Gowers Review Submission

This is the Open Rights Group submission to the Gowers Review of Intellectual Property, submitted April 06.

Introduction

The Open Rights Group pursues specific objectives to:

  • Preserve and extend traditional civil liberties in the digital world
  • Raise awareness in the media of digital rights abuses
  • Provide a media clearing-house, connecting journalists with experts and activists
  • Nurture a community of campaigning volunteers, from grassroots activists to technical and legal experts

We wholly support the aims of this review and wish to commend the Treasury and the Gowers review team for undertaking this complex and difficult procedure on behalf of the United Kingdom.

In addition to producing our submission, the Open Rights Group has also created a website - http://gowers.openrightsgroup.org/ - where the public can comment on each section of the call for evidence. The site is still active and drawing many high quality comments from the public, particularly on the subject of phonographic copyright term extension. The site will stay open to comments from visitors until the Gowers Review publishes its report. We would like to invite the Review to visit the site and read through some of the discussions there.

We would now like to make specific recommendations for actions that would improve the efficacy and equity of UK intellectual property policy. We would be pleased to provide further information on any of these recommendations at the request of the review.

Place greater emphasis on evidence and the public interest

Current IP policy-making is often biased by asymmetries in the power of different stakeholders. On one side, the beneficiaries of highly protectionist IP policies are frequently large companies, able to act relatively cheaply, and in concert with each other, to articulate their agenda and influence policy. By contrast, those who would benefit from a liberalisation of IP law are generally unable to present their point of view: the general public both now and in fifty years time, future innovators and artists, and consumers en masse.

It is this second group that we feel the government has an obligation to represent as a part of its wider duty to represent the public interest, an interest which can often be contrary to the demands of entrenched right holders. The presumption of rights holders that UK government policy should promote the interests of the IP industries is misplaced.

We therefore strongly support the adoption of Item 9 of the Royal Society of Arts' Adelphi Charter [1], which states:

In making decisions about intellectual property law, governments should adhere to these rules:

  • There must be an automatic presumption against creating new areas of intellectual property protecting, extending existing privileges or extending the duration of rights.
  • The burden of proof in such cases must lie on the advocates of change.
  • Change must be allowed only if a rigorous analysis clearly demonstrates that it will promote people’s basic rights and economic well-being.
  • Throughout, there should be wide public consultation and a comprehensive, objective and transparent assessment of public detriments and benefits.

The Adelphi Charter emphasises the need for evidence-based policy as well as the requirement that the burden of proof be placed on those who lobby for more extensive monopoly rights, whether in the form of broader scope, longer terms or more stringent enforceability. In our view it is clear those who seek more extensive monopolies must be able to adequately demonstrate that the benefits of such a change to society as a whole outweigh the costs. It should not fall to those who wish to resist such extensions to prove that the changes will be damaging.

Improve the quality of evidence on long-term effects

While the aims of the Gowers process are commendable, we are concerned that the challenges of negotiating a wide-ranging and systematic review in such a short time may unwittingly bias the evidence in favour of large copyright holders. The scope of the review is broad: the complexity of some of the issues addressed, such as term extension and orphan works, merits detailed examination (and has prompted such in other jurisdictions). While expansive, the review also omits some key considerations, such as the place of Crown Copyright and public sector information (PSI) in policy, whose effects have an indirect but significant impact on the topics under consideration.

Given the importance of innovation and creativity to UK society we feel it especially important that the review board maintain a commitment to evidence-based policy. The issues are complex and fast-changing, and will continue to be vital to the health of the UK's knowledge economy, and it is essential that, in a rush to report, careful consideration of evidence and theory is not left behind and replaced by the uncritical acceptance of the claims of one group or another. For many of these areas evidence-based policy-making requires commissioning of proper peer-reviewed research provided with adequate time and resources.

It is worth noting that relatively little independent research has been pursued in any country. The United States has some independently funded academic groups, such as Duke Law School's Center for the Public Domain and the Berkeley Center for Law and Technology. An impartial research project or set of projects, undertaken by universities in the United Kingdom, would do much to both clarify UK policy choices, and improve the position and power of the UK in the wider international circles where IP policy is often finally determined.

Protect balance of IPR against contractual over-protection

It is common practice for rights holders to reinforce IPR through licensing regimes. This can result in over-protection of works and lead to the dilution of rights implicitly granted by Parliament. This is unacceptable where licence agreements (or their technological enforcement) prevent users from exercising statutory exceptions and limitations. This often occurs in the digital environment, where so called 'click-wrap' contractual agreements, where the user has to agree to non-negotiable terms and conditions before they can continue, and End User Licence Agreements (EULAs) dominate.

Such abuses have been highlighted in particular by the British Library, who report difficulties in archiving and making content available to the disabled. For example, e-books are restricted using a combination of technological and contractual protections that amount to a level of private regulation that disregards users' statutory rights. Typically restrictions are imposed on the duration of access, or on the number of views, or even on the devices that can be used. For example, a literary work may have entered the public domain but still be distributed in such a way that prohibits use.

In response to this imbalance between the interests of competing groups, two options appear appropriate. Firstly, the government could develop inalienable statutory mechanisms which protect the user's ability to exercise exceptions to monopoly rights. Secondly, where identifiable detriment is caused to users of IP, without reasonable justification provided by the content provider, such terms could be rendered void by the exercise of a public interest test.

Reject calls for an increase in the term of protection of sound recordings and performers' rights

We believe there should be no extension - retrospective or prospective - of the term of protection on sound recordings and performers' rights. Such an extension, particularly where retrospective, would impose significant cost on society as a whole and lacks any sound economic justification.

A copyright is a monopoly granted for a limited time in order to increase the supply of creative works by improving the remuneration of those who produce them.

Copyright inevitably has associated 'dead weight' losses such as higher prices and 'transaction' costs, including the cost of locating works, locating the owner(s) of their copyright, contracting with them, distributing monies etc. This restriction operates both on those who wish to enjoy the work in itself as well as those who wish to reuse it as part of a new creative work.

When considering copyright - and in particular its term - we, as a society, should incur these costs only when they are outweighed by the benefits we receive in the form of new creative works. As Macaulay put it just over one hundred and fifty years ago: "It is good that authors should be remunerated, and the least exceptionable way of remunerating them is by a monopoly. Yet monopoly is evil. For the sake of the good we must submit to the evil: but the evil ought not to last a day longer than is necessary for the purpose of securing the good."

Retrospective term extensions are extensions of the monopoly protection for works already in existence. The incentive to produce these works was clearly in place fifty years ago. Giving Elvis Presley an extra fifty years of copyright today cannot provide him with an incentive to produce new works in 1955. Rather, this provides a windfall to the record companies who made their investments half a century ago in full knowledge that the fruit they bore would belong to the public fifty years later.

Retrospective term extension will also do nothing for today's artists who have already created works. The benefits to artists of extra payments fifty years from now are negligible -- there is no entrepreneur, artistic or otherwise, whose business-plans are shaped by events that will not come to pass for over half a century. Therefore, the promise of possible additional revenue created by increased copyright term on existing works will not induce the creation of new works.

For further discussion of this please see Appendix 1: Retrospective extensions will not increase funding of new work.

Prospective term extensions are extensions that only apply to works created after the extension came into effect. While prospective extensions do fit within the logic of copyright, the term of protection for recordings is already so long that the incentive effects of an extension would be negligible. With the term of protection already at fifty years any extension will result in extra income so far in the future that its present value to the producer of a work will be so insignificant, at least compared to what they would already receive, as to have no effect upon the creation and funding of recordings.

Copyright term extensions would reduce, yet again, the size of the public domain, harming public access to old material, the preservation of materials on physically fragile media (such as old shellac disks) and the creation of new works that build upon the past. The only beneficiaries will be the owners of a very limited number of valuable back-catalogues - the majors and a handful of lucky performers - who will receive windfall gains at the public's expense. Such a move would clearly be against the public interest.

The effect of a term extension for copyrights on phonograms is economically indistinguishable from a direct payment from the British Exchequer to the industry, a scheme which we believe would be unlikely to receive warm support from either the government or the tax-payer. After half a century's patient waiting, it is high time for these works to enter the public domain as the public realises its side of the copyright bargain.

Reform and clarify copyright fair dealing exceptions

The current structure of copyright exceptions is unclear, poorly understood and increasingly anachronistic in the digital age. Their function and comprehension must be improved, starting with simplification and then moving on to the recognition of further categories of exceptional activities.

A new statutory exception for personal, private copying is long overdue. Moving purchased content between digital devices is today seen as a 'right' by the general public; the media and technology industries already profit from this accepted practice. Just as UK copyright law accepted the right to time-shift television programmes, so a wider right to personal private copying would place legislation and common practice on a firm footing.

The amount of material stored digitally is increasing exponentially, together with reliance on this data by the commercial and academic sectors. A statutory exception for archiving processes is necessary to ensure that valuable materials are neither lost nor cloistered away in outdated formats. For example, the law previously accepted backups for software, but since the EUCD this important practice has been thrown into a legal grey area.

In general, the dilemma that 'making a copy' is both the key act in copyright enforcement and a trivial but necessary function in a wide range of useful, but non-exploitative digital processes, should be addressed.

Rather than attempt to address these issues and others in a piecemeal legislative approach, we recommend that an investigation be made into whether the UK should adopt a non-exhaustive approach to fair-dealing, originally recommended by the Whitford Committee in 1977 (in the publication Copyright and Designs Law: Report of the Committee to Consider the Law on Copyright and Designs), and similar to that of the United States, where new uses can be accommodated without recourse to specific legislative amendment.

The Australian and Hong Kong governments are undertaking ongoing research into this type of reform, and their delineation of factors that might make up such a quantitative test may provide a useful guide to implementing such a change in the UK.

Rebalance law on Technological Protection Mechanisms

Our full opinion on Digital Rights Management was presented to the All-Party Parliamentary Internet Group's public inquiry in February 2006, and is attached in Appendix 2. The points below summarise our position:

  • DRM distorts traditional trade-offs in copyright law by providing a mechanism for right holders to restrict the way in which works are used, over and above the limitations set down by copyright law.
  • New types of content sharing licenses are at risk if DRM becomes widespread, as DRM systems may prevent the public from accessing materials released under these alternative licenses.
  • The law should require that all media producers deliver works in the clear, i.e. without any DRM, to copyright deposit libraries.
  • All DRM will eventually become outdated, thus preventing access to restricted media, and users should be allowed to circumvent any DRM when this occurs.
  • The law should provide an immediate right of action for any disabled people to circumvent DRM systems in the process of accessing the media for their own consumption.
  • Content already has copyright protection. Legal penalties for DRM circumvention go beyond what is required for the enforcement of copyright and create many negative side-effects.
  • DRM systems can and do have serious negative effects on computer functionality. Causing this should qualify as an offence under the Computer Misuse Act 1990.

Improve public access to orphan works

Difficulties in identifying rights holders can significantly hinder both commercial and non-commercial projects, and the difficulties created by orphaned works are significant both in terms of time spent and costs incurred.

We recommend further research to determine a viable, fair and affordable solution. This research should consider a number of options, including the possibility of a return to some form of copyright registration. The obvious advantage of registration is simplicity for those seeking permission for a subsequent use. A peppercorn fee might be levied on registration to subsidise the growing costs of enforcement. This small administrative burden imposed on rights holders is in line with our policy of reducing costs of the copyright system on the public purse.

Another option deserving of research is a system for licensors to deposit payments where they have made all reasonable efforts but failed to locate the relevant right holder. A combination of these approaches has been developed for legislative review in the US 4,5, and is favoured for helping revitalise the public domain whilst placing only a light tax burden on the public. We reiterate that right holders and other beneficiaries of the copyright system should bear its administrative burdens, not the general public.

Provide for proportionate sanctions for IP infringement

As the cost of making copies of works has decreased and the ability to do so has spread throughout society, so the state has taken up its share of the increasing costs of enforcing statutory IP protections, even when the act of copying has had little effect on the market or the alleged victim.

Perhaps the best example here has been the pursuit through the courts by rights holder groups of individual Internet file-sharers. Each of these file-sharers has contributed only a small part to the wider issue the rights holders seek to address; nonetheless these industries have largely externalised the cost of creating a disincentive, by leading each individual case through the courts. This practice has only recently begun in the United Kingdom. If the longer American example is any indication, this cost to the public purse will only continue. Over 18,000 cases by the RIAA and MPAA have now been conducted. Anecdotally the music industry's streamlining of this process, and the large figures demanded as settlement, allow them to break even or profit from their practice, while their actions still clog the courts and takes up valuable judicial resources.

Generally, the content industries have taken the position that such enforcement is necessary, and if anything, the public portion of the cost of enforcement must be increased through the criminalisation of infringement. The EU IPRED directive in Europe, and the proposed Intellectual Property Protection Act of 2006 in the United States both call upon government to increase the level of criminal prosecution in IP enforcement, so that the costs to civil litigants might be reduced. (See the Rise of Statutory Protection, Expanding the Market’s Role in Advancing Intellectual Property [2]).

What is needed is a clear line to be drawn between large-scale commercial infringement industry, which makes copies in order to fraudulently sell a work as a bona fide original; and the incidental 'infringement' practised by individuals which in some cases could be viewed as fair dealing, and in others is a result of ignorance on the part of individuals as to the extent of their action.

In the first instance, where IP industries are faced with a parallel black market in their goods and which consumers are being actively deceived, a strong case can be made for vigorous government prosecution. In the second instance, however, the enforcement costs that the companies are attempting to pass on to the public sector are large, but with little potential return for either the industry or the public as a whole.

Making a clear division between these two cases is not, sadly, in the rights holders' interests, as conflating the practices of black-market 'pirates' with the practices of individuals provides them far more political purchase when making arguments that restrict consumer or competitors' rights. So, for instance, in the United States, Attorney General Gonzalez referred to the profits of piracy sponsoring terrorism in introducing legislation that would make even attempting infringement a criminal offence.

Similarly, in attempting to criminalise patent infringement in the European Union, advocates of the Intellectual Property Enforcement Directive (IPRED2) neglect to point out that many groups infringe on patents not because of malicious intent, but because they are unaware of the patents' existence or applicability. And rights holders of all industries call upon government repeatedly with claims of billions of pounds worth lost to piracy without considering whether each copy made is a sale actively lost.

When providing for the proportionality of sanctions against IP infringement, we should weight objectively not just the losses to IP industries, but the cost to the exchequer of enforcement, and whether the infringers themselves are reducing the profits of the rights holders and society as a whole. The balance of investment in intellectual property rights is not evenly distributed through society; it is only just that major rights holders should bear a burden of enforcement proportionate with the benefits they accrue.

In addition, laws cast as positive defences of intellectual property, such as the criminal prosecution of anti-circumvention provisions, have had profound collateral effects in other sectors (See Unintended Consequences: Seven Years under the DMCA [3]).

It is these costly externalities which should act as the strongest brake on increasing sanctions against infringement, and indeed, the ratcheting expansion of intellectual property rights as a whole. Proportionality in sanctions should not simply be proportional to the desire of the wronged party, but proportional to the disincentive effect of the punishment on the wider society. If, for instance, we punish innovation in technology by raising the costs of software patents liability, or we punish innovators in technology by passing anti-circumvention statutes that forbid them from investigating competitors' products, we have created a net loss, no matter how more powerful our new property rights might seem.

References

Appendix 1: Retrospective extensions will not increase funding of new work

It is often argued by proponents of retrospective term extensions that such a change would increase the funding of new work by allowing labels to make extra money on their existing catalogue.

This argument is, however, entirely fallacious for the simple reason that:

a) A retrospective term extension increases the return to past projects but makes no difference to the expected pay-off of new projects.

b) Investment in new projects is determined by their expected pay-off alone.

Thus a retrospective term extension -- which only affects returns on works already created -- will have no effect on the level of investment in new work. Given the superficial plausibility of the fallacy it is worth elaborating a little upon these points.

In the (popular) music industry, just like many others, investors (record labels) invest a variety of risky projects (bands). Some projects will be successful and some will not. As in any business, investors will, in general and on average, invest in a project if its expected profit is positive.

This does not mean a given project will make money, in fact quite the contrary. Many projects, perhaps the majority, will lose money but the losses on these will be made up for by the successful ones so that on average an investor makes money (averaged over the portfolio). In the music business, which is relatively risky, this is exactly the case. Most bands fail but a few are highly successful and return a large amount of money to the label.

Thus while successes do, in some sense, help to pay for failures this is only true prospectively - if one knew in advance which projects would be failures one would not invest in them. Making more money (or less money) on existing projects makes no difference. This distinction is the one between cross-subsidy and diversification.

Cross-subsidization in this context is taken to denote intentionally using profits from one area to fund an area that loses money, where this is known in advance. For example urban utility users cross-subsidize rural utility users.

Diversification, on the other hand, is the situation described above where, in advance, it is not known whether any given project will succeed - only that it will succeed with some probability. By diversifying across projects the variance is reduced while the average payout is maintained.

Whilst superficially similar, the two situations are in fact fundamentally different which explains the divergent effects of increasing payouts in the two cases:

1. Increasing payouts in case of cross-subsidy:

Suppose initially a successful project makes £X and that this is needed in order to fund some other (implicitly loss-making) project (for whatever reason). Now suppose due to changes, for example a retrospective term extension, the project makes £X + £Y there is no reason at all to think that this extra £Y would be used to pay for more loss-making projects, instead it would just be put in the bank (or used to pay for profitable projects that would be funded anyway).

2. Increasing payouts in case of diversification:

Suppose average payout is £X initially but will be £X + £Y after the change (for example a prospective copyright term extension). This means that the firm may now take on riskier or more costly projects. (Now p * (X + Y) >= cost whereas before p * X >= cost.)

Thus it is correct to say that money made on successful bands does not help unsuccessful bands since this would be cross-subsidy. However the prospect of making money on successful bands does result in investment in bands in general some of whom will lose money.

All this may seem academic but there is an important point. Retrospective term extensions increase income in the first manner, i.e. the increase the income to known successful projects. Thus they will have no effect at all on the funding of new artists - they just increase the profits of record companies or the income of a few lucky descendants of very successful artists.

Prospective term extensions are of the second kind and increase payout to individual projects in the future. Thus these can have a positive effect on funding. However since the extra revenues from term extensions are so distant their present value is very low (£1 in fifty years is worth less than 1p at a 10% discount rate). They are therefore not of much interest either to the labels or to individual artists.

Appendix 2. Open Rights Group's Submission to the APIG Public Inquiry into DRM.

APIG DRM Inquiry Submission Minus Appendix B and Appendix C from the APIG DRM Inquiry Submission.

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