Sunday, December 31, 2006

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.

[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?

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