06 December 2013

Copyright and the 'dead rat' approach

From Hansard reporting of the Government's response to the Australian Law Reform Commission report on copyright
Senator Smith (Western Australia) (14:57): 
My question is to the Attorney-General, Senator Brandis. Can the Attorney-General advise the Senate of the Australian Law Reform Commission recommendations in relation to copyright law reform? 
Senator Brandis (Queensland—Deputy Leader of the Government in the Senate, Vice-President of the Executive Council, Minister for Arts and Attorney-General) (14:57):
The Australian Law Reform Commission has just completed a major inquiry into copyright and the digital economy. It provided the final report to the government on Monday. The ALRC inquiry is the most significant review of the Copyright Act since the act came into operation in 1968, and has attracted strong interest with over 850 submissions. The government wishes to thank those who contributed to the work of the inquiry by making submissions. The inquiry examined whether exceptions and statutory licences in the Copyright Act are adequate and appropriate in the digital environment, and whether further exceptions to copyright should be recommended. Among other things, the ALRC was asked to consider whether further exemptions should recognise a fair-use exception in relation to copyrighted material. The ALRC has made a number of recommendations arising from the inquiry. It has recommended the introduction of a flexible fair-use exception as a defence to copyright infringement. It has also recommended retaining and reforming some of the existing specific exemptions and introducing certain new specific exemptions; amending the act to clarify the statutory licensing scheme; limiting the remedies available for copyright infringement to encourage the use of orphaned works; reforming broadcasting exemptions and amending the act to limit contracting-out terms. The government will be responding to the ALRC report in the new year. 
Senator Smith (Western Australia) (14:59): 
Mr President, I have a supplementary question. Why is the appropriate protection of intellectual property rights important to Australia's creative industries? 
Senator Brandis (Queensland—Deputy Leader of the Government in the Senate, Vice-President of the Executive Council, Minister for Arts and Attorney-General) (14:59): 
Australia's creative industries are not just a vital part of our culture but a thriving sector of our economy. In 2011, PricewaterhouseCoopers estimated that the creative industries in Australia were worth $93 billion, which is around 6.6 per cent of GDP. The industries employ 900,000 Australians or about 8.8 per cent of the workforce, which makes them Australia's seventh largest industry—bigger than construction and bigger than retail. It is important that, just like other workers out in our economy, those who make our great films and record our great albums are entitled to the fruits of their efforts. Without strong, robust copyright laws, they are at risk of being cheated of the fair compensation for their creativity, which is their due and the Australian government will continue to protect them. (Time expired) 
Senator Smith (Western Australia) (15:00): 
Mr President, I ask a further supplementary question. Can the Attorney-General indicate the government's approach to the protection of intellectual property? 
Senator Brandis (Queensland—Deputy Leader of the Government in the Senate, Vice-President of the Executive Council, Minister for Arts and Attorney-General) (15:00): 
Yes, I can. I want to reaffirm the government's commitment to the content industries. It is the government's strong view that the fundamental principles of intellectual property law, which protect the rights of content creators, have not changed merely because of the emergence of new media and new platforms. The principles underlying intellectual property law and the values which acknowledge the rights of creative people are not a function of the platform on which that creativity is expressed. The principles did not change with the invention of the internet and the emergence of social media. So in this changing digital world, the government's response to the ALRC report will be informed by the view that the rights of content owners and content creators ought not to be lessened and that they are entitled to continue to benefit from their intellectual property.
The European Commission has meanwhile launched a short public consultation regarding copyright. The 36 page consultation paper Public Consultation on the review of the EU copyright rules states that
Over the last two decades, digital technology and the Internet have reshaped the ways in which content is created, distributed, and accessed. New opportunities have materialised for those that create and produce content (e.g. a film, a novel, a song), for new and existing distribution platforms, for institutions such as libraries, for activities such as research and for citizens who now expect to be able to access content – for information, education or entertainment purposes – regardless of geographical borders. 
This new environment also presents challenges. One of them is for the market to continue to adapt to new forms of distribution and use. Another one is for the legislator to ensure that the system of rights, limitations to rights and enforcement remains appropriate and is adapted to the new environment. This consultation focuses on the second of these challenges: ensuring that the EU copyright regulatory framework stays fit for purpose in the digital environment to support creation and innovation, tap the full potential of the Single Market, foster growth and investment in our economy and promote cultural diversity. 
In its "Communication on Content in the Digital Single Market"1 the Commission set out two parallel tracks of action: on the one hand, to complete its on-going effort to review and to modernise the EU copyright legislative framework with a view to a decision in 2014 on whether to table legislative reform proposals, and on the other, to facilitate practical industry- led solutions through the stakeholder dialogue "Licences for Europe" on issues on which rapid progress was deemed necessary and possible.
The "Licences for Europe" process has been finalised now4. The Commission welcomes the practical solutions stakeholders have put forward in this context and will monitor their progress. Pledges have been made by stakeholders in all four Working Groups (cross border portability of services, user-generated content, audiovisual and film heritage and text and data mining). Taken together, the Commission expects these pledges to be a further step in making the user environment easier in many different situations. The Commission also takes note of the fact that two groups – user-generated content and text and data mining – did not reach consensus among participating stakeholders on either the problems to be addressed or on the results. The discussions and results of "Licences for Europe" will be also taken into account in the context of the review of the legislative framework. 
As part of the review process, the Commission is now launching a public consultation on issues identified in the Communication on Content in the Digital Single Market, i.e.: "territoriality in the Internal Market, harmonisation, limitations and exceptions to copyright in the digital age; fragmentation of the EU copyright market; and how to improve the effectiveness and efficiency of enforcement while underpinning its legitimacy in the wider context of copyright reform". As highlighted in the October 2013 European Council Conclusions "Providing digital services and content across the single market requires the establishment of a copyright regime for the digital age. The Commission will therefore complete its on-going review of the EU copyright framework in spring 2014. It is important to modernise Europe's copyright regime and facilitate licensing, while ensuring a high level protection of intellectual property rights and taking into account cultural diversity". 
This consultation builds on previous consultations and public hearings, in particular those on the "Green Paper on copyright in the knowledge economy", the "Green Paper on the online distribution of audiovisual works" and "Content Online". These consultations provided valuable feedback from stakeholders on a number of questions, on issues as diverse as the territoriality of copyright and possible ways to overcome territoriality, exceptions related to the online dissemination of knowledge, and rightholders’ remuneration, particularly in the audiovisual sector. Views were expressed by stakeholders representing all stages in the value chain, including right holders, distributors, consumers, and academics. The questions elicited widely diverging views on the best way to proceed. The "Green Paper on Copyright in the Knowledge Economy" was followed up by a Communication. The replies to the "Green Paper on the online distribution of audiovisual works" have fed into subsequent discussions on the Collective Rights Management Directive and into the current review process.
There's a more confronting analysis in ‘A Fundamental Critique of the Law-and-Economics Analysis of Intellectual Property Rights’ by Andreas Rahmatian in (2013) 17(2) Intellectual Property Law Review 191.

Rahmatian comments that 
The economic analysis of law and legal institutions, or the law-and-economics movement, originally a distinct North American phenomenon that emerged in the 1960s, has become a widespread tool for a certain conceptualisation and understanding of legal problems. Prominent representatives of the law-and-economics approach especially regard intellectual property as a ‘natural field for economic analysis of law’. Since its inception, this form of analysis has been met with suspicion, as it was felt that law-and-economics tried to take over other social sciences and establish a kind of ‘economics imperialism’. This criticism has to be taken seriously because the law-and-economics analysis does not only reconceptualise otherwise dissimilar fields of knowledge in a rather unrecognisable way to the ‘home-grown’ researchers of the other fields, it also alters, deforms, or even destroys the object of research because it has a strong normative element, even where it presents itself as purely descriptive or (which amounts to the same) “positive.” This is particularly true of intellectual property law as the research object of an economic analysis because all areas of law have developed their long-standing and highly elaborate methodology and do not need a new one, developed for an entirely different discipline, to describe their objects of research. The purpose of an economic analysis can only be a change of current legal institutions and decisions according to perceived superior economic considerations, so every law-and-economics analysis is ultimately normative. Otherwise, it would be superfluous for economists because they take legal institutions (e.g., the legal institutions of contract and property, or regulatory rules) for granted when they seek to explore market phenomena and economic behaviour, and it would be superfluous for lawyers because they have their own conceptual and scholarly frameworks of legal institutions and decisions. 
The law-and-economics approach, seeking to belong to economics as well as to law but arguably belonging to neither, engrafts economic research methods on law; it wants to provide a scientific theory to predict the effect of legal sanctions on behaviour, whereby these sanctions are conceptually simplified as prices because people are supposed to respond to sanctions in the same way as to prices. Economics then claims to have mathematically precise theories (e.g., price theory, game theory) and empirical methods for the analysis of the effects of prices on behaviour. The ways of modelling, also mathematical modelling, are controversial within economics itself,  but the complexities of human economic behaviour and of the causes and effects of human endeavours require a simplification through modelling which enables scientific findings. In economics, that can often lead to the development of a mathematical equation whereby the economist has to admit that he will never be able to determine the numerical values of the parameters in such a formula. Reductionist models are necessary to manage the complexities of reality and to gain a better understanding, but if the model simplifies so extremely such that the connection with reality can hardly be made out, the scientific exercise is worthless for the purpose of legal policy. Unlike “pure” economists, adherents of the law-and-economics approach appear to be far more insouciant in this regard. Furthermore, an economic analysis of the law influences the object of the examination, the law itself, or at least the perception of the law. One can illustrate the problem of some approaches of the law and economics analysis with a slightly exaggerated example: A researcher wants to study the social behaviour of rats interacting with each other, but, to simplify the complexities of that behaviour for a greater chance of making scientifically verifiable empirical observations, he takes one single rat, kills it according to the devised scientific model for simplification purposes, and then describes the rat’s behaviour with earnest scientific accuracy as motionless, perhaps assisted by the empirical methods of statistics and econometrics. The economic analysis of intellectual property law often provides good examples for such a “dead rat” approach. 
The following discussion is a fundamental critique of the application of the law-and-economics analysis to intellectual property law from a lawyer’s viewpoint. Economists have also raised concerns,most notably Coase:
Since the people who operate in the economic system are the same people who are found in the legal or political system, it is to be expected that their behaviour will be, in a broad sense, similar. But it by no means follows that an approach developed to explain behaviour in the economic system will be equally successful in the other social sciences. In these different fields, the purposes which men seek to achieve will not be the same, the degree of consistency in behaviour need not be the same and, in particular, the institutional framework within which the choices are made are quite different. It seems to me probable that an ability to discern and understand these purposes and the character of the institutional framework (how, for example, the political and legal systems actually operate) will require specialized knowledge not likely to be acquired by those who work in some other discipline. Furthermore, a theory appropriate for the analysis of these other social systems will presumably need to embody features which deal with the important specific interrelationships of that system.
Coase’s view is important here since he became the originator of the prevailing law-and-economics theory of property. The following is not a rejection of an economic method for the analysis of economic phenomena which presuppose, or have been created by, the law, such as supply and demand on the market, which requires at least contract and property rights (or intellectual property rights) for its functioning. But it is a rejection tout court of the remodelling of legal institutions and decisions in accordance with certain scientific methods and paradigms developed in (and for) economics, and of the claim that a corresponding analysis could yield any epistemic value for the law and a normative standard of efficiency for future legal policy. The critique also disagrees with the idea that we are supposed to have an “economic theory” of property rights, of crime and punishment, of privacy, and so on. 
Law-and-economics seems to take the worst of both worlds. Economics tends to be descriptive and seeks to ascertain rules of patterns of economic behaviour, which, usually after modelling and a partial analysis,  may be expressed in mathematical equations. A necessary consequence of this scientific approach is a plurality of different models for different aspects of the economy and/or different, also contradicting, models and outcomes in relation to one distinct phenomenon. This unavoidable plurality of models and theorems alongside one another is characteristic of economics but is discarded in the law-and-economics analysis. The reason is sociological. As one of the most important protagonists of the law-and-economics movement candidly stated, a motivation for the emergence of the law-and-economics approach was “that many law professors have lost interest in the traditional undertakings of legal research”. But the law-and-economics researchers are for the most part still lawyers. Law, unlike economics, does not entertain a plurality of different scientific approaches and models but provides authoritative answers and decisions, either by a lawgiver in statutes, by judges in judgments, or, in addition, particularly in Civil Law countries, prevalent opinion by eminent legal academics. Law-and-economics renounces the plurality of economics and takes the authoritative singular approach of law and, at the same time, uses the arguably unsuitable scientific methods of economics since they were developed for economic, not legal, problems. While unsuitable and wrong approaches are cut to size within the multitude of equal methods and models in economics, or can be reviewed in appeals in law, the law-and-economics analysis seems to be an authoritative method with no established mechanism of review or criticism. Although it sometimes embraces mathematics and statistics to reinforce its scientific credibility, it rather appears to be a method based more on unchallengeable ideological belief than on falsifiable science. However, because of this effectively non- plural approach in law-and-economics, this critique can confine itself to the Chicago School of Law-and-Economics as the principal and most relevant approach and can ignore possible other versions of law-and-economics methods as negligible variants, at least from a “classical” lawyer’s perspective. 
What I will discuss here first is an outline of the law-and-economics modelling of property rights and intellectual property rights, which law-and- economics regards as following from traditional property rights (especially tangible property). This is correct, though for reasons of law and legal theory, that is, property theory, not as a result of economic theory devised by law-and-economics. Then I discuss the argumentation against a law-and-economics approach for a conceptualisation of intellectual property. The objections to a law-and-economics analysis of legal institutions and legal relations, and, consequently, to economic propositions with regard to legal reform, are threefold. First, the conditions and assumptions on which the proposed economic models rest are oversimplifying, distorting, incomplete and sometimes blatantly incorrect. Secondly, even if correct conditions and model criteria can be developed, they are still unable to translate legal institutions and legal relations into an economic abstraction as a true mirror image of the law and its actors because economic considerations are by definition largely irrelevant to the lawyer for a legal decision. Thirdly, the application of a law-and-economics approach to legal decision-making, either in the context of principally law enforcement (e.g., judicial decisions) or of law making (e.g. legal policy), can have questionable and morally reprehensible effects. All three objections are obviously interrelated, but they are discussed separately for more clarity. The first concern, the artificial assumptions for the design of economic models that seek to emulate legal institutions and relations, will also be presented with regard to the specific types of intellectual property rights individually: trademarks, where a law-and-economics method may be most acceptable, though often one may question its relevance; patents, where this method is more problematic; and, finally, copyrights, where the law-and-economics analysis is not just a “dead rat” approach, but rather seems to destroy this legal institution.