A lot of copyright news this week!

Supreme Court reverses in Kirtsaeng — First up, the Supreme Court released its decision in Kirtsaeng on Tuesday.

Copyright Act in the Digital Age — Next, the Register of Copyrights went to Congress to propose a general revision of the Copyright Act. Rob Levine wrote a fantastic preview of her testimony.

Worth the Wait: 9th Circuit Delivers Big Win for Creators in Isohunt Case — Then on Thursday, the 9th Circuit released its opinion in a case that seemed almost forgotten (Isohunt was argued nearly 2 years ago). The Copyright Alliance’s Alexandra Goldstein summarizes the decision, which seems to provide strong support for the common sense notion that those who intentionally profit off infringement don’t get a free pass just because they operate online instead of offline.

Meltwater loses again: the black knight rises — Finally, a NY district court ruled against a digital news clipper on copyright infringement. This is a fascinating case involving fair use and other issues in an online context. Dominic Young provides a good summary of the opinion here, but I may dig into the decision more in a stand alone post next week.

In other news…

Protect rights of artists in new copyright law — This week’s must-read is Sandra Aistar’s op-ed regarding the push for a general copyright revision. “Ensuring that all creators retain the freedom of choice in determining how their creative work is used, disseminated and monetized is vital to protecting freedom of expression.  Consent is at the heart of freedom, thus we must judge any proposed update by whether it prioritizes artists’ rights to have meaningful control over their creative work and livelihood.”

Mirror, Mirror…Why Does the Anti-Copyright Lobby Live in Opposite World? — Ellen Seidler provides some cutting insights. “The talking points echoed by the panel at SXSW reflected the anti-copyright lobby’s disingenuous mantra that content creators seeking to protect their work from theft should be viewed as criminals, while those who brazenly steal (and monetize) the work of others are somehow the ‘innovators.'”

A Step Closer to an Internet that Values Freedom of Expression, Freedom of Information, and the Freedom to Protect the Things We Create and Own — Chris Marcich of the MPAA comments on the recent European Court of Human Rights decision in the Pirate Bay case. “The Internet is a central part of our lives.  Citizens across the world, particularly young people, care about it passionately.  So do we.  We just want to ensure the Internet works for everyone.  We want an Internet where the creative property of artists and creators is protected along with the privacy and security of all users.  An Internet where the values society holds dear in the offline world, shape how we interact online.  And yes, these include freedom of expression, freedom of information and the freedom to protect the things we create and own.”

IFPI slams EU piracy study as ‘flawed and misleading’ — Recently, the EU released a study on piracy’s effects on digital music sales. The study’s conclusions were misreported the study itself suffers some serious flaws.

SXSW: David Lowery and Co. Lash out Against Industry ‘Pimps’ — Last week was the music portion of SXSW. Billboard takes a look at what may have been one of the best panels: David Lowery, Daryl Friedman, East Bay Ray, and Nakia discussing “Who’s Ripping Me Off Now?”

Today, the Supreme Court released its decision in Kirtsaeng v. John Wiley & Sons, reversing the Second Circuit’s decision that held the first sale doctrine does not allow importation without the authorization of the copyright owner of copyrighted works manufactured and acquired outside of the U.S. Justice Breyer penned the 6-3 decision, with a concurrence by Kagan (joined by Alito) and a dissent by Ginsburg (joined by Kennedy and Scalia).

What’s interesting about this case, from an academic perspective, is that the amici arguments of both sides were not actually opposing. Both sides wanted different things that put them against each other only because of how three interrelated statutory provisions acted. Copyright owners who supported John Wiley wanted the ability to differentiate foreign markets that the importation provision of §602(a)(1) purported to protect. Those who supported Kirtsaeng, including libraries and resellers, wanted clarification that §109(a) prevented restraints on downstream sales and other disposition for goods manufactured outside the U.S. Taken separately, neither argument on its face contradicts the other. The conflict only occurs when the provisions, along with §106(3), are read together.

This suggests that there is a resolution to the outcome of this case that would be satisfactory to all parties. And fortunately, Justice Kagan shines a light on one possible way forward in her concurrence.

Kagan begins by noting that, even though she joins the majority opinion, she is concerned about the effect it has on the Copyright Act’s importation provisions, which are now limited “to a fairly esoteric set of applications.”

But if Congress views the shrinking of §602(a)(1) as a problem, it should recognize Quality King—not our decision today—as the culprit. Here, after all, we merely construe §109(a); Quality King is the decision holding that §109(a) limits §602(a)(1). Had we come out the opposite way in that case, §602(a)(1) would allow a copyright owner to restrict the importation of copies irrespective of the first-sale doctrine [Emphasis added].

How so? Kagan explains in a footnote that Quality King erroneously interpreted the statutory text to foreclose this outcome. A more “cogent” argument was provided by the Solicitor General in Quality King, who made the case “that §109(a) does not limit §602(a)(1) because the former authorizes owners only to ‘sell’ or ‘dispose’ of copies—not to import them: The Act’s first-sale provision and its importation ban thus regulate separate, non-overlapping spheres of conduct.”

This interpretation would result in a win-win. Kagan explains that it “would enable the copyright owner to divide international markets in the way John Wiley claims Congress intended when enacting §602(a)(1). But it would do so without imposing downstream liability on those who purchase and resell in the United States copies that happen to have been manu- factured abroad.”

In other words, that outcome would target unauthorized importers alone, and not the “libraries, used-book dealers, technology companies, consumer-goods retailers, and museums” with whom the Court today is rightly concerned. Assuming Congress adopted §602(a)(1) to permit market segmentation, I suspect that is how Congress thought the provision would work—not by removing first-sale protection from every copy manufactured abroad (as John Wiley urges us to do here), but by enabling the copyright holder to control imports even when the first-sale doctrine applies (as Quality King now prevents).

Kagan concludes by emphasizing that, “If Congress thinks copyright owners need greater power to restrict importation and thus divide markets, a ready solution is at hand—not the one John Wiley offers in this case, but the one the Court rejected in Quality King.” On a personal note, I find this argument compelling. Following oral arguments in Kirtsaeng last October, I even suggested the Supreme Court consider this very idea of overturning this portion of Quality King (as well as going into more detail about the argument Kagan makes here). Congress could restore the original purpose of §602(a)(1) without touching the first sale doctrine by making it clear that “importation” is not considered a sale or other disposition. This way forward would not only be elegant, but likely agreeable to both sides.

Despite the “robust history” of treating copyright as property, 1Justin Hughes, Copyright and Incomplete Historiographies: Of Piracy, Propertization, and Thomas Jefferson79 Southern California Law Review 993, 1004 (2006). “property talk” still makes some copyright skeptics nervous.

Most recently, calls for regressive copyright changes have tried to recast copyright protection as more like government regulation than property. In fact, in Copyright Unbalanced: From Incentive to Excess, released last November by the Mercatus Center, law professor Tom Bell appears to argue that this in and of itself is among the necessary changes to copyright law. One of his “Five Reforms for Copyright Law” is to “Reconceive ‘IP’ [‘Intellectual Property’] as ‘Intellectual Privilege‘.” Forget about substance, the problem with copyright is semantics.

But too often, arguments against copyright as property are pushed through on shaky grounds. Recently, legal scholar Adam Mossoff responded to one common claim — one that states that “’traditional property rights in land’ is based in inductive, ground-up ‘common law court decisions,’ but that IP rights are top-down, artificial statutory entitlements.” A complete myth, says Mossoff. Traditional property rights in land were frequently throughout history created and extended through statute rather than common law courts.

I’d like to look at another common claim.

It’s just different

In Copyright Unbalanced, editor Jerry Brito begins his chapter by saying copyright is “a very different kind of property” than “traditional property.” In support of this claim, Brito points to the respective durations of each. As Brito explains, the “copyright clause allows Congress to establish copyrights for ‘limited times’ only. This means that unlike traditional property, copyrights must cease to belong to their owners at a certain point.” 2Why Conservatives and Libertarians Should be Skeptical of Congress’s Copyright Regime, Copyright Unbalanced: From Incentive to Excess, ch. 1 (Mercatus Center 2012). Brito is not alone in this argument; copyright skeptics have long made this argument. Lawrence Lessig, for example, perhaps the godfather of copyright skepticism, says in his 2006 book Code that the difference between copyright and what he calls “ordinary property” is recognized in the Constitution’s “limited times” language:

[N]ote the special temporality of this right: “for limited Times.” The Constitution does not allow Congress to grant authors and inventors permanent exclusive rights to their writings and discoveries, only limited rights… It does not give Congress the power to give them a perpetual “property” in their writings and discoveries, only an exclusive right over them for a limited time.

The Constitution’s protection for intellectual property then is fundamentally different from its protection of ordinary property.

But is it correct that copyright is fundamentally unlike “traditional” or “ordinary” property (whatever that is) because it has a cut-off date? Setting aside for now the fact that the Copyright Clause in the U.S. Constitution only applies to the United States — while every other country with copyright laws does limit its duration, I’m not aware that this limited duration is a constitutional requirement outside the U.S. Under Brito’s logic, it would apparently be easier to argue that copyright is property in, say, South Korea. 3Or, more interestingly, if, but for 17 U.S.C. § 301, copyright would be considered property in a state but not the federal government. Prior to that section, which went into effect in 1978 and preempts any state laws that provide protections equivalent to those under the U.S. Copyright Act, a dual system of federal and state copyright existed. Goldstein v. California, 412 US 546, 560 (1973).

Or is it?

If we consider property as a relationship between person and thing, than it should be easy to see that all property rights are limited in time. Until scientists discover a cure for death, property is limited in time to the life of its owner. After you die, you don’t own anything anymore; that specific relationship between person and thing is terminated. Who owns your property after you die is settled by — and this is important — positive law.

Because, if we’re talking about common law or natural law, as those who often advance such arguments are especially fond of talking about, the transfer of ownership upon death is far different. Nowadays, in very general terms, when you die, your property is disposed in the following manner: first, according to your will; next, if you have no will, then to your heirs according to the relevant state law; finally, if you have no heirs, then your property escheats to the state.

This is how William Blackstone explained the law in his Commentaries on the Laws of England. Said Blackstone:

The most universal and effectual way, of abandoning property, is by the death of the occupant; when, both the actual possession and intention of keeping possession ceasing, the property, which is founded upon such possession and intention, ought also to cease of course. For, naturally speaking, the instant a man ceases to be, he ceases to have any dominion: else, if he had a right to dispose of his acquisitions one moment beyond his life, he would also have a right to direct their disposal for a million of ages after him; which would be highly absurd and inconvenient. All property must therefore cease upon death, considering men as absolute individuals, and unconnected with civil society: for then, by the principles before established, the next immediate occupant would acquire a right in all that the deceased possessed. 4Book 2, Chapter 1.

The “permanence” of property developed later, through civil law; first, through the right of inheritance, and later through the right to dispose of property through testament. Blackstone is clear: heirs had no natural right to inherit their parents’ property, and property owners had no natural right to “direct the succession of his property after his own decease.” Under natural law, all property lasts for “limited times”, becoming common property (part of the public domain) upon the death of the possessor. It is only through “the positive law of society” that a stable system of inheritance is created.

Blackstone’s Commentaries were hugely influential when they were published, referred to heavily by the drafters of the U.S. Constitution. While the bulk of public mentions of copyright during that time referred to it as property or literary property, I’m not aware of any explicit discussion of the “limited times” language in the Constitution and how it relates to copyright as property from the drafters.

However, there are roughly contemporary accounts of copyright that do recognize that its “limited times” do not take it outside the scope of “property.” In 1831, Congressman Gulian Verplanck delivered an address on literary property following the passing of the Copyright Act of 1831 — the first major general revision to U.S. copyright law. Verplanck argued that copyright was equivalent to other forms of property, how the “right of property in the productions of intellectual labour was as much founded in natural justice as the right of property in the productions of corporeal labour.” Said Verplanck:

Such too was the doctrine of the framers of our own constitution, as I maintained was quite evident from the peculiarity of their language on this point. They had not used any word, which would imply that they thought “to give rights to authors and inventors” but had authorized congress “to promote the progress of science and the useful arts by securing to authors or inventors the exclusive rights to their writings or inventions.” They clearly did not think they were enabling congress to give these rights, but presuming them to exist, they provided for protecting them by a legal remedy. The limitation of the term of legal exclusive enjoyment and protection was indeed the effect of positive law. But this limitation was precisely of the same nature with the terms of prescription of property and limitation of actions in all legal systems, which may be longer or shorter according to views of public policy, the natural and moral rights of property remaining unchanged [Emphasis added]. 5Discourses and addresses on subjects of American history, arts, and literature, pg. 221 (1833).

Far from representing a fundamental break from “normal” property, the U.S. Constitution’s “limited times” language for copyrights remains consonant with how property has been conceived over centuries.

References   [ + ]

1. Justin Hughes, Copyright and Incomplete Historiographies: Of Piracy, Propertization, and Thomas Jefferson79 Southern California Law Review 993, 1004 (2006).
2. Why Conservatives and Libertarians Should be Skeptical of Congress’s Copyright Regime, Copyright Unbalanced: From Incentive to Excess, ch. 1 (Mercatus Center 2012).
3. Or, more interestingly, if, but for 17 U.S.C. § 301, copyright would be considered property in a state but not the federal government. Prior to that section, which went into effect in 1978 and preempts any state laws that provide protections equivalent to those under the U.S. Copyright Act, a dual system of federal and state copyright existed. Goldstein v. California, 412 US 546, 560 (1973).
4. Book 2, Chapter 1.
5. Discourses and addresses on subjects of American history, arts, and literature, pg. 221 (1833).

Explanation of Megaupload Study (or: Econometrics 101) — Brett Danaher, who, along with Michael D. Smith, co-authored the recent study showing the shut down of Megaupload caused a 6-10% rise in digital film sales, explains the study’s methodology in plain English. A thoroughly useful article that should be pointed to by those who criticize the work (apparently without reading the study). As Danaher notes, “The most common critique in comments on blogs and news articles is that ‘sales were increasing anyway because of (digital growth) (new digital channels) (blockbusters released in January) (insert your favorite reason you think sales would have grown here).’ I suppose people think that as economists we would not have thought of this.”

Unlocking Cell Phones Shouldn’t Dismantle Copyright Laws — I have an article over at IP Watchdog this week about recent developments regarding the petition to reverse the decision not to grant a DMCA exemption for unlocking cell phones. Proponents behind the petition are set to get exactly what they asked for but are now complaining that it’s not enough.

Meet the men who spy on women through their webcams — One of the creepiest articles I’ve read in recent memory. Made worse by the fact (not noted in this article until the last page) that the same technology has begun to be used by repressive governments to spy on dissidents.

Derek Khanna & Co. Continue Attack on Artists Rights at SXSWi Panel — The Trichordist reports on another unbalanced panel about copyright, this one at SXSW. Panelists, including Cheezburger CEO Ben Huh, were advocating “permissionless innovation” — that weird new tech buzzword that ignores the fact that things like “permission” and “consent” and “agreement” are at the foundation of any free society. But the ultimate irony, as Tricordist points out, is that for many features of the Cheezburger network of sites, like its API, one can use them only after getting, well, permission.

Word ‘Innovate’ Said 650,000 Times At SXSW So Far — Speaking of SXSW and buzzwords, the Onion nails it.

Last year, various individuals connected with the Pirate Bay reacted strongly to the refusal of the Swedish Supreme Court to hear their appeal in a copyright case against them. Peter Sunde exclaimed that the site, one of the most notorious and unapologetic facilitators of infringement in recent memory, “has been one of the most important movements in Sweden for freedom of speech” and those involved in running the site “have been mentioned as possible winners of the nobel peace prize.”

However, yesterday a unanimous chamber at the European Court of Human Rights held that the massive infringement the site enabled justified any interference with the site founders’ free expression rights. The Court, in fact, said that the founders’ appeal on free speech grounds was “manifestly ill-founded.”

Peter Sunde, of Finland, and Frederik Neij, of Sweden, were charged in 2008 with complicity to commit crimes in violation of Sweden’s Copyright Act for their role in operating the Pirate Bay. The District Court found both guilty in April 2009 and handed down a sentence that included prison time and fines. Both appealed the decision, and though the verdict was upheld, the appellate court reduced Neij’s sentence. This decision, in turn, was appealed to Sweden’s Supreme Court. The Court refused to hear the appeal in February 2012.

And so, Sunde and Neij appealed to the European Court of Human Rights, a supra-national court that has jurisdiction to hear cases where a violation of human rights, as defined by the European Convention on Human Rights, by a member nation are alleged. The Court issued its decision in Neij and Sunde Kolmisoppi v. Sweden (application no. 40397/12) yesterday.

The Pirate Bay founders claimed that their convictions interfered with their right to free expression. That right is enshrined in Article 10 of the European Convention on Human Rights, which states:

1. Everyone has the right to freedom of expression. This right shall include freedom to hold opinions and to receive and impart information and ideas without interference by public authority and regardless of frontiers. This Article shall not prevent States from requiring the licensing of broadcasting, television or cinema enterprises.

2. The exercise of these freedoms, since it carries with it duties and responsibilities, may be subject to such formalities, conditions, restrictions or penalties as are prescribed by law and are necessary in a democratic society, in the interests of national security, territorial integrity or public safety, for the prevention of disorder or crime, for the protection of health or morals, for the protection of the reputation or rights of others, for preventing the disclosure of information received in confidence, or for maintaining the authority and impartiality of the judiciary.

At the outset, the Court did conclude that the Pirate Bay founders’ actions taken to run the site were an exercise of their right to free expression, and the subsequent conviction did interfere with that right. But that is only the beginning of the Court’s inquiry. It next turned to a three-pronged question: (1) was the interference prescribed by law, (2) was there a legitimate aim to the interference, and (3) was the interference a “necessity in a democratic society.” The first two parts of this question were easy to answer. The convictions were based on Sweden’s Copyright Act and Penal Code, and were in pursuit of the legitimate aim of protecting plaintiff’s copyright — i.e., protecting the rights of others and preventing crime.

The final prong, perhaps unsurprisingly, generated the most discussion. As the Court said, “The test of whether an interference was necessary in a democratic society cannot be applied in absolute terms. On the contrary, the Court must take into account various factors, such as the nature of the competing interests involved and the degree to which those interests require protection in the circumstances of the case. In the present case, the Court is called upon to weigh, on the one hand, the interest of the applicants to facilitate the sharing of the information in question and, on the other, the interest in protecting the rights of the copyright-holders.”

How the Court characterized the interests of copyright-holders is, in my opinion, the most striking part of the decision. The Court stressed “that intellectual property benefits from the protection afforded by Article 1 of Protocol No. 1” to the European Convention on Human Rights. This article states:

Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

That is, under the European Court on Human Rights, intellectual property rights are treated as property rights. This wasn’t a new holding; the Court cited to a 2007 case that agreed that intellectual property “incontestably” enjoys the same protections as personal and real property under the Convention. 1Anheuser-Busch v. Portugal [GC], no. 73049/01, § 47, ECHR 2007‑I.

The Court’s case law is consistent with the conception of copyright and free speech in the U.S. that I have previously suggested accounts for their unquestioned co-existence from the founding of the country and nearly two centuries afterward. Copyright was considered property. Remedies to protect property were generally not seen as infringing freedom of speech. Just as the First Amendment does not typically trump trespass law, it does not typically trump copyright law. 2For a modern take on this comparison between copyright, the First Amendment, and trespass, see Lillian BeVier, Copyright, Trespass and the First Amendment: An Institutional Perspective, 21 Soc. Phil. & Pol’y 104 (2004). This conception has, of course, been assailed in recent decades by the academy 3For a lengthy yet nonexhaustive list, see this footnote from Copyright and Censorship. and certain civil society groups (and, lately, from a subset of libertarians) — all of which likely helped convinced the Pirate Bay founders that they had a case here.

Not only are intellectual property rights treated as property rights, but, as the Court reiterates, States have an affirmative duty to protect them. That means in certain cases, it is sometimes appropriate to have criminal enforcement in addition to civil enforcement. The Court concluded that this was one such case. It said the Swedish government had “weighty reasons for the restriction of the applicants’ freedom of expression [Emphasis added].”

This, along with the Court’s holding that “the prison sentence and award of damages cannot be regarded as disproportionate”, led to its ultimate conclusion that the interference the Pirate Bay founders’ conviction caused with their free expression rights was “necessary in a democratic society.”

References   [ + ]

1. Anheuser-Busch v. Portugal [GC], no. 73049/01, § 47, ECHR 2007‑I.
2. For a modern take on this comparison between copyright, the First Amendment, and trespass, see Lillian BeVier, Copyright, Trespass and the First Amendment: An Institutional Perspective, 21 Soc. Phil. & Pol’y 104 (2004).
3. For a lengthy yet nonexhaustive list, see this footnote from Copyright and Censorship.

Innovation and Piracy — The Wall Street Journal had an excellent article early this week that took a behind-the-scenes look at NBCUniversal’s efforts to minimize the effects of piracy. The piece also discussed Wolfe Video’s experience with piracy. Wolfe is a small, independent distributor of LGBT films and has seen sales drop in the face of piracy despite worldwide distribution on all major platforms and assertive anti-piracy efforts. Here, Sandra Aistars notes, “What’s more, Wolfe serves the LGBT market for films. Beyond entertaining audiences, Wolfe brings realistic and meaningful films to an otherwise underserved community.  When companies like Wolfe who serve niche audiences, are affected by piracy it threatens entire communities. Poor (legal) distribution prospects not only threaten distributors like Wolfe, but adversely impact financing for the film projects to begin with.  Films are not made without financing, so piracy literally threatens to silence the voices of entire communities.”

To Save Everything, Click Here: How to Vanquish Technological Defeatism — Evgeny Morozov has been making the rounds to promote his new book, To Save Everything, Click Here: The Folly of Technological Solutionism, and based on this excerpt in Slate and previous ones, the book has moved to the front of my to-read pile. The book is not about copyright, yet Morozov’s broader critique of “The Internet” (as opposed to just the internet) remains relevant since the same worldview is often shared by those who advance anti-copyright arguments.

Input/Output Podcast: David Lowery and the Future of Artists’ Rights — I’ve been a regular reader of Trust Me I’m a Scientist for a while now, and I was pleasantly surprised to see this podcast with Camper Van Beethoven’s David Lowery pop up this week. Lowery touches on everything from his letter to Emily White to Pandora in this wide-ranging, free-wheeling 45 minute discussion.

Annual Frey Lecture in Intellectual Property 2013 — Duke Law School held its annual Frey Lecture this week, with RIAA Chairman and CEO Cary Sherman. Sherman admits that the RIAA does, in fact, kill kittens, and if you think he is not joking than I recommend watching this video even more.

Please Help Me Welcome Our Newest Writer, Helienne Lindvall… — Songwriter and music journalist Lindvall joins the crew at Digital Music News.

The Fallacy of “Incremental Revenue” Part 1 — Chris Castle tells an engaging (and cautionary) tale about “special markets” in the music biz. Looking forward to part 2.

The Curious Case of Cell Phone Unlocking and Copyright — Finally, over at the Copyright Alliance’s Idea/Expression blog this week, I wrote about the White House’s response to a petition to make cell phone unlocking legal, why this is a copyright issue, and why the Library of Congress plays a role.

 

The majority of academic literature has found that piracy has a negative impact on movie and music revenues. 1See Smith & Telang, Assessing the Academic Literature Regarding the Impact of Media Piracy on Sales (Aug. 19, 2012), “Based on our review of the empirical literature we conclude that, while some papers in the literature find no evidence of harm, the vast majority of the literature (particularly the literature published in top peer reviewed journals) finds evidence that piracy harms media sales.” This is accepted by all but a few filesharing denialists. The big question is, what does this mean for copyright policy? Because it’s one thing to establish that online piracy reduces sales, it’s another to figure out what to do about it.

And there has been no shortage of those whose answer to what to do about piracy is: nothing. Or, rather, authors and creative industries need to learn how to “compete with free”, piracy enforcement doesn’t work. 2See, for example, Joe Karaganis, Media Piracy in Emerging Economies (SSRC 2011). Note that this report’s conclusion, that “After a decade of ramped up enforcement, the authors can find no impact on the overall supply of pirated goods,” does not contradict the findings of the study discussed here. Even if true, it would seem that supply of pirated goods is a meaningless metric, especially where, as here, the goods are capable of infinite reproduction. A litany of justifications for this have arisen over the past decade and a half, but generally, the idea seems to be that most unauthorized downloading or streaming of media comes from individuals who would not have paid in the first place. Thus, while anti-piracy efforts might reduce piracy, they won’t increase sales. Right?

Wrong, according to a growing body of empirical research. Last year, a group of researchers found that HADOPI, France’s recent graduated response program, led to a 20-25% increase in music sales in that country. 3Danaher, Smith, Telang, and Chen, The Effect of Graduated Response Anti-Piracy Laws on Music Sales: Evidence from an Event Study in France, Journal of Industrial Economics (forthcoming). And in 2011, researchers concluded that physical music sales increased 27% and digital music sales increased 48% in Sweden following copyright protection reform that increased the risks of unauthorized downloading. 4Liang & Adermon, Piracy, Music, and Movies: A Natural Experiment, Working Paper, Uppsala University, Uppsala, Sweden (2011).

This week, Brett Danaher and Michael Smith, working at the Initiative for Digital Entertainment Analytics (IDEA) at Carnegie-Mellon University, have released another study looking at this question. The study, Gone in 60 Seconds: The Impact of the Megaupload Shutdown on Movie Sales, found that digital movie revenues from online sales and rentals increased by 6-10% following the January 2012 shutdown of the popular cyberlocker site (Megaupload execs, including Kim Dotcom, are of course currently facing criminal charges in the U.S. for copyright infringement).

The abstract says:

The growth of Internet-based piracy has led to a wide-ranging debate over how copyright policy should be enforced in the digital era. While some enforcement approaches involve policies designed to deter consumers from filesharing though incentives or penalties, other approaches target the supply of piracy by shutting down Internet sites that serve as major conduits for pirated content. In this paper we analyze how one such anti-piracy intervention, the shutdown of the popular Megaupload site, affected the digital sales of movies for two major studios.

Simply examining changes in sales after the shutdown would produce an inaccurate measure of its actual effect as sales are changing over time for a variety of reasons. Instead we exploit cross-country variation in pre-shutdown usage of Megaupload as a measure of treatment intensity. Controlling for country-specific trends and the Christmas holiday, we find no statistical relationship between Megaupload penetration and changes in digital sales prior to the shutdown. However, we find a statistically significant positive relationship between a country’s Megaupload penetration and its sales change after the shutdown, such that for each additional 1% pre-shutdown Megaupload penetration, the post-shutdown sales unit change was 2.5% to 3.8% higher, suggesting that these increases are a causal effect of the shutdown.

Aggregating these increases, our analysis across 12 countries suggests that, in the 18 weeks following the shutdown, digital revenues for these two studio’s movies were 6-10% higher than they would have been if not for the shutdown. Thus our findings show that the closing of a major online piracy site can increase digital media sales, and by extension we provide evidence that Internet movie piracy displaces digital film sales.

As the paper notes, not only does this research add to the empirical studies on this subject mentioned above, but it makes a couple new contributions. For one, Danaher and Smith note that this is the first paper to look at “supply-side” enforcement. The previous studies focused on “demand-side” enforcement — both the French and Swedish laws studied policed individual downloaders. Each has its pros and cons, its costs and benefits, but it seems to me that the trend in the U.S. and many other countries is to move away from demand-side enforcement and toward supply-side enforcement. For another, this is the first paper to measure digital movie sales. Both physical and digital sales of music have been measured numerous times since the late 90s, as well as DVD sales and box office receipts, but until now there has been no data on digital movie sales and rentals.

Perhaps most interestingly, Danaher and Smith were able to show that the shutdown of Megaupload did not just correlate with the subsequent increase in digital film revenues but actually caused it. Filesharing denialists are quick to discredit the numerous studies showing negative effects of piracy on sales by spouting that “correlation does not imply causation”, but by looking at the data country-by-country and comparing sales with Megaupload’s penetration rate in each country, the researchers were able to conclude that the shutdown “caused some customers to shift from cyberlocker-based piracy to purchasing or renting through legal digital channels.”

Also interesting is the discussion from Danaher and Smith at the end of the blog post announcing the study. The authors say, “While some have argued that you can’t compete with free, we think a more productive view is that competing with free (pirated) content is just a special case of price competition.” They note that convenience is sometimes more important that prices to consumers and explain that “we would expect that some consumers would be willing to buy through legitimate channels if content in those channels is more valuable than the ‘free’ pirated alternative.” But then they apply the results of their study to this line of thinking:

[W]e believe that another key part of competing with free piracy can be making content on illegal channels less valuable to consumers. In this regard, our finding of a 6-10% increase in digital movie revenue suggests that even though shutting down Megaupload didn’t stop all piracy, it was successful in making piracy sufficiently less reliable, less easy-to-use, and less convenient than it was before, and some consumers were willing to switch from piracy to legal channels as a result.

Taken this way, one might say that enforcing against piracy is necessary to ensure a vibrant, functional marketplace for expressive works online (though this alone is not sufficient). That’s not to say that the goal must be the complete elimination of piracy (that has never been the reality), nor is it to say that there is not a point where the costs of enforcement (monetary or otherwise) overtake the benefits. Efforts to mitigate piracy also do not need to be limited to law enforcement efforts or new legislation. They can include voluntary, market-based solutions aimed at education, like the Copyright Alert System that began operations on Monday, or reducing financial support of infringing sites, like the Statement of Best Practices to Address Online Piracy and Counterfeiting adopted last year by the Association of National Advertisers and American Association of Advertising Agencies.

But simply ignoring online infringement, and the harm it causes creators of all levels, forestalls the development of that vibrant marketplace and impedes the progress of the arts and sciences.

References   [ + ]

1. See Smith & Telang, Assessing the Academic Literature Regarding the Impact of Media Piracy on Sales (Aug. 19, 2012), “Based on our review of the empirical literature we conclude that, while some papers in the literature find no evidence of harm, the vast majority of the literature (particularly the literature published in top peer reviewed journals) finds evidence that piracy harms media sales.”
2. See, for example, Joe Karaganis, Media Piracy in Emerging Economies (SSRC 2011). Note that this report’s conclusion, that “After a decade of ramped up enforcement, the authors can find no impact on the overall supply of pirated goods,” does not contradict the findings of the study discussed here. Even if true, it would seem that supply of pirated goods is a meaningless metric, especially where, as here, the goods are capable of infinite reproduction.
3. Danaher, Smith, Telang, and Chen, The Effect of Graduated Response Anti-Piracy Laws on Music Sales: Evidence from an Event Study in France, Journal of Industrial Economics (forthcoming).
4. Liang & Adermon, Piracy, Music, and Movies: A Natural Experiment, Working Paper, Uppsala University, Uppsala, Sweden (2011).

Your Bull has Gored my Ox, The Corsair, NY, June 8, 1839.

… But has an author any actual indefeasible property in his works?

“Certainly not! it is merely a temporary usufruct which the law allows him!”

Such will be the answer of ninety-nine men out of a hundred to whom you put the question. They would have answered so fifty years ago. They will answer the same way fifty years hence, unless they are addressed upon the subject in the only mode to make them think upon it. The rights of authors, as now acknowledged, stand separate and apart from those of other men; and the community never will care a copper for their assertion, till compelled by sympathy of interest to think and act upon the subject. The matter of copyright must be taken from the narrow limits in which the mere lawyer would confine it, and placed upon the broad field where the moralist and the statesman will be forced to study it; it must be made to stand where it belongs—upon the basis by which the cause of PROPERTY is upheld in civilized communities! It must be shown, as it can be shown, that every argument against the author’s right of property in his productions, apply equally to the merchant and the land-holder—apply to all who are defended in their possessions by legal enactments made for the good of society. The moralist, who indignantly kindles at the fanatic dreams of Agrarianism, yet turns a cold and indifferent eye upon the author’s interest in property, must be driven to feel the force of His claim by examining the tenure by which the possessions of other members of the community are held. The statesman, who values the artificial substitute of written statutes for the natural law of the strong, must have his eyes opened to the danger of leaving a large class of those for whom he legislates, undefended in their property, save by the powers which nature may have given them.

The law of copyright, as it stands upon our statute-books, is an anomaly in the structure of society as at present constituted. It is a hybrid monster conceived in the spirit of barbarism, and brought into being amid the most cunning wiles of civilized despotism. Its conception refers to the rude times, when a man’s acknowledged possessions consisted only of those things which he actually produced by manual labor; its existence dates from an age when the aristocratic classes hesitated at no means to keep knowledge from the people, and therefore framed laws whose tendency would be to make writers, as a class, dependent upon themselves.

“Political truths are but slow in making themselves known to the world. Those who write in advance of the opinions of men must wait long for the returns, whether of wealth or glory, from their productions. By cutting off” they argued “an author from prospective benefit from his writings at some remote period, we deter the man of slender means from wasting the prime of his life in a pursuit that must be profitless; but we still leave encouragement for the writer who courts the taste and prejudices of the day, and is willing to become tributary to our patronage.”

It were an easy task to show how effective has been this policy in chaining the most vigorous minds of modern times to the footstool of power—to show how often genius has been perverted from its best and noblest ends, by making it dependent upon the patronage of the opulent few—how, robbed of the just and permanent fruits of his industry, the author has been compelled to snatch at such as were within his reach, by ministering to the caprices, or upholding the privileges of the class to whom he was thus driven to look for his bread. But the day is at hand, thank God, when thinking men will be compelled to look into this matter, and weigh well the expediency of perpetuating such monstrous injustice. The author is no longer in the situation of the court-jester or buffoon, who lives upon the bounty of some wealthy patrician. There are readers enough in every class for him to appeal to in the assertion of his rights, and it is for every man who has an interest at stake in the community, to pause and reflect how far it will be well to shut out an influential portion of his fellow citizens from the shelter of the laws protecting property when honestly acquired.

Thom Yorke: ‘If I can’t enjoy this now, when do I start?’ — The Guardian has a great interview with Radiohead frontman Thom Yorke, who offers some surprising reflections on the band’s pay-what-you-will experiment for their 2007 album, In Rainbows. “Having thought they were subverting the corporate music industry withIn Rainbows, he now fears they were inadvertently playing into the hands of Apple and Google and the rest. ‘They have to keep commodifying things to keep the share price up, but in doing so they have made all content, including music and newspapers, worthless, in order to make their billions. And this is what we want? I still think it will be undermined in some way. It doesn’t make sense to me. Anyway, All Watched Over by Machines of Loving Grace. The commodification of human relationships through social networks. Amazing!'”

An Open Letter to CEOs of Brands Advertising on Infringing Sites — Digital Music News picks up on the Copyright Alliance’s petition against brand-sponsored piracy. If you haven’t already, be sure to sign!

The Price of Nothing — Andrew Orlowski drops another insightful critique of copyright skepticism. “The error that characterises so much copyright rhetoric emanating from the utopian camp is one of wishing away value, or pretending it doesn’t exist. There are so many dubious, and at times outright bogus arguments here I won’t dwell on them. There is little disagreement that if we abolished intellectual property tomorrow there would be a huge party – resulting in a welfare benefit. But not for long. Then the trouble would start.”

On Empowering Artists — “Finally, copyright is about freedom. It is core to protecting freedom of expression. But it also gives authors the freedom to thrive. Copyright is a unique form of property because, unlike inherited wealth, it springs from an artist’s own imagination, hard work and talent. Under the right conditions a creator can use its protections to launch a career or build a business, regardless of the economic circumstances she came from. That fact should entitle copyright to more protection than other forms of property, not less.”

Where Has the “Author” Gone in Copyright? — Along a similar vein as the above article, IPKat asks this increasingly important question. “Why is the notion of the copyright “author” held in such low regard? And why is the notion of “users’ rights” so ascendant? At the risk of sounding banal, there is no work to consume, much less to protect, if there is no author to create it.” A good discussion that continues into the comments.

Celebrate The Other Oscar Nominees – You Know, The Ones Ryan Seacrest Likely Won’t Interview — The Oscar ceremonies are nearly a week old, but it’s still worth taking a look at The Credits tribute to the nominees for those who work backstage and out of the spotlight, and whose contributions are just as important to making films as those who walked the red carpet.

 But ultimately, it just seemed like having a potentially infinite universe of every album ever released cheapened the inherent value of any single album.

What Happened to Diverse (and Other Questions Answered)?

Hollywood and Censorship in China — The New Yorker revisits MPAA CEO Chris Dodd’s remarks last week at the National Press Club regarding the explosive growth of US films in China, and the at-times contradictory relationship filmmakers have with Chinese censors.

I’m an Indie Music Publisher. Please Don’t Let Them Put Me Out of Business… — Monica Corton of indie music publisher Next Decade Entertainment responds to the article by the Consumer Electronics Association’s Gary Shapiro a few weeks back where he complained about how tech companies like Google are outgunned by songwriters in Congress.

Google’s Move to Demote Pirate Sites – Is It Really Working? — Nope.

Congress Launches Creative Rights Caucus — A very promising move from Reps. Chu (D-CA) and Coble (R-NC). “The launch of this Caucus comes at a critical time for songwriters and composers. Businesses that want to use copyrighted works without paying rightsholders fair compensation have waged a clever, well-funded campaign to delegitimize copyright protection in the public’s eyes. The Creative Rights Caucus could help bring much needed balance to the copyright debate by educating the public, and Congress, that copyright protection serves to protect the human rights, First Amendment rights, and property rights of individual creators, like songwriters and composers.”

How Your Harlem Shake Videos Make Money for the Original Artist — By now, you may have seen the latest internet fad, the Harlem Shake video, which is either really popular right now or so over, depending on how hip you are. Time reports on how recording artist Baauer and record label Mad Decent have been able to profit off the thousands of user-generated videos on YouTube featuring the song because of Google’s Content ID program.

The Vine Should Suffer, Not the Artist — David Newhoff takes on the popular conceit that good artists should suffer, as well as the role of copyright as incentive. “Opponents of copyright like to say that art existed before copyright, and this is technically true and functionally irrelevant. Copyright is not the reason the artist creates, and it by no means guarantees him a career any more than the right to pursue happiness guarantees happiness. But we could say that happiness existed before 1776. So, why is the right to seek this state of being that has no universal definition codified into American law and culture?  Whatever your individual answer may be, you would be on the road to understanding the relationship between the artist and money as well as the role of copyright as incentive.”

Honoring Our Founders, Remembering Our Principles — Former U.S. Rep. Mary Bono Mack pens this great Presidents’ Day piece on the importance of securing the rights of artists and creators. “Like private property rights, intellectual property preserves an individual’s right to the fruits of their intellectual labor. Our founding fathers considered intellectual property to be a fundamental component of property rights – so much so that they specifically protected intellectual property in Article 1, Section 8 of the Constitution, empowering Congress ‘to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.'”