Fair Use as Innovation Policy

Abstract:     
American consumers increasingly take iPods, TiVos and similar private copying technologies for granted. Yet copyright law lacks a coherent account for this private, nontransformative copying. This article contends that copyright law's historical tolerance for such copying as a fair use has served as an important element of both copyright and innovation policy. This is because, to the extent it permits private copying, fair use creates incentives for technology companies to build innovative new products that enable such copying. Far from being an unfair "subsidy" from copyright owners to technology innovators, this aspect of fair use has yielded complementary technologies that enhance the value of copyrighted works. This fair use incentive to technology companies, moreover, is justified in light of a persistent market failure that would otherwise result in underproduction of certain kinds of socially-beneficial innovations. Finally, there are reasons to believe that technology innovators may not in many cases be able to appropriate to themselves the value of the fair uses that their technologies enable, because those uses will not be part of their marginal costs of production. To the extent that the value of these fair uses ends up being captured by the public, rather than technology innovators, this also furthers the purposes of copyright law.

Keywords: copyright, fair use, innovation, private copying, market failure

Accepted Paper Series