Copyright as Entry Policy: The Case of Digital Distribution

Picker, Randal C., "Copyright as Entry Policy: The Case of Digital Distribution" (April 2002). The Antitrust Bulletin, forthcoming

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Abstract

In this paper, I consider how copyright law influences entry in digital distribution of music and video. The subject encompasses past and current successes in distribution-cable TV and the VCR-current and recent controversies-Napster and the pending cases addressing its successors-as well as possible next steps in distribution, such as web radio, interactive music services and the digital video recorder.

Section I of the paper considers six ways that online distribution matters: 1. as a new medium, online distribution adds to the existing set of versioning opportunities for producers; 2. distributional bottlenecks are weakened and gatekeeping roles minimized; 3. sellers receive direct, detailed information about consumer preferences; 4. bundling and packaging opportunities are greatly expanded; 5. pay-per-view or pay-per-listen is easier to implement; and 6. it is possible to devolve control over distribution through peer-to-peer distribution.

Section II of the paper considers two cases of distribution entry, devices and online radio. Much of the relevant distribution entry policy is set through copyright law. For new devices that facilitate distribution-the VCR, Napster and the DVR-key features of the reigning copyright test are not sufficiently demanding of entrants. The Sony test for contributory copyright infringement-whether the object in question is capable of substantial noninfringing uses-is far too weak and fails to take into account at all the scope of the infringing uses that will result. It is bad third-party copyright policy. Sony may fare better as a matter of independent entry policy and the flexible fair use doctrine of copyright law creates room for courts to operate in setting that policy in an economically sensible fashion. As to online radio, we have severely constrained potential entry in digital radio through recent copyright enactments. Incumbent over-the-air stations are substantially favored and diversity and entry are limited by statutory fiat. The current statutes as written are troubling enough, but the statutory distortions are being exacerbated through the royalty setting process before the Copyright Arbitration Royalty Panel.

Keywords: antitrust, intellectual property, Internet, cyberspace

Facts on copyright

• While governments had previously granted monopoly rights to publishers to sell printed works, the modern concept of copyright originated in 1710 with the British Statute of Anne.
• Copyright (international symbol: ©) is a set of exclusive rights granted by governments to regulate the use of a particular expression of an idea or information. At its most general, it is literally "the right to copy" an original creation. In most cases, these rights are of limited duration.
• First-sale doctrine Copyright law does not restrict anyone from reselling legitimately obtained copies of copyrighted works, provided that those copies were originally produced by or with the permission of the copyright holder. It is therefore legal, for example, to resell a copyrighted book or CD. In the United States this is known as the first-sale doctrine, and was established by the courts to clarify the legality of reselling books in second-hand bookstores.

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