[Infowarrior] - The New Perverted Reverse Value Theory of Copyright

[Richard Forno]

The New Perverted Reverse Value Theory of Copyright

http://williampatry.blogspot.com/2008/04/new-perverted-reverse-value-theory-
of.html


Candidates for a unified theory justifying copyright in all its
manifestations include the value of the copyright owner¹s efforts in
creating the work. This value can take a natural rights form ­ the value of
genius ­ but it can also take the more mundane Lockean agricultural form ­
copyright owners are the sowers of their intellectual labor.

The value theory of copyright rightfully has considerable appeal. One can
even correlate the value theory to fundamental concepts of copyright like
originality: where the copyrighted owner has added expression, that
expression is protectible; when expression hasn¹t been added, there is no
protection. The correlation breaks down in areas like ideas, which while
perhaps the most innovative and valuable part of a given work will
nevertheless remain unprotected; the value theory has to rely on other
theories to explain the exclusion of protection for ideas. And the pure
value of labor also leads to protection for sweat of the brow. The value
theory is both over- and underinclusive and therefore cannot play the role
of a unified theory.

There is also a reverse value theory, one that has been invoked sketchily in
the past, but has now been officially launched on a grand scale in the UK.
The reverse theory is the subject of this post. In the past, courts have on
occasion found infringement based merely on the fact of copying: if
defendant went to the trouble to copy something from plaintiff, then the
copied material had value to defendant, and defendant should lay claim to
recovering the lost value. This was approach represented a negation of the
originality requirement and of the requirement that what is taken be a
substantial amount of expression; but for those judges who preferred moral
simplicity to substantive law, the copied=value=infringement approach proved
irresistible. Note that the value spoken of was the value to defendant, not
plaintiff. The portion taken could have been quite insignificant to
plaintiff¹s work, another reason the approach conflicted with general
principles of copyright law, which bases infringement on the importance of
the portion taken to plaintiff¹s, not defendant¹s work.

The new reverse value approach does to consumers what the infringement
approach did to defendants, and then some. On January 8th of this year, the
British UKIPO launched a consultation process as a follow-up to the December
6, 2006 Gowers report. One of the recommendations in the report (see page 2,
paragraph 6) was this:

It is proposed to create a new exception that would allow consumers to make
a copy of a work that they legally own, so that they can make it accessible
in another format for playback on a device in their lawful possession. The
exception would apply to personal or private use. The owner would not be
permitted to share it more widely (for example in a file sharing system or
on the internet). Multiple copying would not be allowed.

The proposed exception is very narrow. The consumer would have to own a
legal copy. The format (and perhaps space)-shifting would have to a one-off
and for personal use, and the copy would have to made for a device the
consumer legally possesses. There are certainly more liberal approaches to
format-shifting one could propose, but as approaches go, if personal use
means anything it has to fall within this modest proposal.

Comments on this process of the consultation closed last Tuesday. One of
those submitting comments was the Music Business Group (MBG), a coalition of
UK music publishers, record labels, and licensing organizations. Here is the
link. The MBG takes a negative view of the proposed exception, that is
unless its members get a license fee. But how to justify such a license fee
for consumers making a single copy from a lawfully owned copy on to a
lawfully possessed device for personal use? Here is the MBG¹s introductory
bulletin points on this effort:

• Unquestionably, there is value produced by the ability to format shift for
both consumers and commercial enterprises which directly arises from the
transferability of music
• It is imperative that creators and performers should benefit from this
value; ultimately it is their creativity which underpins the entire value
chain
•The only solution which achieves this goal is a flexible and market-led
approach based upon a business-to-business relationship.
(page 3).

At this point, some readers might be confused: what is the value produced by
consumers? Aren¹t those who use copyrighted works without permission or
payment usually described as parasites, pirates, or thieves, and hardly as
value-creators? And haven¹t we been told for years that it is consumers,
especially via P2P file sharing, that is the cause of the record industry¹s
decline?

Behind the MBG¹s new approach is a plan to pervert language in order to
achieve an otherwise politically unacceptable result. The plan began in the
summer of 2007, with what was called the Value Recognition Strategy
(referred to in MBG¹s submission to the UKIPO). The strategy was prepared by
Capgemini consultants (no surprise there: copyright, like political
campaigns, is now the province of focus group generated slogans and
messaging), and is designed to examine the ³value gap,² which is defined as
the amount of decline in UK record sales since 2004. A private study
conducted by Capgemini for copyright owners, and discussed here at the UK
Register website is said to have revealed that ³format changes and price
pressure from discounted CDs on sale in supermarkets, are most to blame for
this Œvalue gap.² Format changes here refers to the unbundling of albums
into per song sales, and not to the format shifting proposed in the UKIPO
exception, although as we shall see the two are very much related in the
MBG¹s view. The article in the Register states:

Capgemini calculates that of £480m lost to the industry since 2004, £368m
was the result of format changes: principally the unbundling of the CD into
an "a la carte" selection of digital songs. Of the remainder, 18 per cent
was lost to piracy. And that suggests that simply going after illegal
downloaders won't save the British music business.

So what is the Value Recognition Strategy, then? To go after iTunes as the
Register article notes, but that means not shutting it down ­ since the site
is licensed -- but instead getting a cut of the revenue iTunes generates.
There have been efforts to do this in the past, under the same value
approach. For example, there have been efforts to obtain a cut of the
profits from the sale of iPods. One head of a U.S. music company was quoted
as saying with respect to this effort, ³We felt that any business that¹s
built on the bedrock of music we should share in.²

This statement is indicative of why the corporate music industry is on its
death bed: after the industry insisted in preserving a business model that
consumers didn¹t want (album sales), it fought the business model consumers
do want (per song downloads) resulting in a flight to unauthorized services
that gave consumers what they wanted (P2P), and then when someone else came
along and saved the industry from itself by creating an authorized way to
get consumers to pay (iTunes), the industry now insists that it is being
ripped off, that it is being deprived of ³value² that belongs to it.

Apple¹s iTunes business was built from scratch by a technology company, not
by an entertainment company, not a consumer electronics company (or a hybrid
like Sony), and not by a traditional retailer ­ indeed, it bears noting that
the traditional record store chains in the United States ­ based on the sale
of albums -- are out of business, and the few foreign ones (e.g., Virgin)
that remain, remain because they sell video DVDs and clothing. In February
2008, a mere five years after the launch of iTunes, Apple has become the
word¹s largest source of music purchases (surpassing Wal-Mart), and it did
so by sinking its own money and creativity into hardware and software, none
of which any copyright owner contributed to, and by developing a business
model that copyright owners had fought tooth-and-nail. Nor apparently is it
enough for copyright owners that they reportedly get 70% of all iTunes sales
with no development costs, no overhead costs, no server costs, and without
bearing any of the expenses of Apple¹s technical work. Even more: on the
record labels¹ side of production, the 70% of iTunes revenue they are
receiving is made off of a product that requires no packaging, warehousing,
shipping or other associated costs.

So, back to the value recognition strategy and the MBG¹s submission to the
UKIPO. That submission is the public face of what has previously been
private, and it is not a pretty sight: faced with its own consultant¹s
conclusion that only 18% of the songs on iPods and other such devices are
³pirated,² the industry wants to save it self from its own failures by
getting a second license fee; recall that the UKIPO¹s proposal was limited
to making one copy from a lawfully owned copy for personal use. The industry
got paid once for sale of the lawful copy and now wants a second bite at the
same apple (pun intended). And why? Why because the market for iTunes and
the ability to transfer DRM-free copies demonstrates that consumers ³value²
getting what they want; because they ³value² getting what they want, that
value belongs to the music industry.

What am I talking about, you may ask? The MBG states on page 13, paragraph
20, ³Consumers enjoy and value the transferability of music.² Note the word
value here. But what does the word mean? The MBG submission explains on the
next two pages, paragraphs 28-30:

28. Another way of approaching the question is to ask how much less value
would consumers attach to devices ­ MP3 players, computer hard drives, CD
and DVD burners ­ if music were not transferable?
29. In 2003 Sony introduced digital music versions of its Walkman player,
called the ³Network² Walkman. Sony¹s players were initially compatible only
with Sony¹s proprietary music format. In order to move tracks from CD to the
Sony ATRAC3 players, customers were forced to use specific Sony software.
30. Purchasers of Sony Network Walkman players were not easily able to play
podcasts, tracks copied from friends¹ hard drives, tracks downloaded from
filesharing networks and so on. Eventually, in August 2007, Sony responded
to the business failure and announced that future players would support the
more common Windows Media and MP3 formats as well as AAC which is used in
the iTunes store and jukebox. ³By going open-standard, Sony will increase
customer choice and make its audio players more versatile,² said [a Sony
representative]. ³We did something perfectly simple. We listened to what our
customers want.²

Of course, it took Sony four years to listen to what it customers wanted, a
period of time in which iTunes was developed and came to dominate the field.
But the conclusion the MBG draws from this experience is not what you would
think: Sony¹s failure to listen its customers shows that customers valued
something different than what Sony valued, and therefore, as a direct result
of Sony listening to its customers, Sony¹s customers now possess value that
Sony should recapture.

I am not exaggerating, which is why I quoted all of paragraphs 28-30. Most
people, and hopefully government policy makers, would think the existing
situation is a win-win: Sony sells more machines and Sony music, and
consumers get what they want. But that is not how the MBG sees things. They
see the Sony experience as an example of what is wrong with the music
industry: now that consumers have what they want, through lawful sales from
Sony, Sony is losing value to its customers. This ³imbalance² as MBG
describes it can only be corrected through a new levy on customers for
having the audacity of forcing Sony to give them what they want.

In short, the ³value² the MBG is demanding that the UK government recognize
through the imposition of a new levy is the market place value that Sony
willingly gave to its customers, and which it trumpeted as an example of
listening to those customers. From customers¹ perspective, this is surely an
unusual way to lose through winning. The new levy approach, the MBG
concludes ³provides a future proof, yet easy to manage system that is
responsive to market realities Š .² (page 17, paragraph 42).

The imposition of a levy for the making of one personal copy of a lawfully
purchased work for format-shifting is not even remotely a market reality,
much less responsive to one. Instead, the MBG¹s proposal seeks to create an
obligation that doesn¹t and should never exist: even counter-reformation
opponents of limitations and exceptions have to acknowledge that in the
drafting of Article 9(2) of the Berne Convention in 1967, private use
exceptions were common in national laws. The MBG¹s proposed levy is to
create value for copyright owners where none exists: in the past, the
industry made money by reselling consumers the same product over and over
again: 78s to 45s; 45s to tape; tape to CD, and most importantly all of them
in album format, a proven bad value to consumers. The incredible amounts of
ink spilled about and suits filed over the Mp3 format have little to do its
with digital format, and everything to do with breaking down the single
business model that has sustained the music industry for many decades, album
sales. It is the decline in album sales that the industry¹s own Value
Recognition Strategy acknowledges is responsible the principal decline in
the industry¹s income, not file sharing and certainly not format shifting.

What this means to me is not that consumers have captured value that belongs
to the industry, but rather that consumers have long been deprived of the
value of their money, and are finally beginning to get something close to
the true value of the product being sold. It is that market reality that
scares the you-know-what out of the MBG, and that forced it to turn to a
consultant to come up with a theory to sell to government policy makers as
an example of the sky is falling from yet another effort to blame consumers
for the industry¹s own shortcomings. The proposed solution by MBG is an
attempt to obtain a government-mandated subsidy by consumers of an industry
that is finally being forced to give consumers what they want. There is no
value for policy makers in mandating such an undeserved subsidy. And, as a
policy matter, the theory on which it is based, namely that every
unauthorized use by consumers is the misappropriation of value properly
owned by copyright owners, has no limit; it applies to book reviews, news
stories, quotations, parodies, the first sale doctrine, and a limitless term
of protection (note the connection between the value theory and the
concurrent effort at term extension for sound recordings in the UK and
Europe). Even Blackstone¹s view of property as the sole, despotic dominion
of the owner never reached this far.

Hopefully the UKIPO will reject the proposed levy and the theory out of
hand. Rejection would be a valuable lesson.