The Volokh Conspiracy

A very interesting question, raised in Intercollegiate Broadcasting System, Inc. v. Copyright Royalty Board, a certiorari petition now pending before the Court. Profs. John Duffy (Virginia), Peter Strauss (Columbia), and Michael Herz (Cardozo) — an illustrious trio who often take quite different views about other subjects — have an item about this at Concurring Opinions; here’s an excerpt (click on the Concurring Opinions post for links):

Earlier this year, more than 100,000 citizens petitioned the White House to overturn a copyright rule issued by the Librarian of Congress that made unlocking a cell phone a crime. The White House responded by promising to seek legislation to overturn the Librarian’s rule. That was the most the President would or could do because “[t]he law gives the Librarian the authority,” and the Administration would “respect that process,” even though the Librarian acted contrary to the Administration’s views. See here. As the New York Times reported, “because the Library of Congress, and therefore the copyright office, are part of the legislative branch, the White House cannot simply overturn the current ruling.” See here.

There’s only one problem with all of this: The Department of Justice has been vigorously arguing precisely the contrary constitutional position in the federal courts.

According to the Administration’s filings in litigation that has now reached the Supreme Court, the Library of Congress is “an executive Department,” and the Librarian himself is “subject to plenary oversight by the President.” Justice Department lawyers have explained that Congress made a “purposeful decision to place the Library under the President’s direct control and supervision”; that the Librarian of Congress is the “Head” of this “executive Department”; that the President may remove the Librarian “at will” just as he may remove other heads of executive departments; and that this removal power creates the Librarian’s “here-and-now subservience” to the President. See pages 16 & 17 of the Government’s Brief in Opposition filed at the Supreme Court, available here and pages 23, 29 & 37 the Government’s Brief for Appellees filed in the Court of Appeals, available here.

In light of that clear legal position, an obvious question arises: If the Librarian is really a head of an executive Department subject to “plenary oversight by the President,” why hasn’t the President either taken responsibility for criminalizing cell phone unlocking or ordered the Librarian to reverse his decision?

The answer is that no one in the political arena actually believes for one minute that the Librarian is the head of an executive department. The current Librarian has repeatedly testified to Congress that the Library is “arm of the United States Congress,” “a “branch of the Legislative branch,” and “a unique part of the Legislative Branch of the government.” Members of Congress also understand this to be true. To take but one prominent example, Senator Orrin Hatch has noted not only that “the Copyright Office is in the legislative branch of the Government” but also that this arrangement presents difficulty because “whenever the Copyright Office is tasked with an executive-type function, [a] constitutional question arises.”

The President’s supposed powers of “plenary oversight” and at-will removal are utter fiction, as the controversy about cell phone unlocking shows....

Why then are the Administration’s lawyers arguing that the Librarian is a presidential underling? The answer is easy. The Librarian has been vested with the power to appoint all of the officers who execute the copyright laws—including the Registrar of Copyrights and the judges of the Copyright Royalty Board—but the “Appointments Clause” of the Constitution makes clear that such power can be lodged in the Librarian only if he is the head of an Executive Department....

The decision is Righthaven, LLC v. Hoehn (9th Cir. May 9, 2013), and it holds that Righthaven didn’t properly secure the exclusive rights needed to sue various alleged copyright infringers. (In this particular case, Righthaven had sued two people who posted newspaper articles onto Web sites, though it had also sued others in the past.) Congratulations to Kurt Opsahl and Corynne McSherry of EFF, as well as Marc Randazza and J. Malcolm DeVoy, on their victory.

Note that the Ninth Circuit vacated the pro-defendant fair use ruling in Righthaven LLC v. Hoehn (D. Nev. 2011), reasoning that Righthaven’s lack of the exclusive rights needed to sue stripped the district court of jurisdiction to even decide the fair use question.

This is our last post guest-blogging at the VC and we again want to thank our hosts. A lot of interesting comments came in, and we’ll use this final post to address some of the issues and questions raised by readers. In no particular order:

Innovation vs. Variation. A few comments argued that a lot of what we discuss in The Knockoff Economy—such as innovation in font design, fashion, or food—is not really innovation but rather than variation, and as such these cases shouldn’t be used to draw any larger conclusions about IP policy or the nature of creative incentives. So, for example, one commentator claimed that “true innovation is game-changing.”

Our own view is that this misconceives what actually happens in the world, and also is inconsistent with the way our legal system treats innovation and creativity.  In The Knockoff Economy we stress the importance of “tweaking” over “pioneering,” because we believe that in fact a lot of great innovations, even those thought to be pioneering, are really built on existing advances. A great example is one Mark Lemley has written about: Thomas Edison and the lightbulb. Edison is popularly valorized as a great pioneer, but Mark notes that there were no fewer than a dozen lightbulbs already. Edison’s great contribution was to “f[ind] a bamboo fiber that worked as a filament in the lightbulb developed by Sawyer and Mann, who in turn built on lighting work done by others.” One could say the same about Steve Jobs, whom Malcolm Gladwell recently called “the greatest tweaker of his generation.”

Of course, innovation can be game-changing, but most of the time it’s really just improving the same game, not replacing it. And our IP system, both patent and copyright, apply to both sorts of innovation. In fact, for copyright, the main focus of the book, the standard for advancement is quite trivial. Now, that said, there is something to the distinction between innovation and variation. In the fashion context, for example, there is a reasonable case to be made that a lot of creative output is reworking things that occurred before and varying them in some way. In fact, we make that case in the book. The important point from a legal view is that all this happens without a grant of monopoly rights over designs, and so from a policy perspective we don’t need to have the government step in to regulate (as, for example, Sen. Schumer is currently proposing.)

Analog vs. Digital Copying. Several comments pointed out that there is a big difference between analog and digital copying. We agree completely. In fact, we have a whole section of the book with that subtitle. However, that neither means that we can learn nothing from analog copies, nor does it mean that there is a sturdy wall between the two.

 As we noted in an earlier post, it is possible to shift a business model toward analog in a way that garners a more reliable and less-easily-copied revenue stream. We give the example in the book of the Arclight theaters in Southern California. While movies are a classic digital good that can be perfectly copied and watched on a computer screen, the experience of movie watching is not. And so in the face of ever-easier downloading via torrents, some theaters have taken the approach of raising prices and services so that attending a movie is something that is experienced rather than merely consumed. And it works pretty well: in the case of Arclight, it has grown from one location a few years ago, to four, all the while charging upwards of $16 a ticket.

Music. A few people stressed how copyright is absolutely essential to great music. We devote an entire chapter in The Knockoff Economy to music, but we’ll just say this. In general we are supporters of IP rights. And we don’t advocate, in the case of music, abolition of those rights. At the same time, however, it is important not to overestimate the role of IP in incentivizing creativity in music.

In general, we suspect that people will invest in creating new music if the perceived benefits of doing so outweigh the costs. And we use the term perceived benefits advisedly, because, as we describe in the book, there are reasons to suspect that innovators (and not just in music) systematically overestimate the chance that their creative work will find market success, and that this overoptimism means that creators tend to anticipate larger gains from investment in new creativity than is probably warranted. So even when creators face possible losses from copying, their optimism means that we’ll get higher levels of creativity than we might otherwise anticipate.

That’s the benefit side.  What about the cost side of the equation? It is also important to recognize that many of the same technologies that have made copying very easy have also made production and distribution much easier. So today, musicians can record and distribute their music from their homes—without expensive studios, engineers, or executives—and actually make a living at it. Maybe not a Rolling Stones-style living, but a living. And in the end, our copyright system is not about creating wealth but about creating art.

Cookbooks.  We asked you for your thoughts about why, despite recipes not being copyrightable (or at best only thinly copyrightable) the market for cookbooks is so vibrant. (And for the readers who doubted our statement that recipes per se are not copyrightable, see 88 F.3d 473 and Nimmer on Copyright for further discussion.) A number of you provided explanations that we think comprise a major part of the answer.  You noted that cookbooks are often expensively designed and printed, and so are attractive as objects, not just as manuals of cookery. People like sumptuous things, and will pay to have them, especially when the copies lack the look and feel of the original.

And here’s where copyright comes in. As we’ve said, copyright doesn’t do much (if anything) to protect the recipes in a cookbook.  But it does protect the narrative that surrounds them,the illustrations that accompany them, and the design of the page – the “selection and arrangement” of design elements. And, often, the selection and arrangement of the recipes themselves – they can be copied singly, but not as a set (at least not if arranged in the same or a similar fashion).  As a result, recipes can be copied, but cookbooks cannot be copied wholesale.  This isn’t a lot of copyright protection, but it may be enough. Cookbooks are a low-IP industry, but they’re not a no-IP industry.

A couple of you also noted that cookbooks are status goods – i.e., they are useful sometimes not for the recipes they contain, but for what they tell your visitors about you (that you love Sicilian cuisine! And so you’re not quite as boring as you seem . . . ). In this way, cookbooks are like fashion goods – consumption of both is external (visible to others) and expressive ( sends a message that you want to communicate about your characteristics or social status).

In fashion, knockoffs are imperfect replacements for the originals they mimic, not least because if they are visibly inferior, as they so often are, they don’t send the same status message. And in the world of cookbooks, this is even more true. If you’re a single guy, you don’t impress the ladies by having on your coffee table a sheaf of recipes you’ve printed out from cooks.com.  You have a cool-looking set cookbooks from David Chang and Nathan Myhrvold.

In our last post, we discussed a variety of industries in which we see creativity without much resort to patent or copyright law. And we offered some explanations for how low-IP creativity works, such as informal social norms and first mover advantage. In today’s post, we look at a couple of additional ways in which low-IP industries sustain creativity without heavy reliance on IP.  One has to do with the difference between product and performance.  The other relates to the surprising power of brands.

To see our first point, think about innovation in the world of cuisine. Recipes are widely copied – a fact you can confirm by looking at websites like RecipeSource and Cooks.com, which contain thousands of recipes that people have posted, many taken from cookbooks and cooking magazines. And recipes, for reasons we explained earlier, are not covered by copyright. And yet there are a lot of new recipes – cooks continue to innovate in this area despite others’ freedom to copy. Why? Well, on important reason is that the culinary industry doesn’t really rely very much on the recipe as a product. It relies, rather, on revenues from things that are harder to copy. Like restaurants. The quality of a recipe’s preparation in a great restaurant, the wonderful ambiance, the service, the entire experience of fine dining – these are all very difficult and expensive to copy. Any local sushi place can offer a miso-glazed black cod. But have you had the original at Nobu Matsuhisa’s signature “Matsuhisa” restaurant? Oh boy.

The strategy of sustaining innovation by shifting emphasis from product to performance is not confined to cuisine. The music industry – which has traditionally relied heavily on copyright law but is having an increasingly difficult time sustaining a copyright-centered business model – is headed in the same direction. The live concert, which is really selling an experience rather than a product, is much harder to copy than a CD or digital download. And so live music is re-emerging as a growth area. (For an interesting recent discussion of this, see Megan McArdle in The Daily Beast here.)

Now, we suspect that live music will never replace all the revenue that the music industry has lost to online piracy. But it may not have to.  Digital technologies have made high-quality recording much cheaper. And distributing those recordings has gotten cheaper too. Which means that today’s musicians can carve out a sustainable career at a smaller scale than was previously possible. And in this new musical economy, revenue from the live show is perhaps the most important element of a musician’s success.

So, on to the power of brands. That power is very apparent in any big drugstore. Walk into a CVS, and you can buy, for $20.99, 300 tablets of Advil brand ibuprofen. That is just under $0.70 per tablet. The CVS private label ibuprofen—which contains exactly the same dosage of the same medicine—costs $17.79 for 750 tablets, or about $0.24 per tablet. The Advil brand ibuprofen, in other words, is almost three times as expensive as the CVS ibuprofen, despite the fact that they are functionally indistinguishable.

As this shows, brands have a strong power over price. And as a result, they wield an unexpected ability to spur innovation. The story of ibuprofen can help explain this relationship. Ibuprofen was invented in the early 1960s by the UK firm Boots, which runs a large chain of drugstores. First patented in 1961, it was introduced in the United States as a prescription drug in 1974. In 1984, the FDA approved ibuprofen for over-the-counter (OTC) sale. That same year, Pfizer reached a license agreement with Boots and introduced OTC ibuprofen under the brand name “Advil.” Boots’s US patent expired in 1986, and soon after other brands of ibuprofen entered the market.

So in all, Pfizer’s Advil brand of ibuprofen had less than two years of market exclusivity in the United States. After those two years, many competitors jumped in. And yet today, almost 25 years after the expiration of the ibuprofen patent, Advil still owns 51% of the market. That’s more than twice the combined share of all generic ibuprofen products, despite the fact that Advil is functionally equivalent to its rivals and quite a bit more expensive.

Why are consumers willing to pay so much for certain brands? There is surprisingly little consensus among researchers about this. Part of the brand premium is surely based on perceived quality differences, and some studies suggest that beliefs about quality may account for perhaps 20% of the difference. But this rationale makes less sense in the case of a basic pain reliever like ibuprofen, where the FDA certifies that the generic drug is as safe and effective as the branded pill. The brand itself seems to have some effect on the willingness of consumers to pay more.

What’s the upshot? Brands can keep prices high and give firms large and resilient market shares. That brands can have such huge effects explains why companies spend so much money promoting them and designing nifty names and symbols. This much is well known. But the power of brands also has important implications for innovation. If an innovator can link her innovation to a successful brand, she can maintain pricing power even after her innovation is copied. This is the key takeaway of the ibuprofen story. The patent on Advil gave only two years of monopoly control. Yet decades later, Advil still dominates the market for ibuprofen. This suggests that whatever the period of exclusivity, if the brand is sufficiently well-established the innovator can continue to profit—substantially—even after the entry of copies, and even if the copies are quite literally identical products. The brand, in effect, can substitute for the protection against copies offered by patent or copyright.

This is a big topic, and exactly how brands do this is poorly understood. Which means we should try to understand it better. Brands serve as handy identifiers that help consumers more efficiently select the product they want when they’re out shopping. But brands also appear to have an important and unappreciated role in sparking innovation.

In our first two posts, we wrote a bit about how two important creative industries, fashion and cuisine, do very well without much intellectual property.  Notice that we wrote “without much” IP, and not “without any”.  That’s because there is some IP that’s relevant to both. The fashion industry makes heavy use of trademark law to protect brands.  But the actual appearance of clothes – the fashion design – is almost entirely unprotected. In cuisine IP plays a similarly peripheral role. A recipe cannot be protected. The narrative that goes along with it may be, but the recipe can certainly be copied without the narrative.

So both fashion and cuisine are low-IP industries, and both are intensely creative even though others are free to copy and often do.  And as we describe in The Knockoff Economy, there are a lot of other industries that don’t rely much on IP law to motivate creativity.  We spend the first four chapters of the book taking a close look at these industries, and noting the many different ways in which they work to allow creativity to co-exist with copying — or, in some cases, even use copying as fuel for creativity.  The stories in these industries are all different, but they do fall into a few broad categories.

First, there are some that rely on informal rules against copying – “IP norms” instead of IP law.  Stand-up comedy is one of these.  In our chapter on comedy, we draw on earlier work that one of us (Sprigman) did with his University of Virginia colleague Dotan Oliar that documented stand-up comedians’ anti-copying norms and described how the stand-up community runs an informal but pretty effective community policing system to restrain copying.  Chefs, we show, have some similar copying norms, though these norms not nearly as widespread or well-defined. We also discuss some other unusual norm communities, including one involving fans of jam bands.

Then there are some industries that rely heavily on first-mover advantage. You may not think of American football is a “creative industry.” Yet there has been, over the years, a ton of innovation in football on both the offensive and defensive side of the line of scrimmage, from the introduction of the forward pass to the spread offense, the zone blitz, the West Coast offense, the pistol, the 46, the wildcat, the no-huddle, and many many more. None of these have been protected by IP – though copyright and patent might have been useful for at least some of them.

How then do football coaches continue to innovate when others are free to copy them – and do copy, enthusiastically?  The answer is that football coaches are incredibly short-term thinkers operating in an intensely competitive arena.  A couple of wins can make a season, and a few good seasons – or one Super Bowl victory – can make a career.  Under these conditions, any innovation that gives a team even a short-term advantage is worth making. And there’s another piece that’s very important: often it can take an imitator a while to copy a new offense or defense well.  Why? Because players need to be re-trained, and also sometimes, innovations are built around players with specific characteristics.  The spread offense, for example, often suits teams with smaller, quicker offensive linemen. So copying well sometimes means not just re-training, but re-building. And the time it takes to copy, and to copy well, increases the first-mover’s advantage.

We see something similar in the financial services industry. There is no question that the financial services industry has been innovative—and with surprisingly little reliance on IP (for much of the industry’s history, there were no business method patents, and even after these became available, they play a less important role than some had anticipated). The industry’s creative output has included, among other things, thousands of varieties of derivatives, bonds, currency warrants, credit and currency swaps, collateralized debt obligations, exchange traded funds, investment indexes, and the pricing models and trading strategies associated with these instruments. Whether all this innovation has been good for society is an interesting question, but not one we want to touch here.  We’re more interested in how it all happens, with little reliance on IP.

The explanation mixes a bit of first-mover advantage with a bit of market power.

Many of the markets that together comprise “Wall Street” are dominated by an exclusive cohort of US investment giants and an equally exclusive group of foreign-based firms. These firms control large shares in particular lines of business, and, importantly, their clients can be “sticky.” Investment banking is driven by relationships, and many clients have long-term ties to their bankers that span a variety of product areas. As a result, even if innovations can freely be copied, a large bank can capture a lot of the return on its investment in innovation simply by virtue of its control over a large amount of the particular business at issue and its enduring client relationships.

Consistent with this, the leading innovators in most areas of the financial services industry have been the biggest firms. There appears to be a strong link between innovativeness and market share—large firms appear better placed to capture benefits from innovation, even in the face of copying.

And this leads to a broader point about why patents are rarely used for financial innovations: they do not seem to matter much to success in the market. Financial firms that introduce a new and unpatented type of security typically retain a dominant market share for several years, even though rival firms rapidly copy the innovation.

We’ll stop here, but there are a lot more industries to talk about in which copying and creativity mix quite nicely. Indeed, you can find a low-IP industry at your local bar – cocktail recipes, like food recipes, are uncopyrightable, and yet there is a lot of innovation in mixology.  There are stories in The Knockoff Economy about many other such industries, from font design to magic to databases to open source software.  We’ll write a bit about some of these tomorrow.  And we’ll also be responding to some of your comments.

Yesterday we introduced some of the big themes of The Knockoff Economy, and briefly explained why the fashion industry remains so creative despite having its central product—clothing designs—freely copied by any firm that thinks it can turn it a profit by aping an original design.  In the book we look at several other examples of creative fields in which copying is common. One of the most interesting and fun is the culinary world.

In this post, we thought we’d present a brief excerpt from the chapter on food to give a flavor (so to speak) of the book.  In this excerpt, we discuss the incredibly creative culinary scene that now exists, and how copyright applies (or doesn’t) to cuisine:

“The apotheosis of this trend toward extreme culinary innovation is what is often termed the “modernist cuisine” movement. Practitioners, such as Ferran Adria of the recently closed El Bulli restaurant in Spain and Homaro Cantu of Moto in Chicago, use complex and highly inventive processes to create flavored foams, liquid “olives,” edible inks, and various other savory special effects. Many of these dishes push the envelope of good taste; a few are bizarre and arguably inedible. But they are unequivocally novel, and people pay dearly to experience them.

Even outside this rarified world, however, creativity in cuisine is prized in a way that contrasts sharply with the past. Chefs frequently seek to charge jaded palates through novel combinations of flavors, produce, and technique. The Wall Street Journal, for example, noted in 2006 “a big shift in high-end restaurant culture. . . . The past decade has seen the focus shift to innovation” and away from the apprentice-driven reproduction of classic dishes that anchored cuisine (especially French cuisine) for many decades…

This tremendous output of creativity in contemporary kitchens has been accompanied by substantial copying, or more charitably, borrowing, among chefs. Now-ubiquitous dishes, such as molten chocolate cake or miso-glazed black cod, did not just pop up like mushrooms after a storm. Each debuted in a specific restaurant but soon migrated outward in slightly altered form. The putative inventors (Jean-Georges Vongerichten in the case of molten chocolate cake, Nobu Matsuhisa for miso black cod) can claim no royalties on their creations. Nor can they effectively halt the interpretation of their creations by others. Indeed, today a molten chocolate cake is even on the menu at a mass-market chain such as Chili’s. (In fact, a recipe claiming to be for Chili’s Molten Chocolate Cake is readily available on the Internet).

Why are dishes like molten chocolate cake not protected against copying? In the United States, copyright law protects only “original works of authorship fixed in any tangible medium of expression.” In principle, there is no obvious reason why a culinary creation is not a work of authorship. It has an author (the chef), and it is certainly fixed in a tangible, albeit edible, medium of expression—the recipe is “fixed” in the food itself.A painting of a molten chocolate cake would clearly receive copyright protection; so too would a sculpture of one. But as we will explain, under current law the molten cake itself would not be protected.

At the outset it is important to distinguish between the recipe for a given dish and what we referred to as the “built food.” The recipe is the ingredients and instructions: what a reader might clip out of the newspaper or pull up on Cooks.com. The built food is the actual, edible version that appears on a plate. This distinction is in many respects no different from that of the sheet music for a song versus the sound recording of that same song, or the architectural plans of a building versus the actual building that you can enter and live in.

As it happens, both sheet music and performed songs are protected by copyright. The same is true for architectural drawings and actual buildings. (In the case of buildings, this was the result of a specific amendment of American copyright law, the Architectural Works Copyright Protection Act, enacted in 1990). But despite the similarities to music and architecture, neither recipes nor built food are currently protected by copyright. And there has been no serious push to promulgate a “Culinary Works Copyright Protection Act” equivalent to the Architectural Works act.”

As we explain later in the chapter, the doctrinal distinction between sheet music and recipes is not especially compelling. Both are instructions on how to render a work. But regardless, that is the state of the law today. And we find that despite this legal lacuna, there is little reason to believe that copying is a major drag on creativity in food.

In fact, the opposite is more likely to be true. Many great chefs, including Ferran Adria himself, have argued that an open, shared model of innovation is what works best in the culinary world. These chefs—though not all—are very skeptical that copyright protection for recipes or built food would promote more innovation—quite the opposite. We also look at the role of social norms in constraining the depth of copying, drawing on the work of some economists who have studied Michelin-starred chefs in Paris.

The bottom line is that in cuisine copying coexists comfortably with creativity. Now, as readers will surely notice, cuisine and fashion do not lend themselves fully to digitization, and so copying a dish is different than copying an Mp3 file. Of course, copying a recipe digitally is very similar to an Mp3, and in this comparison lies a few of the major points of the book. Let us just mention two.

One, creative fields differ in many respects, ranging from cost of production to susceptibility to digital copying. Our IP system, by contrast, does not draw many distinctions, and to the degree it does, it distinguishes crudely. Two, copying can be blunted when a good is analog rather than digital. Recipes and songs can be digitized and copied very easily using current technology. But built food and its musical analogue, live performance, cannot. So one significant lesson from the world of cuisine (and high end bars, which we also discuss) is that creative industries can prosper even in the face of widespread copying by shifting revenue models toward hard to replicate goods, like restaurants (hard to copy) versus recipes (easier) in cuisine, or live rock shows (hard to copy) versus recordings (easy) in music. In these instances we’ve just provided, restaurants and rock concerts are both a sort of live performance, in which consumers look for and hopefully get an experience which is hard to copy. In the case of recipes and music recordings, these are more easily replicable products – especially recordings, which can be copied perfectly.

We’ll end with one last interesting tidbit. Cookbooks, full of recipes that can be readily found (copied) on the internet, would seem to be a great candidate for a music industry-style economic implosion. But in fact, the cookbook industry is booming. Can you guess why?

First, many thanks to Eugene and the rest of the VC team for inviting us to guest-blog this week.

The Knockoff Economy is about copying, and specifically about how copying, copyright, and creativity mix in a set of somewhat unusual industries—from fashion to food to football. Though our main focus is copyright, we also talk a bit about patent and other forms of intellectual property (IP).

As most VC readers know well, the American system of IP is not aimed at fairness or generally grounded in moral rights. It is a government intervention into the market aimed at precluding some forms of competition—those based on copying other innovations. Competition via copying is barred (or severely limited) as a way of ensuring that originators have a strong incentive to innovate in the first place.

We should say up front that we generally agree with this approach. We think that IP laws are necessary. The interesting and important question is how much IP protection is necessary to spur creativity and innovation.

In some cases, we argue, the answer is very little. And that has big implications for our IP policy, which has tended, over the last 200 years, to get ever-stricter and broader.

Now, savvy readers will recognize that law professors (especially liberals like us) criticizing IP law is right up there with dog-bites-man as a news story. What we do in the Knockoff Economy that is different is that we approach this issue in, what we believe, is a novel way.

Rather than look at how, say, copyright works (or doesn’t) in the publishing or film industries, we look at creative industries where there is no copyright protection, or where that protection is, for practical reasons, not used. And what we find is that in many of these industries, creativity survives or even thrives — despite extensive copying

A good example, and one that we first wrote about several years ago in an article called The Piracy Paradox, is the fashion industry.  Copying in fashion is an everyday thing, and many firms, such as Forever 21, make their living off it.  This has been true since the early 20^th century—and it was bemoaned then as  it is now. During the Depression, a guild was created to police copying among American designers and retailers, and for a while it worked well–at least for cartel members.  Consumers, of course, paid higher prices.

But ultimately the Supreme Court declared that the guild was an antitrust violation, and in the decades since—despite many predictions of the fashion industry’s impending economic collapse—the American fashion industry has grown and thrived. (Small point: we don’t mean manufacturing, even though a substantial amount still occurs here, esp. in places like LA. We mean designing.) As we explain in the book, a big reason the industry has been successful is the freedom to copy. Copying, far from killing creativity or driving out investment, has spurred greater creativity.  There are two main reasons we will briefly sketch in this post.

First, fashion is an intensely status-based enterprise, and so the freedom to copy—which allows designs to filter into the broader marketplace more swiftly—also means that designs become popular more swiftly. That in turn induces those who value standing out to seek a new design. Copying helps trends get started more quickly. And it kills them more quickly as well, as the fashion-forward move away from designs that have become overexposed. And as they do, designers have to be ready with new designs. In short, copying acts as a turbo-charger on the fashion cycle.

Second, fashion is all about trends, and trends are all about copying. This is implicit in what we just wrote. But copy-driven trendmaking has another feature. Trends are what help the trend-seeking to know what to wear to remain in style. Trends, in other words, help organize and anchor the fashion industry’s output into identifiable categories. This anchoring spurs sales, since for many consumers they don’t want to stand out, but instead to fit in.  Copying helps lowers consumers’ information costs regarding what’s in style at any given moment.

As a result of these phenomena, the freedom to copy that exists in fashion is not a drag on innovation—it is spur for it. That has implications for the occasional efforts in Congress to extend some form of copyright to fashion. But it also has larger implications, in particular for the notion that IP is a necessary element in spurring creative work.

And as we explain in the book, this pattern of copying coexisting with creativity is not unique to fashion. In the coming days we’ll post about some of the other industries we explore, and also discuss some of the broader questions that emerge from our study.

I’m delighted to report that Profs. Kal Raustiala (UCLA School of Law) and Christopher Sprigman (University of Virginia School of Law) will be blogging this coming week about their new book, The Knockoff Economy: How Imitation Sparks Innovation:

From the shopping mall to the corner bistro, knockoffs are everywhere in today’s marketplace. Conventional wisdom holds that copying kills creativity, and that laws that protect against copies are essential to innovation–and economic success. But are copyrights and patents always necessary? In The Knockoff Economy, Kal Raustiala and Christopher Sprigman provocatively argue that creativity can not only survive in the face of copying, but can thrive.

The Knockoff Economy approaches the question of incentives and innovation in a wholly new way — by exploring creative fields where copying is generally legal, such as fashion, food, and even professional football. By uncovering these important but rarely studied industries, Raustiala and Sprigman reveal a nuanced and fascinating relationship between imitation and innovation. In some creative fields, copying is kept in check through informal industry norms enforced by private sanctions. In others, the freedom to copy actually promotes creativity. High fashion gave rise to the very term “knockoff,” yet the freedom to imitate great designs only makes the fashion cycle run faster–and forces the fashion industry to be even more creative.

Raustiala and Sprigman carry their analysis from food to font design to football plays to finance, examining how and why each of these vibrant industries remains innovative even when imitation is common. There is an important thread that ties all these instances together — successful creative industries can evolve to the point where they become inoculated against — and even profit from — a world of free and easy copying. And there are important lessons here for copyright-focused industries, like music and film, that have struggled as digital technologies have made copying increasingly widespread and difficult to stop.

I much look forward to their posts.

An interesting Boston Globe column.

This morning, in Intercollegiate Broadcast System v. Copyright Royalty Board, a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit consisting of Judges Garland, Griffith, and Senior Judge Williams declared the Copyright Royalty Board to be unconstitutional under the Appointments Clause, and adopts a narrow fix. This was not a surprising development, as this issue has been brewing for some time (as I noted in these posts). Senior Judge Williams’ opinion for the court in begins:

Intercollegiate Broadcasting, Inc. appeals a final determination of the Copyright Royalty Judges (“CRJs” or “Judges”) setting the default royalty rates and terms applicable to internet-based “webcasting” of digitally recorded music. We find we need not address Intercollegiate’s argument that Congress’s grant of power to the CRJs is void because the provision for judicial review gives us legislative or administrative powers that may not be vested in an Article III court. But we agree with Intercollegiate that the position of the CRJs, as currently constituted, violates the Appointments Clause, U.S. Const., art. II, § 2, cl. 2. To remedy the violation, we follow the Supreme Court’s approach in Free Enterprise Fund v. Public Company Accounting Oversight Bd., 130 S. Ct. 3138 (2010), by invalidating and severing the restrictions on the Librarian of Congress’s ability to remove the CRJs. With such removal power in the Librarian’s hands, we are confident that the Judges are “inferior” rather than “principal” officers, and that no constitutional problem remains. Because of the Appointments Clause violation at the time of decision, we vacate and remand the determination challenged here; accordingly we need not reach Intercollegiate’s arguments regarding the merits of the rates and terms set in that determination.

Northland Family Planning Clinic v. Center for Bio-Ethical Reform (C.D. Cal. June 15, 2012) rejected a copyright claim, finding (I think correctly) that defendant’s use was a fair use as a matter of law.

Northland Family Planning Clinic created a video (apparently this one) titled “Every Day, Good Women Choose Abortion,” which, true to its title, aimed to tell women that getting an abortion is a decision that good women can and do make. Defendants created several videos that included several verbatim segments of the Good Women Choose Abortion video, interspersed with graphic imagery of abortions and, in some versions, some commentary, e.g., a quote from George Orwell. (The latest version, called the CBR II video by the opinion, is apparently here.) Plaintiffs sued, claiming copyright infringement. Defendants argued the use was a fair use, and the court agreed. An excerpt, though please read the whole opinion (which is pretty readable) for the details:

In this case, the balance of the [17 U.S.C. § 107] factors weighs in favor of finding fair use. While the accused works have some commercial use, their transformative character [as criticism of the original] substantially eclipses that consideration. Thus, the first factor tips in favor of Defendants. Because the Northland Video is, at least in part, a creative work, the second factor militates in favor of Northland. The third factor weighs in favor of Defendants because they did not use an excessive amount of the Northland Video to create their parody, in light of the Fisher factors [which state that parodies and similar critical works are generally entitled to use substantial portion of the original in order to comment on it -EV].

Finally, the fourth factor also weighs in favor of Defendants because the accused Videos did not create a cognizable market injury to the Northland Video. Though Northland many have suffered pecuniary or reputational losses as a result of the accused Videos, those injuries are not recognized under the Copyright Act. On balance, Defendants’ use of the Northland Video was fair. [Remainder of text moved: -EV] Under the “market effect” factor, the Court focuses on the extent to which the Defendants’ work usurps the potential market for the original or its derivatives. It is not relevant that a use may damage the original’s value through criticism. Courts must distinguish between “biting criticism that merely suppresses demand and copyright infringement, which usurps it.” ... In this case, the harm Northland claims to suffer is not cognizable because it stems from an “aim at garroting the original,” not a usurpation of the original’s market. Northland asserts that the accused Videos have diminished the value of the Northland Video and have terminated all conversations with potential licensees. While this is no phantom injury, it is not recognized by the Copyright Act. Campbell v. Acuff-Rose, 510 U.S. at 591-92 (“We do not, of course, suggest that a parody may not harm the market at all, but when a lethal parody, like a scathing theater review, kills the demand for the original, it does not produce a harm cognizable under the Copyright Act.”) Furthermore, it is unfathomable to think that the accused Videos are a market substitute for the Northland Video. The purposes and messages of the two are diametrically opposite.

The one slight weakness of the opinion, I think, is in its treatment of the defendant’s video as “parody,” coupled with the conclusion that “for purposes of copyright law, humor is not a necessary element of parody” (and neither is even an attempt at humor). This is understandable, given that most of the recent cases on the commentary/criticism branch of fair use have involved parodies, including Campbell v. Acuff-Rose Music Inc. (1994), the leading Supreme Court case on the subject. But it still adds an unnecessary convolution, it seems to me.

Copyright law has long recognized that commentary on a work and criticism of the work must generally be required to include substantial portions of the work being commented on or criticized, so that the reader can understand the point the commenter or critic is trying to make, especially given that commentary and criticism (unlike, say, a direct copy or a translation) are unlikely to compete with the original work or even with adaptations of the original work that are licensed by the copyright owner. When Congress codified the fair use defense in 1976, it specifically gave “criticism” and “comment” as examples of uses that were especially likely to be fair. Campbell and other cases then concluded that parody was a fair use, because it was a form of criticism or commentary. “Like less ostensibly humorous forms of criticism, [parody] can provide social benefit, by shedding light on an earlier work, and, in the process, creating a new one. We thus line up with the courts that have held that parody, like other comment or criticism, may claim fair use under § 107.”

So the most straightforward way of thinking about this, I think, is that (1) this is a “criticism” / “comment” case, (2) the parody cases are useful precedents because they too are “criticism” / “comment” cases, and (3) the lack of humor in this case doesn’t keep the parodies from being good analogies. Calling this is a parody case but then saying that parody need to be an attempt at humor needlessly departs from the normal usage of “parody,” and makes the court’s argument seem less persuasive than it could be. But in any event, whether we call this a criticism/comment case or a nonhumorous parody case, the court’s fair use analysis is quite correct.

The Second Circuit has finally released its long-awaited decision in the appeal of the Viacom v. Youtube lawsuit, about which I’ve blogged a great deal [starting here, here, here, and here]  over the past couple of years.  Viacom “won” — in that they got the reversal of the district court’s comprehensive judgment in YouTube’s favor — but notwithstanding the considerable hand-wringing already underway about how terrible a result this is, I’m here to tell you:  It ain’t so bad.  In fact, I think it’s a pretty sensible opinion that clarifies the law surrounding service provider immunity in some very helpful ways and, most importantly, does no significant damage at all to the underlying immunity principles that have been so profoundly important for the development of the Net over the past decade.

Here are some of the key points.   [my emphasis throughout] [My apologies if you're unfamiliar with the basic layout of the case -- see the above links for the basic background]

1. “[A] finding of safe harbor application necessarily protects a defendant from all affirmative claims for monetary relief.”

That’s good — Viacom and allies had argued that the 512 immunities don’t cover any claims for contributory infringement, vicarious infringement, or inducement of infringement.  It was an odd theory, and the court shoots it down, correctly, in no uncertain terms.
2.  “[T]he ‘right and ability to control’ infringing activity under § 512(c)(1)(B) requires something more than the ability to remove or block access to materials posted on a service provider’s website.”

That’s good, too.  The statute says a service provider is not immune from claims if it has the “right and ability to control” the infringing conduct (and derives a “financial benefit” from the infringements).  Viacom advanced a plausible argument that, because YouTube (and virtually all content-hosting sites, including the Volokh conspiracy) can throw people off the site if they violate the terms of service, or because they have the technical capability to delete individual postings, that that constitutes a “right and ability to control” the infringements.  This interpretation would have gutted the 512 protections and, again, the court strikes it down.

3.  The court makes it clear that “the basic operation of § 512(c) requires knowledge or awareness of specific infringing activity.”

This is a really important holding, and a really good one.  The battle over service provider copyright infringement liability (including this lawsuit) has always been focused on one central question:  Given that everyone with a brain in his/her head knows that there’s infringing material out there, who has the duty to uncover it?  And when does that duty arise?

Ever since the Napster decision back in 2001 (another decision that most people, incorrectly, viewed as a big win for the content providers), courts have consistently held:  the burden is squarely on the copyright holders, not the service providers.  If copyright holders identify specific infringing files (and give the service provider notice of where those files are located), the service provider “retains safe-harbor protection if it ‘acts expeditiously to remove, or disable access to, the material.’ ”   But the service provider – even if it has “generalized knowledge” that there’s infringing content on its site — need not take any affirmative steps to find that material and remove it without notice from the copyright holders.

The court reaffims this in no uncertain terms.

“[A service] provider that gains knowledge or awareness of infringing activity retains safe-harbor protection if it ‘acts expeditiously to remove, or disable access to, the material.’  Thus, the nature of the removal obligation itself contemplates knowledge or awareness of specific infringing material, because expeditious removal is possible only if the service provider knows with particularity which items to remove.”

This is a strong affirmation of what I regard as the key component to the whole 512 safe-harbor:  the “knowledge” that disqualifies a service provider from the safe-harbor is knowledge that file X, residing on the service at specific location Y, is infringing; and the service provider has no duty to monitor to find those files.  (“ DMCA  safe  harbor  protection
cannot be conditioned on affirmative monitoring by a service provider.”)

So what did Viacom get out of all this?  The court reverses and remands for the district court to consider 2 things:  First, taking Viacom’s factual allegations as true (because the district court had granted summary judgment for YouTube), there’s evidence in the record that YouTube had, at least with respect to some specifically identified postings, “actual knowledge” that those were infringing.  And second, the court articulates a “willful blindness” exception to the safe-harbor:  if YouTube’s lack of “actual knowledge” of “specific infringing files” was due to their own acts of “willful blindness” — a “deliberate effort to avoid [obtaining] guilty knowledge” — they can’t assert the immunity.

We’ll see how that last one plays out.  The devil, as always, is in the details.  An overly-expansive definition of what constitutes “willful blindness” could lead to trouble – but I am pretty optimistic that courts will be able to define it in such a way that it disqualifies only truly egregious conduct (and that service providers will, as a consequence, be less likely to engage in egregious conduct) while placing a high enough bar in the way of those trying to prove the egregiousness of the conduct that it only gets the really bad actors and leaves the vast majority of service providers unaffected.

I briefly blogged about this question in 2009; now there’s a lawsuit, White v. West Publishing Corp. & Reed Elsevier Inc. (S.D.N.Y. filed Feb. 22, 2012) that argues that such posting does indeed infringe copyright. Here’s my summary from 2009, very slightly edited:

The argument for infringement is actually moderately strong. Like most other documents, briefs are protected by copyright the moment they are written. The fact that they’re filed in court doesn’t waive any copyright. That something becomes publicly available doesn’t strip it of copyright protection — the point of copyright protection is largely to prevent copying even of material that is publicly available. Lexis and Westlaw’s distribution of the briefs is thus presumptively copyright infrigngement.

The question is whether the commercial posting of the briefs is fair use; and fair use law is, as usual, vague enough that there’s no clear answer. I do think that the posting is quite valuable to researchers and to others who are trying to figure out what actually happened in a case, and why courts reached the results they did, and I think courts can consider this social value in the fair use analysis. It’s also quite unlikely that allowing such posting would materially diminish the incentive to write good briefs, or the market value of a good brief; that too is potentially relevant to the fair use inquiry. But the case isn’t open and shut, because there are no precedents (at least that I know of) that are clearly on point, because the various fair use factors seem to cut in both directions, and because fair use analysis is so vague in such situations.

Note that there is a statutory provision that says works of the federal government are free of copyright, which includes federal court opinions; and there is longstanding caselaw that says state court opinions are free of copyright. But there is no such existing doctrine as to briefs filed in court.

Thanks to Prof. Eric Goldman for the pointer to the case. Special note: Gregory Blue is representing Edward White, who is presumably also Nice Guy Eddie. No word on Messrs. Orange, Blonde, Pink, or Brown.

I’m delighted to say that Bill Patry will be guest-blogging this week about his new book, How to Fix Copyright. I’ve known Bill for 18 years, from the time that he was copyright counsel to the U.S. House of Representatives Committee on the Judiciary. He has also been a Policy Planning Advisor to the Register of Copyrights, a full-time professor at the Cardozo School of Law, and a practicing copyright lawyer; and now he is Senior Copyright counsel at Google Inc. (though the book represents his personal views, and not those of his employer). He is also the author of an 8-volume, 6500-page treatise, Patry on Copyright (Thomson/West), a separate treatise on fair use (also West), a prior one-volume treatise on copyright that went through two editions (BNA Books), and many law review articles. Here’s an excerpt of the How to Fix Copyright summary:

The arrival of the Internet was revolutionary, and one of the most tumultuous developments that flowed from it — the upending of the relatively settled world of copyright law — has forced us to completely rethink how rights to a work are allocated and how delivery formats affect an originator’s claims to the work. Most of the disputes swirling around novel Internet media delivery systems, from Napster to Youtube to the Google Book Project, derive from our views on what constitutes a proper understanding of copyright. Who has the right to a work, and to what extent should we protect a rights holder’s ability to derive income from it? Is it right to make copyrighted works free of charge?

How to Fix Copyright offers a concise and pithy set of solutions for improving our increasingly outmoded copyright system. After outlining how we arrived at our current state of dysfunction, the book offers a series of pragmatic fixes that steer a middle course between an overly expansive interpretation of copyright protection and abandoning it altogether. We have to accept that we cannot force people to buy copyrighted works, but at the same time, we have to enforce laws against counterfeiting. Most importantly, we have to look at the evidence — what furthers creativity yet does not deny protection to those who need it to create? We should also reject the increasingly strident (and ill-informed) denunciations of delivery systems: Google Booksearch and DVRs are merely technologies, and are not the problem. Throughout, the book stresses that we need to recognize that the consumer is king. Law can only solve legal problems, not business problems, and too often we use law to solve business problems.

I recently noticed that some U.S.-based merchants, such as Amazon, are selling imported collections of U.S. jazz recordings from the 1950s and early 1960s at extremely cheap prices: Typically, sets of 8 different albums put on 4 CDs are being offered at $15 for the entire set. For example, there’s “Hank Mobley: Eight Classic Albums,” featuring 8 of Mobley’s Blue Note albums, on sale for $15.72; or, if you prefer, “Cannonball Adderly: Eight Classic Albums,” featuring 8 of Adderley’s albums, for $14.14. This seems to be a new development. The compilations mostly were released in the last few months, from labels with names like “Real Gone Jazz” and “101 Distribution.”

My question is, are these recordings lawful to purchase in the United States? I realize I’m old-fashioned in caring about complying with copyright law. To the hipsters, it seems, “buying music lawfully” is like wearing pleated pants. But my sense is that these recordings are not licensed by the copyright owners in the United States, where the works are still under copyright. Rather, my guess is that they are taking advantage of the fact that copyright in the EU has used a 50 year term, which is about to increase to 70 years. So recordings from the 1950s through 1961 are now in the public domain in Europe, as I understand it, and Europeans can therefore copy CDs, package lots of public-domain recordings together, and then sell them at very low cost to those in the U.S. through sites like Amazon.

So my first question is, am I right that this is what is happening? And second, if I’m right, does U.S. law prohibit purchasing recordings made where the items are in the public domain, albeit purchased from where they are still copyrighted, and then playing them in the U.S. where they are still copyrighted? Copyright nerds, what say you?