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Intellectual property scholars and researchers from prominent universities in the U.S., Canada and Australia have released a submission to the Australian Productivity Commission strongly criticizing a report by PriceWaterHouseCoopers (PWC) on the economics of fair use (PWC Report).”

According to the Academics’ Submission:

The diffuse and forward-looking benefits of open exceptions like fair use may be hard to measure, but they are no less real. The PWC’s evaluation of the costs and benefits of fair use are not real. It is full of imagined horror stories that are unlikely to take place in fact.

The PWC Report, commissioned by organizations representing copyright owners, has been widely characterized as concluding that “introducing US-style fair use would cost $1.3b due to the collapse of creative companies and increased legal and litigation costs,” and that there is “no evidence to support offset benefits to those losses.” It reaches these conclusions by assuming that the outcomes of adopting fair use in Australia will be a decimation of the publishing industry, a litigation explosion and the collapse of all collective copyright management organizations.

The Academics’ Submission calls the PWC Report’s findings “preposterous,” and advises that they be “disregarded in their entirety.”

Failing to identify the independent variable: defining fair use

The Academics argue that the PWC Report fails to adequately define the nature of the real change being proposed in Australia. Australia already has a flexible general exception called “fair dealing” that has many attributes of U.S. fair use. The proposal by the Australian Law Reform Commission would be to open the list of purposes to which the existing fairness test applies – in effect allowing any unforeseen uses of works (e.g. by a new technology) to defend themselves as “fair” to the interests of the author.

The academics admonish:

We find preposterous the PWC Report’s claim that this relatively moderate – but nonetheless important – legislative amendment would doom the Australian publishing industry, stoke a litigation explosion and close down all collective management organizations, all the while producing few demonstrable benefits.

Valuing the benefits of fair use

The Academics’ Submission describes a range of benefits that the opening of Australia’s fair dealing clause to unforeseen purposes may have, drawing from published research on the topic. It criticizes the PWC Report for failing to consider “perhaps the most economically impactful benefit” – “creating the enabling environment for technological and creative innovation.”

The Submission explains:

The need for openness in general exceptions in the digital age is manifest. Most of the world struggles with how to reconcile out-dated copyright laws to the technology of online search – which requires the routine copying of the entire Internet through programmed ‘bots.’ Because of the openness of fair use, courts in [the U.S.] held such technology to be “fair” in 1999 – within three years of its commercial emergence.From that point on, the U.S. obviously was a hospitable site for the further development of this valuable new technology.

Practically, the significance of open exceptions for the course of innovation is even greater. The openness of fair use to unforeseen purposes, and thus the knowledge that a defence to infringement can be made if necessary, permits innovation before any formal legal clarification. In the example just cited, for instance, it is notable that the rise of search engines relying on extensive copying of web content preceded by a number of years the line of clarifying fair use decisions.

 Historically, the openness of fair use to any purpose has served as an important technology-enabling function for many other industries. The Academics’ Submission cites as examples:

• Time shifting (the VCR and DVR). In 1984, the U.S. fair use doctrine was applied to permit VCR technology – spurring the U.S.-centered development of the video cassette recorder. It was not until many years later that Australian consumers had access to a VCR. TiVo entered the Australian market only in 2008, with a device shorn of features available in the US under the fair use doctrine.
• Cloud services. In 2008, fair use was interpreted to permit the introduction of remote digital video recording devices, giving rise to the development of myriad cloud storage services. One study finds up to $1.3 billion in associated venture capital investment in U.S. web services associated with the decision. “In Australia, the specific time-shifting exception passed to authorize the VCR was interpreted by the Australian courts as being limited to use of hardware devices in the home – causing companies providing this important technology to exit the Australian market.”

Industry Growth Studies

The scholars survey econometric research in countries that have adopted fair use. These studies show “that high technology, software and other industries that rely on copyright exceptions grow faster in countries with fair use; that the traditional copyright dependent industries experience little resulting harm; and the benefits outweigh what harm can be observed.”

The Academics’ Submission concludes:

In the case of adopting a fair use clause in Australia, the change being proposed is to open the existing general exception (aka “fair dealing”) to any purpose, as is presently the case in the U.S. and some other countries. The weight of theory and empirical evidence available today indicates that this change would have significant benefits for exceptions industries, little harm and some benefit in the traditional copyright-dependent industries and significant diffuse and third party effects throughout society.

None of the claimed costs of fair use identified in the PWC Report are likely to occur. What is likely to follow fair use is that innovators and creators in Australia will find it easier to do their work and the providers of new technology will find it easier to market their products. These will result in modest gains to Australian society over time, likely with little in the way of costs. Further study of the impact of fair use in other countries is under way and well deserved. But the PWC Report does little to add to that endeavour.

The PWC Report was commissioned by APRA, AMCOS, PPCA, Copyright Agency | Viscopy, Foxtel, News Corp Australia and Screenrights.

The Academics’ Submission was produced by members of the Global Expert Network on Copyright User Rights, an international network of academics and copyright experts from across the world coordinated by the Program on Information Justice and Intellectual Property (PIJIP) at American University Washington College of Law (AU|WCL). One of the projects of the network includes an ongoing examination of the impact of fair use on economic, social and cultural development.

The Academics’ Submission was signed by Peter Jaszi, Michael Carroll, Sean Flynn, Michael Palmedo, American University Washington College of Law; Kim Weatherall, Sydney Law School; Ariel Katz, University of Toronto Faculty of Law.

DOWNLOAD TEXT PDF:  Academic Response to PWC Report on Economics of Copyright Fair Use