Professor Henry Ergas and Professor Allan Fels
A Submission to the Online Copyright Infringement Discussion Paper
Click here for the full submission
Authors’ summary of Key Points:
The changes proposed in the government’s recent discussion paper on “Online Copyright Infringement” have the potential to impose costs that greatly exceed their benefits.
By extending authorisation liability, the proposals will place on ISPs and on a broad range of other entities, including cloud service providers, schools and libraries, risks they are poorly placed to manage. This inefficient allocation of risk will increase costs for end-users and chill innovation.
International experience is uncertain as to whether graduated response schemes are even effective – i.e. whether they result in a reduction in infringement. What is clear, however, is that there are strong grounds for questioning whether they are efficient: that is, whether they result in benefits that outweigh their costs. As well imposing a substantial burden in terms of compliance costs, these schemes impose costs on end-users in the form of ‘false positives’.
False positives are likely to be pervasive in any graduated response scheme in which there is not effective prior judicial scrutiny of the triggering of the notice process and in which rights owners do not bear the full costs of the process, including the costs imposed on innocent end-users. In that event, rights owners will have incentives to make excessive use of the process, imposing a negative externality on end-users.
To make matters worse, the gross imbalance in resources between corporate rights owners and their collective organisations on the one hand and individual end-users on the other, along with the fact that rights owners have far greater incentives to bear the costs and risks of litigation than do individual end-users, reduces (if it does not virtually eliminate) the likelihood of notices being successfully challenged, even when they are inaccurate.
With the discussion paper itself suggesting the proposals are aimed at some 4 million Australians, this risk alone ought to induce immense caution before such a scheme was implemented.
That is all the more the case as the discussion paper suggests the process could apply to conduct which does not even amount to infringement of the Australian Copyright Act. For example, an Australian user purchasing content from Netflix in the United States could be targeted.
Taken as a whole, the proposals amount to a move to far stricter enforcement of rights. By weakening the competitive pressure infringement has placed on rights holders, and which has forced them to start reducing the extremely large gap between Australia and the US in pricing and availability of online video, the result will be that Australian consumers will face higher prices. While these could lead to increased investment in creative effort, the empirical evidence does not suggest that response is large enough to outweigh the costs.
That the vast bulk of the increased revenues will flow to overseas rights owners, for whom it will amount to a small proportionate rise in profits, only makes that inference stronger. Moreover, in the cost-benefit methodology applied by the Productivity Commission and mandated for other Australian government entities, those payments overseas are treated as a cost to the Australian economy, further reducing the likelihood of a net benefit.
Additionally, creative material is increasingly used as an input into the production of new creative material, notably in what is commonly referred to as ‘transformative use’. As experience in the United States shows, the high transactions costs imposed by the risk of inadvertent infringement and of false positives discourage transformative use, reducing the production of new content.
The danger of suppressing transformative use is especially great in Australia, where the Copyright Act adopts a highly prescriptive approach to defining ‘fair dealing’ and other exceptions to the scope of rights.
Rather than benefit artists and consumers, the overall effect may be to entrench existing business models. Those business models can serve the interests of incumbent distribution channels better than they serve those of creators, who have benefitted from the scope the internet has offered to bypass those channels.
Before proceeding any further, the Government therefore needs to more rigorously identify and weigh up the costs and benefits of its policy proposals. In doing so, greater consideration must be given to the wider policy, legal and economic impacts of the proposals on the market, the parties and the Australian community.
