Of the case for fair use: digital distribution of course materials: creative destruction

5. Creative Destruction

There is a theory that departs from the market failure framework entirely. Raymond Shih Ray Ku suggests that “creative destruction” could supply an economic rationale for a broader interpretation of fair use.[1]

Creative destruction describes the process by which industries change from within when radical new ways of doing business undermine and eventually replace old ways. We can see this process at work in the evolution of distribution systems for copyrighted materials. Digital networks, home computers and Internet connectivity are poised to replace the physical distribution of analog media. Ku argues that law should not take sides in this process by artificially supporting the old ways of doing business through, in this case, that grant of a strong monopoly right, at the expense of the newer alternatives. Law should be neutral and let markets and evolving business models sort things out. He suggests that applying the concept of creative destruction to the analysis of the fourth fair use factor would facilitate this neutral approach (appropriately weakening the monopoly) by yielding different results from those obtained with market failure analysis.

As Ku describes it, a court can find that the fourth factor favors fair use, in other words that there has been no harm to the market for or value of a copyrighted work 1) where the copying at issue has been carried out by the person who will use the copy[2] and 2) the copying does not undermine the copyright owner’s incentive because creation of the work does not depend on the sale of copies.[3] Clearly this theory incorporates the idea that a copyright owner is not entitled to all possible sources of revenue for his creations, just those required to fund creation. It draws the line in a different place from Sony. Sony considered harm to current sources of funding and took external societal benefits into consideration as a counterbalance to harm to the copyright owner. A court relying on creative destruction can consider whether creation depends on the funding.[4] Copyright owners would not be entitled to any revenues that do not directly fund creation, even if they had received them traditionally and the proposed use eliminated or greatly reduced them.

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[1] Shih Ray Ku, R., Consumers and creative destruction: Fair use beyond market failure. 18 Berkeley Technology & Law Journal 539 (2003).

[2] Indeed, the person making a copy has bought and paid for the entire distribution system himself: he buys a computer, a printer, a CD burner, and he subscribes to Internet service. The total cost of the system to make and distribute copies is no longer an expense borne by the copyright owner. Shih Ray Ku, Consumers and Creative Destruction, pp. 544 – 545.

[3] Shih Ray Ku, Consumers and creative destruction, 565 - 566.

[4] This argument would probably suffer from similar definitional problems to those described above for market dysfunction: Which revenues are necessary to fund creation and which are not?

Of the case for fair use: digital distribution of course materials: market dysfunction

4. Market Dysfuntion

Although one might characterize engaging copyright owners with just such an aggressive argument [the circular reasoning -- it's all fair argument, see earlier post] as fighting fire with fire, it seems to me an extreme case to make, and as indicated above, an easy case to get around because of the ease of manipulating the four factors. After all, publishers are likely to be able to show real harm to established markets from the hypothetical Electronic Distribution uses I have described. Any court employing a market failure analysis would be hard-pressed to find the use fair: there simply is no market failure, and there are probably demonstrable lost revenues. A court that believes it is important to preserve existing revenue streams in iterative contexts can easily characterize the first three factors to favor getting permission. Voilà: End of circularity problem.

One could take a different tack, however. One could try to convince the court that even though there is a functional market for paying permission (in other words, that there is no absolute market failure), that should not be the end of the inquiry.

In fact, total market failure is not the only market failure. One can argue that market dysfunction also is market failure – and if it can be demonstrated, it should tip the fourth factor towards fair use without having to insist that lost revenues are always logically irrelevant in a nonprofit context. Although this is theoretically appealing and would appeal to the nonprofit educational and library communities, there is scant evidence that it would prove persuasive in this context. Nonetheless, it is worth our consideration.

Market dysfunction occurs when particular kinds of transactions other than those frustrated by high transaction costs do not occur as often as they should and therefore justify a finding of fair use. Normally markets give us good information about what people want, and vendors can use that information to decide where to invest their resources. But if a market is in effect misrepresenting what people want, we cannot count on it for this information. Vendors will not fill a need if they do not know it exists, or if they do not recognize the size of the potential market. Market dysfunction can happen when people forego a purchase because the price is too high. One example is where society benefits from the use an individual makes but the parties to the transaction cannot factor this benefit into their bargain. The vendor tries to charge a price that reflects the overall societal benefit, but the buyer will not, perhaps can not, pay that much. So some clearly socially beneficial transactions will not take place if an individual is expected to pay a price that reflects value he personally does not receive, value that benefits society overall.

The use of articles and book chapters by teachers in classrooms and by academic scientists in university labs illustrates just such a dysfunctional market. Educators, their students, academic researchers as well as their academic employers often cannot afford costly permission fees or database licenses, yet these uses would yield very high social benefits, far exceeding the benefit the individuals themselves derive. Conversely, the social detriment resulting from a decision not to use materials because they cost too much is significantly higher than the detriment to a particular individual who foregoes a use. If this social value weighs in favor of fair use as a counterbalance to the copyright owner’s database and license revenue losses, it is at least conceivable that a court could conclude that such uses should be termed fair even following a microeconomics theory. Thus society would receive the diffuse benefits of those educational uses regardless of the institutional inability to pay by permitting them as fair uses.

So, characterizing the educational and research markets as dysfunctional may be an appropriate and promising argument, but winning that argument will be challenging. As Wendy Gordon cautioned, courts that follow market failure reasoning will be urged to err on the side of letting markets work, to whatever extent they can, rather than to “tax copyright owners to subsidize impecunious but meritorious users in the guise of maximizing value.”[1] This description of fair use as a “tax” on copyright owners is repugnant to fair use supporters, but it is easy to understand from a market failure perspective: if your initial premise is that copyright owners are entitled to all they can conceivably get, fair use quite directly harms them by taking money out of their pockets and must be as narrowly construed as possible. In fact, our own university presses can amply demonstrate how directly economically threatened they are by the loss of these revenues, so again, it would be a hard case to make that the diffuse social benefit outweighs such demonstrable harm.

Another challenge in making a cogent market dysfunction argument is definitional: When is a university, a library or a research institution unable to pay? When is a price too high? Which institutions would qualify to exercise fair use of which materials? Who would set the “fair” prices, or would there simply be no price at which a poor school might be required to pay?

These challenges suggest that within the market failure framework, market dysfunction provides at most a theoretical relaxing of a narrow scope for fair use. Courts have not been willing to embrace this theory so far. Winning this argument would require an advocate who can envision a creative application, one that appropriately tailors the relief to need (does Harvard need this exception? does the University of Ohio? how about Florida State?), without undermining the incentive for publishers, many of whom desperately depend on permission revenues. The exception would also have to take into consideration the relative importance of the educational market to the publishers affected by its exercise. In its nuance, it sounds more appropriate for a legislative “financial hardship exception,” than a court-crafted financial hardship application of the fair use test. But, legislation that favors anyone other than copyright owners is unlikely to survive the legislative process, as we all must recognize. Failing these efforts, perhaps the argument could be successfully pressed in negotiations with publishers or their representatives regarding pricing and business models.[2]

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[1] Gordon, Fair Use as Market Failure, p. 1632. Her point is that courts should not interfere in a working market, even if it is not working perfectly, and even if the interference is designed to subsidize a worthy cause – in this case, financially strapped educators, libraries, and researchers.

[2] As CCC is in the early stages of developing an educational blanket license, educators and libraries might urge that pricing should be based on many factors, among them what the institution has already licensed, and institutional ability to pay.

if:books creates the perfect "future of the book" course project

On the if:book blog today, director Ben Vershbow posts this provacative question: how would you design the iraq study group report for the web?

How would you design an unauthorized web edition of the ISG Report? Would you keep to the sober, no-nonsense aesthetic of the iconic print editions of past government documents like the 9/11 Commission Report or the Warren Commission Report? Or would you shake things up? What functionality would you add? What kind of discussion capabilities would you like to build into it? Who would you most like to see annotate or publicly comment on the document?

The electronic edition that has been making the rounds is an austere PDF made available by the United States Institute of Peace. A far more useful resource for close reading of the text was put out by Vivismo as a demonstration of its new Velocity Search Engine. They crawled the PDF and broke it into individual paragraphs, adding powerful clustered search tools.

The US Government Printing Office has a slew of public documents available on its website, mostly as PDFs or bare-bones HTML pages. How should texts of "national import" be reconceived for the network?

Yes, indeed. What a great question. Into the course it goes...

Semester is over, and I am free to muse now, for 6 weeks

Even though I am officially on vacation now, for 6 weeks, I am just so curious about this idea of planning for a course on the future of the book: my idea is to spend 1 semester creating a networked book/paper/project of some sort. The second semester would document that effort and flesh out the design of an iSchool course on the subject.

There are several ebook editors/readers to use and experiment with: dotReader and fckeditor (open source), but I can't get fckeditor 2.3.2 to install properly. Every time I try, with either browser, I get a big zipped file with no executable in it, that I can tell. I had this problem with vkb also, and had to get Benn to install it for me. I didn't figure out what he did to make it work, however, so if I get him to help me again, I need to find out what he does to get it to install and run. There is a pay editor/reader, tk3, that seems to have a good audience, but I'd rather go with the open source dotReader/fckeditor.

I'm finding a lot more written on the future of the book via the topic of ebooks. This isn't really what I envision, but maybe it's where we are right now. An ebook seems separated from the rest of the web, which doesn't mean it's not networked, and interactive, and social, but it's not the same in some significant ways. I need to articulate what's wrong with that, understand the trade offs in being 100% in the Web (ie, readable through a browser), and decide where the best bet lies for me, and for other authors whose values might be different from mine. So I'm sort of thinking of doing an assessment of the state of the art in edistribution of literary and a/v works, and classifying the different products according to what their strengths and weaknesses or benefits and costs are, sort of how they would stack up depending on what you want to achieve as an author/illustrator/artist, etc.

I'll no doubt have moved on to something else by then, but it also occurs to me that this could make an interesting dissertation topic -- the future of the book: state of the art 200x. But where would you go with that? What's needed? Implications for publishing and libraries? Is there really a groundswell of interest in publishing in new ways or is my perspective skewed? And to what extent is the interest pecuniary versus people just wanting to get what they have to say out there in front of an audience? And how effective is private epublishing not-for-profit? What are the implications of all the different authoring and reading tools? I already sense, just in the tiny amount of time I've spent thinking about where to start for my first networked publication, that the choice of a reader is major. You are seemingly stuck with it, whatever it is, and it's like the Betamax/VCR thing. You don't want to choose the format that gets sidelined in a couple of years. And only those people who have your reader can read your book. That just doesn't seem to make sense. Not for the long-term viability of the creative community. Who would want to create for a tiny audience when you could create for a huge one? I know the standards people are working to make this better (OEPSS -- Open ebook publication structure specification), but they don't seem to be in any particular hurry...

But, I'm supposedly into experimentation here, not getting married. So I need to publish small things whose lack of circulation won't keep me up at night nor will I lose sleep over whether they are in obsolete formats in a few years. I can keep the source files and move them if I want to.

So the first thing to do is to choose a first publication. I thought of maybe doing the digital distribution article, because I wrote it specifically to start a conversation, but I only get occasional visitors to the fair use article. I'd hardly call it a conversation. I just don't know what the options are for reaching the audience I want to reach. Geez, I could just send the .doc file to 100 people, but that doesn't start a conversation. And most of my copyright friends are way too busy to blog and comment on blogs and engage over sections and paragraphs. I just don't know how to get started. Maybe a more interesting piece, the story of the smoke in Guatemala, with some illustrations. But it's not a conversation piece. Well, I have to start somewhere...

Of the case for fair use: digital distribution of course materials: the circular reasoning argument

The Strict Logic, or “Circular Reasoning” Argument

The fundamental point I am making here is that it is a mistake to think that one can win a fair use case merely on the strength of a logical, four factor analysis. That, simply put, is not how it works. The reality of how courts apply fair use renders another very old friend of nonprofit educational uses, the circularity argument, sadly ineffective. It is just too easy to get around it given the ease with which the factors can be manipulated.

Theoretically, even with a less than stellar first three factors, so long as at least two weigh in favor of fair use (in other words, the first three factors weigh at least marginally in favor of fair use), the circularity argument suggests that courts should ignore evidence of “lost” revenues, allowing only the social benefit of the use in question to tilt the fourth factor towards fair use, following the Williams & Wilkins Company v. United States case.[1]

It is wrong to measure the detriment to plaintiff by loss of presumed royalty income -- a standard which necessarily assumes that plaintiff had a right to issue licenses. That would be true, of course, only if it were first decided that the defendant's practices did not constitute “fair use.” In determining whether the company has been sufficiently hurt to cause these practices to become “unfair,” one cannot assume at the start the merit of the plaintiff's position, i.e., that plaintiff had the right to license. That conclusion results only if it is first determined that the photocopying is “unfair.”

The argument is always made in contexts like Electronic Distribution (iterative uses), but thus far, without further success.

Wendy Gordon dealt summarily with the circularity argument in her 1984 Betamax article. She called it a “formalistic question” that should not be the focus of the inquiry.[2] She began with the premise that a copyright owner is ordinarily entitled to revenue from all substantial uses of his work within the statutorily protected categories.[3] She went on to say that, “both fairness to the copyright owner and economic efficiency demand that the assessment of his injury include the loss of revenues he would receive in the market were his entitlement to be enforced.”[4] For her, the central question about whether copyright law could be adapted to new technologies was whether markets were likely to form around new uses.[5] Fair use, thus, was only for cases of present, and likely continuing, substantial market failure or market dysfunction resulting in unacceptably high social costs.[6]

The concept of market failure is part of microeconomics, the branch of economics that analyzes the market behavior of individual consumers and firms. The interaction of these individual decision-makers creates patterns of supply and demand that fix the prices of goods and factors of production and determine how resources will be allocated among competing uses.[7]

The premise underlying this kind of economic analysis facilitates sidestepping the demands of strict logic: if a copyright owner is entitled to all he can possibly get, there is little need for line drawing and no place for a “formalistic question.” If, on the other hand, he is entitled to only what is needed to provide an incentive to create, where to draw the line is central, and avoiding circular reasoning could provide a basis for drawing it. A loss of some revenues not critical to creation might be acceptable.

The fair use test in use today for iterative uses functions much as Gordon described. Because of the way the test has been simplified, the conclusion is guaranteed when it is the same as the underlying premise. “A copyright owner is entitled to any revenues that he conceivably might be able to get. If there is a functioning market for the use at issue, in other words, no market failure, the copyright owner is entitled to payment for the use. If there is a market failure, but the copyright owner can show that he can remedy it (that is, find a way to charge for the use), he is entitled to these theoretical revenues and the court cannot find that the use is fair.” This is simple, elegant and seductive. In fact, one need hardly bother with lawsuits if the law is this clear and easy to understand. Judicial economy has much to recommend it.[8]

Should universities and libraries argue something just as simple, elegant and seductive on the other side based on the circularity argument? “If a use is nonprofit and educational, even if it uses the entirety of a creative work, courts must exclude all evidence of harm to markets. Thus, all nonprofit educational uses are fair uses all the time.” These two diametrically opposed, I would say extreme, arguments nicely illustrate the “values conflict” between the commercial for-profit sector and nonprofit higher education. [9]

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[1] Williams & Wilkins Company v. United States, 487 F.2d 1345, 1357 fn19 (U.S. Ct. of Claims 1973), affirmed, 420 U.S. 376 (1975).

[2] Gordon, Fair Use as Market Failure, p. 1651 – 1652.

[3] Id.

[4] Id.

[5] Id.

[6] Gordon, Fair Use as Market Failure, pp. 1620 – 1621.

[7] The Politics of International Economic Relations by Joan Spero and Jeffrey Hart http://www.indiana.edu/~ipe/glossry.html.

[8] Bridgeport Music Inc. v. Dimension Films, 383 F.3d 390 6th Cir. (Tenn.), Sep 07, 2004. The court in Bridgeport, in part, explicitly based its finding that 3 seconds sampled from a recording required licensing on the resulting judicial economy that the holding would foster. In other words, the court felt that finding fair use would encourage lawsuits; finding no fair use would discourage them.

[9] Laura N. Gasaway, Values Conflict in the Digital Environment:
Librarians Versus Copyright Holders http://www.unc.edu/~unclng/Columbia-article3.htm.

Interesting idea for a course on future of the book

I had an interesting idea today for a course on the future of the book. Wouldn't it be neat to write a book that had layers -- an upfront layer that was sort of like a normal book; a second layer that was heavily linked, providing paths in and out of the text; a third layer that included other people's comments and links in and out of the text, including commentary and response by the author. I can see it as a sort of wiki, but not quite like the currently available wiki software. One could choose to be in, read in, any of the three versions. Has someone already done this? If so, where is it? I would like to do this and maybe add it to the alternatives that are available to author who wish to make their works available in new and more social ways, more interactive ways. I guess I could start with an article or something short, but I need some help with the layers idea. Anyone know what I'm talking about better than I do?