Copyright Arbitrage

Abstract

Regulatory arbitrage — defined as the manipulation of regulatory treatment for the purpose of reducing regulatory costs or increasing statutory earnings — is often seen in heavily-regulated industries. An increase in the regulatory nature of copyright, coupled with rapid technological advances and evolving consumer preferences, have seen an unprecedented proliferation of regulatory arbitrage in the area of copyright law. This article offers a new scholarly account of the phenomenon herein referred to as “copyright arbitrage.”

Where economic arbitrage is often considered net-neutral, copyright arbitrage is uniquely concerned with initial allocations, such that their manipulation is unlikely to be net-neutral in effect. Specifically, the nature of copyright arbitrage as a means of either reducing regulatory costs or increasing statutory earnings necessarily contravenes one or another of copyright’s foundational goals of incentivizing the creation of, and ensuring access to, copyrightable works. In other words, if we assume current copyright protections are optimally set, this contravention renders copyright arbitrage net-negative on balance. Even if we instead assume those protections are suboptimal, the existence of copyright arbitrage nonetheless provides strong support for the classification (and clarification) of copyright as a complex regulatory regime in need of a strong regulatory apparatus.

Given the strengths and weaknesses of each of the legislature and the judiciary in copyright, this article suggests a three-pronged approach to identifying, and curbing, copyright arbitrage: First, courts should take a purposive, substantive approach to interpretations of the Copyright Act. Second, Congress should empower a regulatory agency with rulemaking and enforcement authority. Finally, antitrust law can help to curb the anticompetitive effects of copyright arbitrage resulting from legislative capture.

Keywords: copyright, intellectual property, arbitrage, law and economics, economics, administrative law, regulation, licensing

JEL Classification: A10, A11, A12, A13, A14, A19, B40, D01, D03, D11, D40, D43, D45, D61, D62, D72, D78, H10, K10, K11