Impose a Noncommercial Use Levy to Allow Free Peer-to-Peer File Sharing

Abstract:     
Noncommercial users of peer-to-peer systems, such as Kazaa and Gnutella, should be free to distribute and modify files as they wish. But providers of services and devices the value of which are substantially enhanced by such P2P file-swapping should be charged a statutory fee - what I term the Noncommercial Use Levy ("NUL") - set as a percentage of gross revenue. Likely candidates include Internet access, P2P software and services, computer hardware, consumer electronic devices (such as CD burners, MP3 players, and digital video recorders) used to copy, store, transmit, or perform downloaded files, and storage media (like blank CDs) used with those devices. Once collected, levy proceeds would be allocated among copyright holders in proportion to the popularity of their respective works and of user-modified version of their works, as measured by digital tracking and sampling technologies. I estimate that an average levy of some 4 percent of annual retail revenues of P2P-related goods and services would be sufficient to compensate copyright holders for the lost revenues they suffer as a result of NUL-privileged activity, at least for the next 5 years.

Following my description of the NUL and how it would operate, I consider some common criticisms that scholars have put forth regarding levies. These include the argument that the NUL would unfairly and inefficiently require low-volume users of copyright-protected material to subsidize both copyright owners and high-volume users. I then favorably compare the NUL with three proffered alternatives for resolving the P2P file sharing controversy. These include (1) "digital abandon," a regime in which the law accords authors neither proprietary control nor a right to receive remuneration for P2P uses of their work; (2) "digital lock-up," a regime in which proprietary copyright reaches full fruition as copyright holders use digital encryption to control all uses of their works; and (3) a regime of government compensation to copyright holders paid out of general tax revenues rather than a levy on P2P-related goods and services.

My proposed NUL is not a panacea. But a balance of trade-offs favors it over the alternatives.

JEL Classifications: K11, Z11

Accepted Paper Series