Review of the Economic Evidence Relating to an Extension of the Term of Copyright in Sound Recordings - Centre for Intellectual Property and Information Law, University of Cambridge

Review of the Economic Evidence Relating to an Extension of the Term of Copyright in Sound Recordings - pdf file

Introduction

" The aim of this study is to provide the Gowers Review with an independent assessment of the economic evidence bearing on proposals to extend the term of copyright in sound recordings. The issue raised before the Review is whether the term of copyright in sound recordings in the UK (and implicitly this would require an alteration at EU level) should be increased."

Non-Economic Arguments For and Against Extension

Paper would be lacking without reference to the non-economic arguments:

• Natural rights i.e. the labour involved in creating a work merits a property right over products of that labour
• International harmonisation i.e. we lack protection as compared to X, Y and Z. Unconvincing because
  • Legal uncertainty remains as to US term
  • There is not harmony amongst countries with longer terms
  • Perpetual ratcheting effect of upwards harmonisation
  • UK (C) may be shorter in term than US, but is arguably larger in breadth e.g. US 'fair use' more flexible; US don't have right of communication to the public
• Cultural skew i.e. UK record companies and artists will defect to the more lucrative US market, leaving our country short on quality.
  • Balance of trade section indicates little or no impact.
  • Regardless of where works produced / based (i.e. whether musician moves to US or stays in UK), they will receive the same protection in the US
• 2 further points against: longer terms ...
  • Lock up culture (e.g. James Joyce and Samuel Beckett's heirs unreasonably denying uses)
  • Prevent the free access necessary for derivative works / follow-on innovation.

Legal Background

Sets out the international context: UK copyright is both a homegrown product, but also the product of EU harmonisation efforts and various international treaties

Copyright and Performers' Rights

Explains very well the 'thicket of rights' that exist within a sound recording:

• Copyrights 1. (C) in the sound recording itself 2. Musical (C) in the sounds 3. Literary (C) in the lyrics / words (nb 1 is usually assigned to a record company, whereas 2 or 3 are generally assigned to a publishing company)
• Performers rights

Term of Copyright in Different Intellectual Productions Explained

The EU Copyright Term Directive harmonised duration of protection across Member States. (C) in literary and musical works lasts until 70 years after author's death; (C) in sound recording - and also performance rights - lasts 50 years from the end of the year in which it was made (unless its published in that period, in which case the 50 years begins at end of year of publication).
The very same Directive also requires the UK and other Member States to conduct a comparison between the term of (C) under national/European law and the term operating in the country of origin of a work/recording. If the term is shorter in the UK than in the country of origin (e.g. sound recordings originating in the US), the UK term applies. If the term is shorter in the country of origin than in the UK, the UK will confer copyright only as long as the work continues to be protected in the country of origin.

Term of Copyright in Other Jurisdictions

The US position

Structural differences to UK approach

• No distinction in duration between authorial and entrepreneurial works: standard term of life + 70 years
• BUT, exception, where term is the shorter of 1. 95 years from release, or 2. 120 years from creation, applies to 'works for hire'
• Also, must distinguish works made before and after 1/1/78
  • Federal (C) protection granted in 1972
  • Works published between 1972 - 1/1/78 would have been protected initially for the 1909 statutory term of 28 years (with another 28 years protection contingent on renewal).
  • Works created after 1/1/78 protected for life + 50 (or 75 years for published works for hire)
  • Protected works were granted an extra 19 years (i.e. renewal term grew to 47 years)

The Sonny Bono Act of 1998 introduced current terms: for existing pre-1978 works, the renewal term grew again to 67 years.

• Position of SR published after 1/1/78 is complicated: 'works made for hire' (i.e. created by an employee, or commissioned; or by express agreement; or stat list) receive 95 years' protection. SR doesn't fit well into any of these categories, so term likely to be life + 70.

Copyright term outside the US

"The 50-year term is the most widely prevailing"

• Rome Convention of 1961 sets a minimum term of 20 years from end of year of fixation
  • 91 contracting parties (e.g. UK / Oz); not US and India
• Geneva Convention of 1971 defers to national law, although if specified can be no less than 20 years from first fixing or publishing
• TRIPS (an element of the WTO) binds 149 countries (including UK, US, OZ and India) specifies narrow rights, but a longer term of 50 years from end of year of fixation.
• WIPO Performance and Phonograms Treaty has 58 parties (US, but not yet UK, Oz, India, Brazil or Canada) and also specifies a 50-year term.
• 25 EU states all use the 50-year term.
• Longer terms e.g. Oz, Chile, Singapore (as emphasised to Gowers in the BPI's submission) are broadly the result of Free Trade Agreements with the US.

Some Assumptions

(that underly economics of the report, in terms of how extension would be implemented)

Performers Rights or Sound Recording Copyright

Any changes will be applied to sound recording (C) rather than performers' rights in performances, as the most potent arguments are to harmonise these rights as between UK and US.
That said, in terms of supporting artists rather than record companies, Gowers should consider extending term of performer's rights. Furthermore, because SR rights are typically assigned to record labels, if we really want to provide a pension, then approach would be to give inalienable rights rights to remuneration rather than assignable property rights.

Property Rules and Liability Rules

Any extension will confer same rights as those conferred during the existing term.
Alternatives include rendering extended term subject to compulsory licensing i.e. a right to remuneration for use aka a 'liability rule' (which has been tried previously)

• "The significance of rendering the extended rights subject to compulsory licensing is to ensure that copyright cannot be used to suppress works or make them available only at excessive prices. With compulsory licences, uses cannot be guaranteed to be exclusive and manufacturers and distributors of copyrighted works would have to take into account the

possibility of competition."

• • Unpopular with rights holders for devaluing works; unfortunately no empirical evidence either way on compulsory licences.

Allocation of Extended Term

Precedent is that extension continues ownership, so benefits record companies rather than performers. There are however some alternatives in the legislation which avoid corporate windfall e.g. 'reversionary copyright' > (C) passes back to estate 25 years after death of author

Theoretical Background

Grounded in rigorous economic theory, but intended to be accessible to the non-specialist

Present Value and the Discount Rate

"All future incomes will be 'discounted' back to the present taking into account both inflation and the appropriate real interest rate"

• £1 invested today yields £1 plus interest in a year's time, so you pay less than £1 today to receive £1 at a future date.
• Some terms:
  • Discount rate (DR): percentage; a product of inflation and interest rates?; important as big impact on net present value (e.g. the value today of a pound 50 years in the future at a 3% DR is 23p, but only 0.9p at a 10% DR)
  • Discount factor (DF): the number that a future cash flow must be multiplied by to obtain the current present value
• There are various DR used in past literature; this study goes with a risk-adjusted real discount rate of in the range of 5-9%.

Demand and the Basic Theory of Copyright

The 'Welfare' (or value) derived from a good is the benefit derived by a user from enjoyment or employment (generally determined by willingness-to-pay) net the costs of producing the goods.

• If you know the associated price, can also calculate the
  • Consumer surplus (value to the user of the good net price paid)
  • Producer surplus (price minus cost of producing the good) aka seller's profit.
    

In terms of a creative work, willingness-to-pay is represented in the form of a demand curve (fig 1).

NB WORK IN PROGRESS! TO BE CONTINUED...