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Commercialization Copyright Copyright Licensing Copyright Theory History of Intellectual Property Innovation Intellectual Property Theory Internet Law and Economics Uncategorized

Copyright’s Republic: Promoting an Independent and Professional Class of Creators and Creative Businesses

By Mark Schultz and Devlin Hartline

The following essay is the first in a series of CPIP essays celebrating the 225th anniversary of the Copyright Act by recognizing the rich purposes, benefits, and contributions of copyright. This series of essays will be published together in a forthcoming collection entitled “Copyright’s Republic: Copyright for the Last and the Next 225 Years.”

The current academic and policy discussion of copyright focuses on balancing the gross economic benefits and harms of copyright. A more complete understanding of copyright can account for both the needs and rights of individuals and the public good. Copyright is important because it helps creators make an independent living and allows them to pursue and perfect their craft. In short, it enables a professional class of creators.

The creative industries benefit from this independence too. They must find a market, but they are not beholden to anybody but their customers and shareholders in choosing what creative works to promote. This enables a richly diverse cultural landscape, with movie studios, television channels, record labels, radio stations, and publishers specializing in vastly different types of material.

To understand the importance of a professional class of creators, it’s helpful to understand the paradoxical role of money in creativity. While some are quick to say, “It’s not about the money,” in some essential ways, it really is about the money. Certainly, for some creators, the proposition is straightforward. As the eighteenth-century poet Samuel Johnson famously and cynically proclaimed: “No man but a blockhead ever wrote, except for money.” For countless others, however, creative endeavors hardly bring riches. And even commercial creators frequently leave money on the table rather than do something they find distasteful. Nevertheless, money is important.

This seeming paradox can be resolved by considering the role of money overall in creative work. We can take creators at their word: There are many nonmonetary factors that influence and incentivize creativity, such as love, independence, curiosity, and passion. In fact, thinking about the money can hurt the creative process. But while creators may not “do it for the money,” the money is what makes it possible for them to spend their time honing skills and creating high-quality works. The money endows a professional class of creators and the various creative industries and channel partners that support them. This vibrant ecosystem – empowered by copyright – generates a rich diversity of cultural works.

Creative individuals, like every other human being, need to eat, and, like most of us, they need to work to eat. The real question is, what kind of work are they able to do? Some notable creators have worked in their spare time, but many of the greats thrive most when they can merge their avocation with their vocation. They get better at creating when their work is creation.

There is, of course, more than one way to fund professional creation – patronage, tenured university teaching, and commercial markets founded on copyright are notable ways to do it. One of the virtues of a commercial property rights system is that it fosters creative independence.

The independence afforded by a commercial system based on property rights is highlighted by contrasting it with the greater constraints under other systems. Before the first modern copyright statute passed nearly three centuries ago, many creators depended heavily on the patronage system. Wealthy patrons funded creative efforts by either commissioning works directly or employing creators to staff positions where they were given time to develop new works. To be sure, many great works were produced under this system – the musical compositions of Johann Sebastian Bach and Joseph Haydn stand testimony to this fact.

However, the economic benefits of patronage often came at the expense of the personal autonomy and integrity of these creators. As the old adage goes, “he who pays the piper calls the tune.” Sometimes these constraints were quite direct. When Johann Sebastian Bach attempted to leave the service of one of his patrons to go work for another, the former patron refused to accept his resignation and briefly had him arrested.

More important, patrons had tremendous say in the work of composers. They could decide what and when the composers wrote. They might not appreciate the value of the works created for them. For example, Bach’s Brandenburg Concertos are now recognized as works of genius. Unfortunately, the noble to whom they were dedicated, Christian Ludwig, the Margrave of Brandenburg, was apparently indifferent. The score sat on his shelf, unperformed and unappreciated, for decades. The concertos were not published until nearly 150 years later, after being rediscovered in an archive.

For these reasons, many composers dreamed of financial independence. For example, the composer Joseph Haydn once celebrated leaving behind the patronage of the Esterhazys, which was rather secure and relatively undemanding. Haydn moved to London, where he became the eighteenth-century equivalent of a successful rock star – in demand for his services and making lots of money. London had a private market – not yet so much supported by copyright and publishing as by private commissions and paid performances. In any event, Haydn prospered. In fact, at one point he wrote letters urging his friend Mozart to join him in London as soon as possible, unabashedly rhapsodizing over the money to be made there.

Still, he was now on his own, earning his own pay rather than being kept by a patron. For Haydn, artistic independence trumped economic security:

How sweet this bit of freedom really is! I had a kind Prince, but sometimes I was forced to be dependent on base souls. I often sighed for release, and now I have it in some measure. I appreciate the good sides of all this, too, though my mind is burdened with far more work. The realization that I am no bondservant makes ample amend for all my toils.

Haydn, Letter to Maria Anna von Genzinger, September 17, 1791

The modern copyright system, beginning with the English Statute of Anne in the early eighteenth century, freed creators from the restrictive patronage system. Like patronage, copyright offered creators the financial support they needed so that they could devote themselves to their craft. Unlike patronage, however, it gave them much-needed personal autonomy and artistic independence.

Beethoven, a young contemporary and student of Haydn working at the end of the patronage era, was able to support himself. His facility at performing his own difficult work helped him make a living. But he also used and supported copyright. He would often publish his works first in England to ensure that they received copyright there. He also lobbied the German states for a copyright law.

For Beethoven, too, money was important for the artistic independence it provided:

I do not aim at being a musical usurer, as you think, who composes only in order to get rich, by no means, but I love a life of independence and cannot achieve this without a little fortune, and then the honorarium must, like everything else that he undertakes, bring some honor to the artist.

Ludwig van Beethoven, Letter to publisher, August 21, 1810

The era of patronage was long ago, but human nature has not changed in the decades and centuries since. Creators still face the dilemma of trying to support themselves while maintaining independence. Every economic arrangement imposes some constraints, but some impose more than others.

A good example of how modern copyright enables individual creators to enjoy independence while supporting themselves is provided by the career of photographer Michael Stern. Stern is a hard-working creative entrepreneur – one 30-minute video he made required 103,937 photographs and 900 hours to produce. Stern doesn’t depend on subsidies or grants; rather, he values the independence he gets from being self-employed. He explains:

“The real benefit of being a self-employed photographer,” he says, “is that I can move through life on my terms and do what I want in the way I want to do it. That freedom drives me.” But, it’s not for everybody, he warns. “Nobody loves you like your mother, and even sometimes not even her. So ya gotta do it for yourself. If you don’t, you won’t have the drive needed to reach your goals.”

Instead of creating works that conform to the limited demands of their patrons, creators supply their works to the marketplace, where the demands of consumers are far more diverse. This proves beneficial to creators and society alike. Creators from all walks of life and with all sorts of interests can find the market that will support them, and this fosters a rich cultural landscape encompassing multiple political and social views.

Copyright fulfills its constitutional purpose of promoting progress by incentivizing creators through the grant of marketable rights to their works, but these rights do more than simply lure creators with the hope of economic benefits. Just as crucially, these rights endow creators with substantial personal autonomy while respecting their individuality and dignity. This fosters a creative environment conducive to the creation of high-quality works with enduring social value.

Copyright is a market-based system that supports a professional class of creators who rely on the value of their rights in order to make a living. These marketable rights have also given rise to entire creative industries that lend critical support to professional creators, and through the division of labor these industries enable professional creators to accomplish great feats that would be impossible if they worked alone.

The numbers testify to copyright’s success in helping to create a professional class of creators in the United States. As a recent report on the creative industries enabled by copyright found, there are 2.9 million people employed by over 700,000 businesses in the United States involved in the creation or distribution of the arts. They accounted for 3.9 percent of all businesses and 1.9 percent of all employees.

This creative ecosystem enables professional creators to produce the sorts of high-quality works that society values most. The popularity of these works in the marketplace makes them commercially valuable, and this in turn compensates professional creators and the creative industries that support them for creating the works that society finds so valuable.

This virtuous circle benefits creators and the public alike – just as the Framers had envisioned it. Copyright is not only doing its job, it is doing it well. The number of works available in the market is incredible – certainly more than anyone could ever possibly consume. And the diversity of voices able to connect with audiences in the marketplace makes our cultural lives all the more fulfilling.

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Commercialization Copyright Copyright Licensing Copyright Theory History of Intellectual Property Innovation Intellectual Property Theory Internet Law and Economics Uncategorized

Copyright’s Republic: Copyright for the Last and the Next 225 Years

By Mark Schultz and Devlin Hartline

This past Sunday marked the 225th anniversary of the first U.S. Copyright Act. As we move well into the twenty-first century, a claim that copyright no longer “works” in the “digital age” has become commonplace – so commonplace, in fact, that it’s arguably the dominant cliché in modern copyright discussions. Like many clichés, it contains a tiny grain of truth wrapped in a huge ball of glib, unhelpful, and even harmful generalizations.

Before one can understand what the future of copyright and the creative industries could and should look like, one should first appreciate what the first 225 years of copyright has given to the United States. Copyright laid the foundation for, and continues to support, the largest, most enduring, and most influential commercial culture in human history. That commercial culture is uniquely democratic, progressive, and accessible to both creators and audiences.

Could the Copyright Act profitably be revised? In theory, perhaps, and thus there is a grain of truth in the clichés about modernizing copyright. The 1976 Copyright Act and many of its subsequent amendments are overburdened with detailed regulatory provisions contingent on outdated assumptions about technology and business. They also sometimes embody political compromises that reflect circumstances that have long since passed. However, we should pause before hastening to replace yesterday’s contingencies with those of today. And we should also pause – indefinitely – before overturning the entire enterprise on the grandiose assumption that the Internet has changed everything.

Before we can understand what the future of the creative industries could and should look like, we need to appreciate what we have achieved and how we achieved it. The American creative industries are everything the Founding generation that drafted the 1790 Copyright Act could have dreamed – and so much more. Through its press, news media, and publishing industries, the U.S. has perpetuated the spirit of the Enlightenment’s Republic of Letters, with lively, reasoned, and sustained public discussions and debates about values, science, and politics.

The U.S. has produced a creative industry that enlightens and edifies while also diverting and distracting billions of people with its cultural products. This vast commercial creative marketplace allows professional writers, artists, musicians, actors, filmmakers, game designers, and others to make a living doing something that fulfills them and their audience. The U.S. has achieved much based on the twin foundations of free expression and copyright, securing the right to express oneself freely while securing the fruits of the labors of those who craft expressions.

The past thus has much to teach the future, while inevitably yielding to change and progress. Copyright should continue to secure the many values it supports, while being flexible enough to support innovation in creativity and business models.

On this occasion of the 225th anniversary of the first U.S. Copyright Act, the Center for the Protection of Intellectual Property (CPIP) is recognizing the essential contribution of copyright and commercial culture to the United States. To that end, CPIP will be publishing a series of essays highlighting the fact that, contrary to the facile narratives about copyright that dominate modern discussions, copyright isn’t simply a law designed to incentivize the creation of more creative stuff. It has much richer purposes and benefits. Copyright:

  • Supports a professional class of creators.
  • Enables a commercial culture that contributes to human flourishing.
  • Serves as a platform for innovation in both the arts and sciences.
  • Promotes a free republic.

U.S. copyright law has achieved these lofty goals for the last 225 years, and it will continue to do so—but only if we let it and help it do so. In many important ways, U.S. culture and politics has been so shaped by the commercial culture created by copyright that it rightly can be called Copyright’s Republic.

Part I: Copyright Promotes an Independent and Professional Class of Creators and Creative Businesses

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Biotech Commercialization Conferences Copyright Innovation Intellectual Property Theory Inventors Uncategorized

The Common Economic Case for Patents and Copyrights

This is the second in a series of posts summarizing CPIP’s 2014 Fall Conference, “Common Ground: How Intellectual Property Unites Creators and Innovators.” The Conference was held at George Mason University School of Law on October 9-10, 2014.  Videos of the conference panels and keynote will be available soon.

The opening panel of CPIP’s 2014 Fall Conference examined the common economic case for patents and copyrights. Unfortunately, IP policy discussions often include a false narrative that intellectual property produces monopolies that harm innovation and economic growth.  The panelists, Troy Dow (Disney), Professor Stan Leibowitz (University of Texas at Dallas), Jon Santamauro (Abbvie), and Professor Jay Kesan (University of Illinois College of Law), highlighted how this narrative, in fact, ignores the essential role that intellectual property serves in enabling the creation, development, and commercialization of both inventions and creative works.

Kesan explained how patents provide economic benefits from both an ex-ante and ex-post perspective. Ex-ante, a strong patent system provides incentives to create, invest in R&D, and finance further innovation. While there are other ex-ante motivations to invent (such as a first mover advantage, the ability to secure trade secrets, and reputational advantages), Kesan argued that innovation is best facilitated ex-ante by a combination of all of these incentives plus the incentives created by patents. The ideal system incorporates a heterogeneous mix of these incentives to invent—in the absence of patents the level of disclosure decreases and innovation slows down.

Patents also provide numerous ex-post benefits. Patents facilitate coordination with producers and perform important signaling functions. They additionally allow for important private ordering by giving inventors increased control over who uses their invention and under what circumstances. In many industries, this is essential to collaboration, interoperability of products, and the aggregation of complementary benefits.

Jon Santamauro discussed the role of patents in the pharmaceutical industry. The exclusive property rights created by patents encourage R&D and serve as a crucial catalyst for new discoveries and businesses.  Patent protection is particularly important in the pharmaceutical industry due to the high-risk, lengthy, and costly process necessary to develop new, safe, and effective drugs.

Pharmaceutical companies developing new drugs screen thousands of potential compounds over 6-7 years of testing to gain FDA approval, at an average cost of about $1.2 billion per drug. The reasons for the high R&D costs?  Out of 10,000 initial molecules tested, only 6 go to clinical trials, and of these, only 1 is approved by the FDA for use in the healthcare market.  Of the 1 out of 10,000 drugs that make it to market, only 2 out of every 10 medicines produce enough revenues to recoup the initial high costs of R&D and also provide revenue to invest in more R&D. In short, pharmaceutical and biotech firms face very high risk—high R&D expenditures and very few market successes.  Strong IP protection helps offset this risk and encourages further investment and research.

Leibowitz explained that one of the primary criticisms of copyright—that it grants a monopoly, and that monopolies are intrinsically bad for society—is utterly thoughtless. A property right is, by definition, a monopoly of sorts. This criticism is an indictment of property rights on the whole, including real property rights.  This is even more inapt to copyright, as copyright does not restrict entry and does not provide an economic monopoly.

Leibowitz also addressed the common argument that IP isn’t necessary because inventors and creators would continue inventing and creating even if they didn’t get to own the fruits of their productive labors.  While some innovative and creative activity would undoubtedly continue, many innovators and creators do not simply create for creations sake. They need salaries (like everyone else), and strong IP rights allow them to capture the value of what they produce.

Finally, Troy Dow highlighted the benefits of strong copyright protection in the movie industry. Bringing a film to market involves substantial risks that many people do not appreciate.  He explained that studios perform the same market function as venture capitalists: they invest in  films at the birth of the original idea and then provide financing all the way through the final showing in movie theaters. This financing comes from banks, other investors, or other studios in order to spread the risk. Dow analogized a new film project to a new startup company, as each new film has its equivalent of a CEO (producer), COO (director), and thousands of employees and independent contractors.  And just as with startup companies, everyone must be paid before the film makes a single cent in revenue.

A single film can cost over $200 million to produce. While a particularly big hit can gross over $350 million after long-term distribution (including on-demand and DVD sales), only 4 out of every 10 movies recoup their investment at the box office. Copyright thus serves the vital function of making it possible for studios to make substantial, upfront investments with the hope of a return on this investment and a sufficient profit to reinvest in further film projects.

Disney’s IP is enormously valuable and is the dominant driver of their business. Even though only $6 billion of Disney’s $45 billion in revenues last year came directly from movie revenue, the movies, including the stories they tell, are at the heart of the Disney experience.  The movies form the basis for other products, media networks, theme parks, and licensing. A strong copyright regime allows studios like Disney to keep producing both creative works and the myriad other products and experiences that so many of us enjoy.

Together, the four panelists illustrated that the economic foundations of IP are equally applicable to the creative industries as they are to the innovation industries.  By securing for inventors and creators the value of their productive labors, IP provides the economic bedrock of our creative and innovative economy.