Fair Use and Copyright Protection: A Price Theory Explanation

31 Pages Posted: 16 Feb 2001  

Ben Depoorter

University of California Hastings College of Law; Ugent - CASLE; Stanford CIS

Francesco Parisi

University of Minnesota - Law School; University of Bologna

Abstract

Copyright scholars suggest that computer technology has reduced transaction costs associated with copyright transfer, allegedly eliminating the need for the fair use doctrines that were developed to allow limited use of copyrighted material in situations where the transaction costs of securing authorized use would be prohibitive. According to this emerging view, in an ideal world with no contracting costs, third party use of copyrighted material could realistically only take place with the express consent of the copyright holder. This would give the author absolute power to dispose of his work, including the right to veto uses, without the possibility of a fair use override of any sort.

This paper shows the limits of such transaction-cost based arguments. If transaction costs provide the dominant economic justification of fair use doctrines, an exogenous reduction of such transaction costs would limit the scope and application of the defense of fair use. Nevertheless, in this paper we suggest that, when viewed in light of the anticommons theory, fair use doctrines retain a valid efficiency justification even in a zero transaction cost environment. Fair use defenses are justifiable, and in fact instrumental, in minimizing the welfare losses prompted by the strategic behavior of the copyright holders. Even if copyright licenses can be transferred at no cost (for instance, in a click and pay frictionless computer world), the strategic behavior of the copyright holders would still create possible deadweight losses.

In this context we identify a number of critical variables that should guide and constrain the application of fair use doctrines. These variables include (a) the number of copyright holders; (b) the degree of complementarity between the copyrighted inputs; (c) the degree of independence between the various copyright holders in the pricing of their licenses; and (d) ability to price discriminate.

Suggested Citation

Depoorter, Ben and Parisi, Francesco, Fair Use and Copyright Protection: A Price Theory Explanation. International Review of Law and Economics, Vol. 21, No. 4, pp. 453-473, May 2002; George Mason Law & Economics Research Paper No. 01-03. Available at SSRN: https://ssrn.com/abstract=259298 or http://dx.doi.org/10.2139/ssrn.259298

Ben Depoorter (Contact Author)

University of California Hastings College of Law ( email )

200 McAllister Street
San Francisco, CA 94102
United States

Ugent - CASLE ( email )

Universiteitstraat 4
Belgium

Stanford CIS ( email )

559 Nathan Abbott Way
Stanford, CA 94305-8610
United States

Francesco Parisi

University of Minnesota - Law School ( email )

229 19th Avenue South
Minneapolis, MN 55455
United States

University of Bologna ( email )

Piazza Scaravilli 1
40126 Bologna, fc 47100
Italy

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