Consumer Focus Report

Consumer Focus has just published a report that Mark Rogers, Josh Tomalin and I wrote on the The economic impact of consumer copyright exceptions. Executive summary:

"Advances in the technology available to consumers have fundamentally altered the relationship between authors, rights-holders and consumers with regard to copyrighted creative works. The copyright system in the UK is undergoing a gradual process of reform to reflect this new reality.

In 2006, Andrew Gowers, a former editor of the Financial Times, presented a report into the state of intellectual property in the UK. Among his policy recommendations were three proposed changes to the copyright exceptions system which alter the way in which consumers can interact with copyrighted works. Gowers proposed introducing copyright exceptions for:

• Format shifting, for instance the transfer of a piece of music from a CD to an mp3 player. 

• Parody, caricature and pastiche. 

• Creative, transformative or derivative works. In our context, this definition includes user-generated content.

Our review examines the existing literature on the possible economic effects of these proposed changes to the copyright exceptions system, specifically whether the introduction of these proposed changes would cause economic damage to rights-holders. Whilst the economic issues surrounding copyright infringement via file-sharing and commercial „mash-ups‟ are interesting and important, our review is focused solely on copyright exceptions as they relate to non-commercial, consumer activities.

Investigating potential economic damage to rights-holders requires an analysis of how consumer copyright exemptions could affect the demand for the original creative work. The processes via which consumer copyright exceptions influence the demand curve for original creative work can be complicated. This said, a standard analysis of the demand for creative works must assume that consumers incorporate the benefit of copyright exceptions into their demand. A consumer‟s decision to purchase is based on the benefits of the product, including – in the case of creative work – the value of any copyright exemptions. In this sense, it can be argued that a creator automatically extracts value from copyright exceptions, since these directly influence the demand for the original creative work.

In our review, the two most commonly cited „economic‟ studies into the effects of Private Copying Remuneration (PCR) systems – Econlaw (2007) and Nathan Associates (2006) – do not provide any useful evidence that consumer copyright exceptions cause economic damage to rights-holders, or that a copyright levy is justified on these grounds.

The Econlaw study incorrectly equates economic damage with consumer value and does not contain a formal discussion of the demand for copyrighted works. The Nathan Associates study does not make a necessary distinction between 'damage to consumers and producers' and 'damage to society as a whole'. It likely overstates the economic damage caused by PCR. It also uses estimates for demand elasticities that do not come from formal economic analysis.

The economic evidence that format-shifting, parody and user-generated content cause any kind of economic damage to rights-holders simply does not exist. Arguments that support tighter copyright law, or support PCR systems, tend to confuse economic damage with consumer value. Any future analysis on this issue needs to investigate the conditions under which the proposed consumer copyright exceptions would have any impact on demand for creative work."