The recent proposal from the Songwriters Association of Canada to fully legalize peer-to-peer file sharing of music by adding a $5 monthly charge to the cost of Internet access (and similar proposals floating south of the border) has brought renewed attention in the role of levies and tariffs collected by copyright collectives in Canada. I am now beginning a research project that looks at the broader implications of the expansion of collective administration of copyrights and the use of levies and tariffs. Since the topic is current, I thought I'd use the blog not only for sharing some of my initial thoughts, but hopefully, to solicit some ideas that will help me to shape them. Therefore, I'm posting below the description of the project and the questions it seeks to answer. Comments on or off the blog will be highly appreciated. Here it is:
In his famous speech before the House of Commons in 1841, Lord Macaulay observed that copyright “is a tax on readers for the purpose of giving a bounty to writers.” Macaulay, who opposed a bill to extend the term of copyright, equated copyright to a tax rhetorically—to emphasize that copyright entails a social cost, and to claim that copyright is justified only as long as it is commensurate with its attendant benefits of encouraging authors. But for economically oriented analysts of copyright, the similarity between copyright and a tax extends beyond mere rhetoric. Both are instruments which governments often employ to overcome the inherent failure of the market to produce desirable public goods. Both are means to finance what otherwise the market might fail to do. Yet unlike taxation, which relies heavily on a centralized government in both the collection of money and its distribution to various purposes, the copyright system is based on granting private property rights in creative works and allowing their voluntarily exchange in the market place. In essence, this system fits into the broader structure of modern liberal market-based economies, which are based on voluntary exchange of private property rights in decentralized competitive markets and rely on market mechanisms instead of command and control by centralized bureaucracies. Specifically in the case of creative works, it is often thought that the copyright system is preferable because it relies on the invisible hand of the market in deciding which works to create thus freeing authors from reliance on politicians and bureaucrats and their attempts to censor works unfavourable to them (Brenda Cossman's post on Bill C-10 is a case in point).
Collective administration of copyrights sharply
departs from this paradigm of market exchange. Under collective administration, individual right holders relinquish
direct control over their works: instead of negotiating the terms of use of their
works with individual users, the collective deals with every user on behalf of
all its members, and usually issues a “blanket license” covering all of the
works in its repertoire. Moreover,
instead of competing among themselves in setting prices and other terms of
trade, copyright holders empower a single centralized entity to do so on their
behalf. Since this entity effectively
operates as a monopoly, governments often respond by subjecting collectives to
a regulatory agency which sets or oversees prices and other terms of trade, and
often intervenes in the way the collected fees are distributed. Thus, in those cases when copyrights are
administered collectively, private property rights are collectivized and a
system of private exchange of property rights mediated through the market is effectively
replaced by a regulated monopoly.
Viewed from this perspective, and
realizing that the practice of collective administration only quaintly
resembles the ideals of market exchange, it becomes apparent that collective
administration of copyrights shares many features of a taxation system. In some
cases, such as in the case of private copying levies, the similarity is very
high. Not only because the term “levy”
is used (instead of “license fees” or “royalties”), but also because the levy
is imposed not on those who use the copyrighted works, but on suppliers of
devices and ultimately borne by a wider population that includes many
non-users. But even in the more
traditional forms of collective administration, there is strong resemblance
between the system of collective administration and a taxation system. The most salient similarities are the
disconnect between one’s duty to pay and one’s actual use, the lack of market
competition and the central role of an administrator who sets tariffs, collect
them, prosecute evaders and distribute the monies collected.
Such similarities, of course,
should not obscure the differences. Unlike tax collecting agencies, typically
part of the government apparatus and accountable to the public at large,
copyright collectives are typically private entities, owned and governed by
authors or copyright owner members, and accountable only to them. Moreover, as a matter of law, in the usual
case, collectives operate in the realm of private law. They administer their members’ copyrights or
neighbouring rights, grant licenses, collect license fees and distributes the
proceeds to members. These differences
are not merely semantic: they determine who is liable to pay, for what, who is
entitled to receive, and the consequences of non-payment. They also impose limits on the extent and
form of government regulation, and affect the way in which the system is
designed. Nevertheless, the similarities
and differences between collective administration and a taxation system may
lead one to recognize that in essence, collective administration has become a unique
taxation system—a privatized taxation system—which plays an increasingly
important role in markets for creative works and the financial resources
available to them.
So far, collective administration
has been analyzed primarily on a micro level. Various authors (including myself) have elaborated on various functions that collectives
fulfill, and whether they do or do not address various market failures. Other authors have claimed that collective administration
promotes distributional or cultural concerns that the market-based paradigm of
copyright has failed to adequately address. In this paper, I plan to take another
approach. I take special notice of the
fact that the number of collectives and the scope of their activities has increased
dramatically in recent years. Therefore,
rather than analyzing
instances of collective administration on a micro level, as topical responses
to discrete problems, I would like to
ask, on a macro level, what broader lessons we can learn from the proliferation
of collective administration.
I intend to consider whether this proliferation
of collective administration indicates an unnoticed but radical and systemic shift
in the traditional role of copyright as a tool of innovation and cultural
policy; whether the increased number and types of copyrights administered
collectively reflects a growing number of market failures (real or perceived);
whether it signals that systematically the model of private property rights in
creative works fails to achieve its goals. I will examine the hypothesis that we might be witnessing the emergence
of an alternative system of incentives, in which the license fees collected by
collectives should not be regarded merely as prices paid in exchange of
property rights, but more properly as taxes or levies imposed on users and used
to subsidize creators. I will further
investigate the potential implications of this view on how this system of
reward is structured to determine what reforms would be necessary to optimize
it.
Such re-conceptualization of the
phenomenon raises important questions about the roles of the various players
involved. It allows us not to be
constrained by the requisites of a system which administers private copyrights
but rather to seek for an optimal design of this de facto tax-like system. Thus, a property-rights perception of
collectives’ role presupposes that to the largest extent possible, a financial
link between uses, users and owners should be preserved; that every use of a
work should be accounted for and entitles the owner to compensation as a matter
of right. If this use implicates more
than one right or more than one right holder, the resulting complications in
administering the system and problems of royalty stacking or double
marginalization are at best seen as secondary considerations. In contrast, appreciating the tax-like
property of collectives’ functions allows for a more rational system. It does not presuppose an ideal
use-user-owner link, but instead can seek to establish the most efficient
method of collection and distribution.
Moreover, under the property-rights
market paradigm, collective administration is an exception to what otherwise
would be a competitive market. Naturally, they attract close attention from a competition law or
competition policy perspective. From a
competition policy perspective, collective administration should be allowed if
and only if competitive administration is impractical. If competitive administration is feasible,
collective administration should not be permitted, no matter how effective it
is in generating income for copyright owners. A taxation system works under different parameters. Ideally, it seeks to impose a tax that facilitates
the collection of revenues, while distorting consumption patterns as little as
possible, and while keeping the administrative costs of the system at minimum. The two approaches can lead to very different
results. For example, it might be quite
possible that there is no market failure preventing record labels from entering
into direct agreements with broadcasters to license their public performance (or
communication to the public by telecommunication) right. In such a case, from a competition
perspective, collective administration should not be permitted. From a taxation perspective, however, a
music-tax levied on broadcasters and used to subsidize music creation may make much
more sense. It allows generating
substantial amount of income, it is relatively easy to impose, enforce,
collect, and distribute, and if it does not significantly distort programming
decisions may be a very efficient method for subsidizing music creation.
Re-conceiving collective
administration as a taxation system raises a host of other questions. For
instance, it raises the issue of accountability. Should collectives be regarded as private
organizations accountable only to their members, or should they be understood in
essence as organizations performing a very public function: the collection of
levies and the distribution of subsidies. In such case, who are they accountable to? To whom should they be accountable? And how,
precisely, should they be? Does the public have a stake in determining who the
tax is levied on and how the proceeds are distributed? Other questions involve the scope of
copyright after some of the income available to authors is collected through
taxation. Should authors retain the full
scope of rights currently available under copyright law? What is the meaning of infringement under
such a system? Other questions pertain to the distribution of income. Should authors whose works have been used
more frequently be paid a larger share of the collected fees because “their”
works in which they have property rights have been used, or should these fees be
rather used to subsidize more creative or more diverse endeavours that may have
great cultural value, albeit smaller commercial prospects? Who should make these kinds of decisions? If the moneys collectives collect are
conceived as taxes and their distribution as subsidies, is the process of
determining those in an adversarial manner before a tribunal such as the
Copyright Board optimal? What is the
optimal way to reconcile between seemingly conflicting goals: decrease the
dependence on government and the danger of censorship, allow the market to
signal which works should be created, while at the same time subsidize less
commercial works, and how to prevent the system from becoming a rent-seeking
orgy?
In my research I plan to develop these questions in more detail and draw the possible contours of a new understanding of the roles copyright collectives should play in cultural-economic policy. Any insights and comments are welcome.
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