the lowest prices the RIAA eventually gave to others (both defects in some
degree of the agreement the CARP eventually used as a model, see infra note 88), and one
was disqualified because the CARP found it was superficially irrational for the webcaster
to agree to the license in the first place. CARP Report, supra note 79, at 56–59.
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largest and most heavily capitalized Internet companies in the
world.83 Based on that agreement, the CARP chose a rate of $.0014
per performance for “Internet-only” digital transmissions and
$.0007 for webcasts that were retransmissions of radio broadcasts
(“radio retransmissions”).84 The CARP justified the difference as
representing the increased “promotional value” enjoyed by
copyright owners whose songs are played over the radio at the
same time they are webcast,85 even though it found elsewhere in
the report that the very existence of the separate rates in the
Yahoo! agreement was the product of collusion between the RIAA
and Yahoo! in yet another attempt to generate inflated license
rates to serve as precedent for the CARP proceeding.86
When the CARP’s final report was reviewed by the Register
of Copyrights, she injected a grain of much-needed reason by
rejecting the two-tiered approach,87 but the single rate she chose
was still based on the price stipulated by the single Yahoo!
agreement without any regard to the agreement’s other terms.88
Instead, the Register Solomonically chose $.0007 per song, a
rounded average between the two different license rates paid by
Yahoo! under the agreement,89 a rate roughly ten times the rate
charged by performing rights societies for use of the underlying
musical works in over-the-air radio broadcasts.90
83.
CARP Report, supra note 79, at 60–61.
84.
Id. at 75–78.
85.
Id. at 74–75.
86.
Id. at 64–67 (noting that because most of Yahoo!’s webcasts were radio
retransmissions, they were willing to take a sharply inflated Internet-only rate in exchange
for a slightly decreased radio retransmission rate to achieve the lowest overall effective
rate).
87.
See Determination of Reasonable Rates and Terms for the Digital Performance of
Sound Recordings and Ephemeral Recordings, 67 Fed. Reg. 45,240, 45,243 (July 8, 2002)
(codified at 37 C.F.R. pt. 261) [hereinafter LoC Rate Determination]. The scheme to
determine rates calls for review of the CARP determination by the Librarian of Congress
upon recommendation by the Register of Copyrights. Id. at 45,242 (citing 17 U.S.C. § 802(f)
(2012)).
88.
See id. at 45,255. The existence of similar (if not identical) terms to those in the
Yahoo! agreement were cause for the CARP to disqualify another one of the twenty-six
agreements as precedent. See supra note 82.
89.
LoC Rate Determination, supra note 87, at 45,255.
90.
See Copyright Royalties: Where Is the Right Spot on the Dial for Webcasting?:
Hearing Before the S. Comm. on the Judiciary, 107th Cong. 145 (2002) (statement of
Jonathan Potter, Executive Director, Digital Media Association). While analog radio
stations are not required to obtain rights from the owners of copyrights in the sound
recordings they play, they are required to get permission from the owners of copyrights in
the underlying musical works, a process coordinated by three major “performance rights
organizations” (ASCAP, BMI, and SESAC), which grant blanket licenses to radio stations
to play their members’ music. Mr. Potter’s comparison is based on the rates charged radio
stations by the performance rights organizations for the right to broadcast those underlying
musical works. See id.
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The chosen rate proved to be so unworkable that it took
Congress less than six months to devise and execute an alternative
scheme that pushed the interested parties to negotiate a more
realistic set of rates based on the size of each webcaster.91 But for
an infusion of rationality from Congress (from Congress!), the
CARP’s administrative rate setting would have wiped out Internet
webcasting in its infancy at an estimated administrative cost of
$25 million.92 Of course, there is no way to estimate the lost value
to the economy of the more than four years (encompassing both
the inflation and burst of the “Internet bubble”) the process ate up
before it was effectively scrapped for a solution based on a decadesold rate scheme adopted by private parties under the supervision
of no one but the antitrust enforcers.93 Although it received a great
deal of attention due to its rocky first few steps, the path to the
digital distribution of music over the Internet, which is governed
by nothing more publicly minded than strong intellectual property
rights and unabashed market pricing, has been a comparative
walk in the park.94
Whether the disastrous experience of the CARP was a product
of incompetence or greed is irrelevant. Attempts to generate ideal
markets by altering the basic rules of exchange through
compulsory licensing are equal invitation to both. Government
interference with the operation of free pricing is always tempting
91.
Small Webcaster Settlement Act of 2002, Pub. L. No. 107-321, 116 Stat. 2780
(codified at 17 U.S.C. § 114(f)–(g)).
92. See Copyright Royalty and Distribution Reform Act of 2003: Hearing on H.R. 1417
Before the Subcomm. on Courts, the Internet, and Intellectual Prop. of the H. Comm. on the
Judiciary, 108th Cong. 31 (2003) (statement of Michael J. Remington, Attorney-At-Law &
Partner, Drinker Biddle & Reath, LLP); Brian Flavin, A Digital Cry for Help: Internet Radio’s
Struggle to Survive a Second Royalty Rate Determination Under the Willing Buyer/Willing
Seller Standard, 27 ST. LOUIS U. PUB. L. REV. 427, 453 (2008) (noting that Congress rescued
internet webcasters from being driven out of business by enacting the Small Webcaster
Settlement Act of 2002). Over one million dollars went to the arbitrator’s expenses alone. Paige
Albiniak, CARP is Thrown Back, BROADCASTING & CABLE, May 27, 2002, at 14.
93.
See Am. Soc’y of Composers, Authors & Publishers v. Showtime/The Movie
Channel, Inc., 912 F.2d 563, 564–65 (2d Cir. 1990) (describing antitrust court’s supervision
over performing rights organizations under consent agreement); Lemley & Weiser, supra
note 11, at 828–29 & n.223, 836 (noting the new system implemented by Congress is similar
to system that the CARP decision replaced and that federal antitrust court is final overseer
of pricing structures).
94.
After the rights of copyright owners to control digital distribution of their works
were confirmed in A&M Records, Inc. v. Napster, Inc., it was only a matter of months before
music became widely available for licensed download on the Internet and less than two
years before the launch of the wildly popular iTunes, which celebrated in 2013 its 25billionth download. See A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1027 (9th Cir.
2001); iTunes Store Sets New Record with 25 Billion Songs Sold, APPLE (Feb. 6, 2013),
http://www.apple.com/pr/library/2013/02/06iTunes-Store-Sets-New-Record-with-25-Billion
-Songs-Sold.html. With 15,000 songs downloaded per minute, Apple appears to have
stopped publicly announcing new “billion” marks of accumulated music downloads. Id.
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for those who do not like the outcomes generated by unregulated
markets, but a solution so amenable to rent-seeking is likely to
lead to a “vicious circle” of increasing regulation as interested
parties demand tighter restrictions in order to correct for the
injustices created by previous ones.95
Congress’s structural response to the webcasting debacle has
not been to eliminate the market restrictions that naturally and
inexorably caused it but, rather, to replace the CARP with a panel
of “Copyright Royalty Judges,” collectively the “Copyright Royalty
Board” (CRB), whose roles are extended to cover the full array of
copyright compulsory licenses.96 It is not clear the CRB’s
deliberations have been any more successful, although their
docket is balanced out with licenses covering more static
industries, such as cable television. If the hope of relying on
royalty “judges” was to insulate compulsory license
determinations from political pressure, that hope appears to have
been either hopelessly naïve or simply extremely formalist. From
the standpoint of industry participants, the CRB is a direct
substitute for lobbying Congress for protectionist legislation.97
From the standpoint of rules and standards (as well as
fundamental political economics), compulsory licenses are
decidedly lacking, partly because they must price both the author’s
initial investment decision and the user’s use decision at a time
when neither the work nor the use (nor, necessarily, even authors
or users themselves) exist. The question, then, is whether reforms
coming in the form of standards can do any better.
B. Damages-Only Regimes and Additional Showings
Although they are distinct proposals, damages-only regimes
and additional showings are identical from the perspective of rules
and standards because both enlist ex post information in making
determinations. The difficulty in evaluating such proposals is that
they seek to not only incorporate additional information, they
generally seek to shift the identity of the decision-maker from the
author at Stage 3 (deciding whether or not to license a use) to a
95.
See Anne O. Krueger, The Political Economy of the Rent-Seeking Society, 64 AM.
ECON. REV. 291, 302 (1974).
96.
Copyright Royalty and Distribution Reform Act of 2004, Pub. L. No. 108-419, 118
Stat. 2341 (codified as amended at 17 U.S.C. §§ 801–805).
97.
See, e.g., Glenn Peoples, TKO or Split Decision?, BILLBOARD, Nov. 30, 2013, at 5,
5 (“Pandora has given up its efforts to seek legislation that would help reduce the royalties
paid to rights holders, a source knowledgeable with the decision tells Billboard. Instead of
pursuing legislation, Pandora will focus its efforts on lobbying the Copyright Royalty Board
(CRB), the three-judge panel that sets statutory rates for webcasters like Pandora. The
current rates run through 2015.”).
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factfinder at Stage 4 (deciding the outcome of a copyright lawsuit).
For some proposals, the shift in identity of decision-maker is as
important as the shift in time, premised as they are on the
possibility of economically irrational conduct on the part of
authors.98
Concentrating solely on the temporal shift, what these
proposals do is deny certainty at Stage 3 in order to obtain a
better result at Stage 4. Few such proposals seem to be
concerned about the harm to certainty on the author’s part
(none that I have read, and some are indifferent to authors at
any time after Stage 2 by design99), but there is an equal harm
to users’ certainty at Stage 3 because both author and user will
have to wait until Stage 4 to find out the legal consequences of
the use. This delay likely impacts users more than authors
because users will have to potentially make substantial
investments in use at Stage 3 (while authors will have already
made their investment in creation back at Stage 2). Rather than
concern over ex ante versus ex post determinations, such
proposals seem to be aimed at a straightforward policy goal:
lowering the expected cost users will face from an infringement
lawsuit either by reducing their likely economic harm (it will be
capped at the judge’s determination of damages) or by reducing
the likelihood of being found to infringe (by adding elements to
the infringement determination).100 Authors could just as
irrationally (but consistently) argue that their losses to
infringers have been too high, and therefore, Congress should
treble all copyright damages or eliminate one of the elements of
infringement (any one will do!). In order to understand such
proposals from the perspectives of rules and standards, one
would need to evaluate proposals that provide the same
expected value of litigation but differ only on the time of
determination. Such measurement is not possible for the
current crop of decidedly one-sided proposals for which the
intended goal of reducing the expected cost of litigation likely
swamps the effect of having additional information at the time
of determination.
98.
See supra note 14.
99.
See supra note 17.
100.
Compare supra notes 17–19 (discussing the many proposals for additional
showings), with Sara K. Stadler, Copyright as Trade Regulation, 155 U. PA. L. REV. 899,
899, 939, 954, 957 (2007) (arguing for several changes to the copyright statute, including
no liability for personal copying, preempting overreaching licensing rules, and a
reinvigorated fair use defense on the grounds that “only acts of public distribution are
behaviors that threaten to cause the sorts of competitive harms that Congress should seek
to redress”).
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Ignoring the intended distributive effects of these proposals,
the question from the perspective of rules versus standards is
whether the decrease in certainty (to both author and user) at
Stage 3 is outweighed by the increase in information between
Stage 3 and Stage 4. That is a question that has gone unanswered
by those arguing for either more damages-only regimes or
additional showings.
C. Taking Rules and Standards Seriously
Most copyright reform proposals seem to be concerned with
increasing access (rather than incentives),101 and if one is
serious about facilitating access, the real question is how to
reconcile the conflicting needs of authors and users at Stage 3,
when potential users must choose whether or not to attempt a
reallocation through use. A rule of forced reallocation at Stage
3—such as a compulsory license—ignores the information
available at that point about the value of the underlying work.
Proposals for the application of standards for reallocation are
premised on the availability of this additional information (and
more) but necessarily argue for the application of those
standards at Stage 4—by a court in an adjudication102—which
ignores the value to the user of having a reliable determination
at Stage 3.
The key to finding the right balance is to focus on the nature
of the information available at Stage 3, or, rather, the change in
available information between Stage 2, when the author chooses
whether to create, and Stage 3, when the user chooses whether to
use.
101.
See Stadler, supra note 100, at 916, 942 (arguing copyright holders should be
given exclusive public distribution rights but not exclusive reproduction rights so public
can “gain increased access to copyrighted works”); see also Glynn S. Lunney, Jr., Fair Use
and Market Failure: Sony Revisited, 82 B.U. L. REV. 975, 1026 (2002) (arguing courts should
consider increase in access private copying achieves as opposed to assuming private copying
has same economic consequences as copying by competitor).
102.
Some proposals for standards attempt to reconstruct at Stage 4 the reasonable
expectations of authors at Stage 1. See, e.g., Balganesh, supra note 1, at 1571 (“[T]his Article
proposes a test of ‘foreseeable copying’ to limit copyright’s grant of exclusivity to situations
where a copier’s use was reasonably foreseeable at the time of creation . . . .”). This is a call
for something akin to a standards time machine—applying a standard (foreseeability) at
Stage 4 but discarding the information accumulated at Stages 2 and 3, the availability of
which provides the primary advantage of a standard over a rule. Perhaps meritorious as an
attempt to avoid hindsight bias, see id. at 1631–32, such a proposal represents (in terms of
rules and standards) the worst of both worlds. On the problems inherent in the application
of such an approach in the specific case of copyright, see Wendy J. Gordon, Response:
Trespass-Copyright Parallels and the Harm-Benefit Distinction, 122 HARV. L. REV. F. 62,
75–76 (2009); Wendy J. Gordon, An Inquiry into the Merits of Copyright: The Challenges of
Consistency, Consent, and Encouragement Theory, 41 STAN. L. REV. 1343, 1387 (1989).
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It is important to remember that the act of use is specific to a
particular underlying work (and therefore, the original allocation).
This has two important consequences from the perspective of rules
and standards: First, the likelihood that the potential user will be
materially harmed by wrongly being denied reallocation through
use at Stage 3 is very small because the potential user has not yet
invested in use and therefore, is free to use other works.103 Second,
and much more importantly, the marginal benefit of using a
standard rather than a rule for determining whether to allow a
reallocation by use is itself specific to the underlying work. The
relative increase in information between Stage 2 and Stage 3 is
limited to information about the work, and thus, any shift along
the continuum from rule toward standard should also be limited
to information about the underlying work.104
The best information about the value of a particular work is
more likely to be held by the work’s author (or current
rightsholder, whom I’ve previously combined with the author for
the purpose of analysis) than anyone else, and so, in a world where
information is costly, optimal determinations about whether to
allow a particular reallocation are most likely made through the
application of standards by authors.
I am hardly the first person to propose such a regime.105
Indeed, it is the regime we currently operate under because broad
reproduction, derivative-use, and public-performance rights (all of
which are allocated by the copyright system to authors) limit the
availability of reallocations by use, pushing many potential users
to negotiate with authors in order to obtain transactional
reallocations instead. Nor is there any lack of criticisms of such a
regime—most reform proposals originate in exactly such a
103.
In economic terms, at Stage 3, the user has not yet made any asset-specific
investments in use of the underlying work, and so he suffers no stranded costs if he is
refused use. See generally Oliver E. Williamson, Transaction-Cost Economics: The
Governance of Contractual Relations, 22 J.L. & ECON. 233 (1979) (discussing the economics
of transaction costs). The wrongly refused potential user likely suffers some opportunityrelated harm because he will have to move on to a use that he likely values somewhat less
than he values use of this particular work. The amount of that harm is measured by the
marginal market power that any particular work possesses over other similar works (and
thus the cost imposed by a wrongful denial likely approximates zero). See Edmund W.
Kitch, Elementary and Persistent Errors in the Economic Analysis of Intellectual Property,
53 VAND. L. REV. 1727, 1729–34 (2000); see also Liu, supra note 6, at 256–63 (explaining
the relative lack of holdup in modern copyright markets).
104.
Moreover, because the use will be specific to a work, any rule of reallocation
should also be specific to the work. Because reallocation of a particular work is likely to be
a very infrequent event, the high cost of setting a rule is unlikely to be regained through
repeated application of the rule. See supra text accompanying notes 47–49; see also Kaplow,
supra note 39, at 621 (“The central factor influencing the desirability of rules and standards
is the frequency with which a law will govern conduct.”).
105.
See, e.g., Merges, Contracting into Liability Rules, supra note 66, at 1308–16.
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criticism. There may be good reasons to criticize the current
regime, but reform proposals cannot ignore the implications of
rules and standards for how they would alter the existing regime.
From the perspective of rules and standards, the main
difference between the current regime and most proposals106 is the
time at which the determination is made—they shift the
reallocation determination to Stage 4. In terms of available
information, the only real change in available information
between Stage 3 and Stage 4 is about the value (positive and
negative) of the use. Most proposals are, unsurprisingly, premised
in the assumption that uses are systematically undervalued, and
so they seek to incorporate more information about use in
reallocation determinations. That increase in information is offset
(either partially or completely) by the decrease in the factfinder’s
ability (relative to the author) to obtain information about the
value of the work.107 In the end, it’s not clear that there are any
information advantages to be gained. What is certain is that the
loss of certainty at Stage 3—a loss felt largely by users—is not
offset in any meaningful way. As a result, the effect on authors is
indeterminate and the effect on users is likely negative.
VI. CONCLUSION
Few copyright reformers are likely consumed with the
question of where their reform proposals fit in the continuum
between “rules” and “standards.” But the rules/standards
debate, being at its essence one about the timing of decisions,
highlights the structure of the copyright system in ways that
most reform proposals ignore. Looking at the copyright system
through the lens of rules and standards helps us recognize the
nature of the copyright system as a system of allocations and
reallocations and emphasizes the various stages in time over
106.
Here I am excluding compulsory licenses, to which I’ve provided ample attention
above.
107.
One set of reform proposals is premised on the possibility that
authors/rightsholders might be irrational in making value determinations. See supra note
14. There is, of course, no reason to think copyright rightsholders are marginally more
irrational than either owners of tangible property (one could use an identical argument to
support a damages-only rule applied to all property rights) or users, whose own self-serving
biases are also likely at play. See Korobkin, supra note 41, at 46–47 (describing self-serving
bias in the application of rules and standards). Even putting such concerns aside, though,
that authors may exercise their rights irrationally doesn’t change the fact that authors have
much better information about the value of a work than either the user or a neutral
factfinder. In the end, there’s no particular reason to think the increased cost of the
information to the neutral factfinder offsets the gain in their rationality, or at the very
least, the case has not been made. For those proposals not predicated on the irrationality
of authors, of course, there is no benefit to offset the cost of placing the reallocation decision
in hands other than the author’s.
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which the copyright system operates with regard to any
particular work: the time at which rules are promulgated, the
time at which the author chooses whether to invest in creation,
the time at which a user chooses whether to reallocate some
aspects of a work through use, and the time at which a disputed
reallocation is adjudicated. Critically, for the incentives/access
paradigm, there are two separate decision points that are
necessary in order to realize the full value of a work: the point
at which the author chooses whether to invest in creation and
the point at which a user chooses whether to use the work. Only
by taking seriously the ex ante and ex post nature of decisions
at both of these decision points can we understand the full
impact of copyright reform proposals seeking to enlist the
certainty of rules or the additional information allowed by
standards.
When looked at through the lens of rules and standards, some
proposals, such as compulsory licensing, are despairingly
problematic; seemingly contrary to virtually all we know about
choosing between rules and standards. Increased reliance on
standards also has its costs. Notably, proposals to move to
damages-only regimes, or to require additional showings, exact a
price in the form of decreased certainty at precisely the time
potential users must choose whether or not to invest in using a
work. If we are truly interested in increasing access, adopting a
more standards-based approach to copyright is likely to do more
harm than good.