The Costs and Benefits of Copyright: Getting the Facts Straight

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Last week I wrote about ‎the exaggerated and wildly inaccurate claims made by opponents of copyright term extension in Canada regarding the supposed economic losses to the Canadian economy of extending the term of protection from 50 to 70 years. This TPP provision will bring the term of protection afforded to copyrighted works in Canada to the same standard as applied in the majority of developed countries. Some critics, through “back of the envelope” calculations, estimated the losses to be in the order of several hundred million dollars. “Losses” are defined as revenues paid to foreign copyright holders in excess of additional revenues earned by Canadian copyright holders as a result of the extended term. Not only were these estimates based on unsound and speculative extrapolations from a study undertaken in New Zealand, and released recently by the New Zealand government as part of its TPP documentation, but now it appears that the New Zealand study on which the critics’ grossly inflated estimates were based is itself unreliable.

New Zealand Copyright Term Study Debunked

The 2009 study commissioned by the Ministry of Economic Development looked at the costs of term extension by examining the book publishing and recorded music industries. The Ministry itself amplified the original study by estimating and then adding in the costs of film and television copyrights, making the assumption that these industries would incur the same net costs as music. The conclusion was that the average cost to New Zealand from copyright term changes under the TPP would total $55 million (NZD) annually, using conservative estimates. While the study made some questionable assumptions, such as concluding that the stimulative effect of copyright extension on the creation of new works in New Zealand would be “negligible”, more importantly it has been shown recently that the economic model used contained major flaws in calculations. In a presentation to a Select Committee of the New Zealand House of Representatives on March 17 of this year, Dr. George Barker, Director of the Centre for Law and Economics at Australian National University stated that the 2009 government study contained an enormous mathematical error regarding the cost of music imports, while completely ignoring any benefit to New Zealand artists. Dr. Barker stated that the model was “fundamentally flawed” and had overestimated the import transfer cost by 230 times. He speculated that possibly a decimal point had been misplaced. When benefits for artists were added to the model, the result could well be a net benefit to New Zealand of up to $150 million per year rather than a net loss of $55 million.

This finding is nothing short of astounding and undermines the claims of groups such as InternetNZ that have based their criticism of copyright term extension on the faulty 2009 study. It makes the distorted calculations of the cost of copyright extension in Canada look even more ridiculous. There is a real danger in throwing around unsubstantiated numbers in terms of misleading the public and trying to stampede policy makers into unwise watering down of the existing rules governing copyright.

Singapore Study on Economic Value of “Fair Use”

As an example, a 2012 study by Roya Gafele and Benjamin Gibert on the economic impact of Singapore’s 2005 move to introduce a fair-use type regime to widen copyright exceptions claimed that expansion of the fair use doctrine there resulted in economic growth in the “copying technology industries”, such as disk drives and CDs, with no detrimental impact on the copyright industries. This report was seized on by advocates of wider fair-use to argue that “exceptions to copyright, such as fair use, over and over seem to show that fair use has a positive economic impact”. But does it?

A study from the Phoenix Center for Advanced Legal and Economic Public Policy Studies in Washington DC, published in February of this year, has concluded that the analysis undertaken by Ghafele and Gibert is of “stunningly poor quality”, rendering it worthless for policy purposes. The author, Dr. George S. Ford, Chief Economist of the Phoenix Center, cites a number of reasons for this conclusion, among them the fact that many extraneous factors were present before and after the changes in law in 2005, making it impossible to isolate the factors leading to “positive correlation” in terms of the impact on copying technology industries (“positive correlation” as opposed to a “causal relationship” being as far as Gafele and Gibert would go), resulting in the conclusions drawn being unsustainable. Another potential factor leading to some growth in the copying technology industries was the rise of piracy in Singapore as a result of the legal changes. It is significant that less than a decade after the new “fair use” policy was codified, the Singapore Government was forced to address the situation of widespread digital piracy, and the law was subsequently amended. As has been pointed out by industry observers, given Singapore’s unique situation as a crossroads, most of Singapore’s electronics production is exported or sold to visitors, thus having no relationship to the country’s copyright law. Here is yet another example of faulty data being used to undermine copyright protection, making the unsupported argument that weaker copyright protection will bring economic benefits.

Cost of Fair Use in Australia

I could go on. Fair use advocates in Australia claim that the current fair dealing system, which is under review by the Productivity Commission, discourages local investment, puts Australian companies at a disadvantage and is not good for business. No evidence is advanced to support these claims. Yet a new PwC Australia report that examined the cost of changing Australia’s fair dealing exceptions to a US-style fair use regime has concluded that such a change would cost the country $1.3 billion (AUD) in GDP losses, much of it as a result of the flood of litigation that would ensue from the need to clarify the limits of fair use. Where are the supposed benefits and are they worth the risk?

There will always be differing points of view among economists, but facts still matter. What is the lesson here? Use careful and substantiated research, be careful in citing sources, and avoid speculative extrapolation that leads to unfounded conclusions. Unfortunately many critics of copyright do not seem to have learned that lesson. Let’s get the facts straight instead of shooting from the hip.

© Hugh Stephens, 2016. All rights reserved.

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