by George Robert Barker
In two earlier papers2 I outlined how some stakeholders, large companies and private advocacy groups are currently engaged in a concerted effort to enact major copyright policy changes in Asia Pacific.
In this paper I review another new report this time written for Google in New Zealand, authored by Deloitte: Access Economics (2018) in New Zealand, entitled “Copyright in the digital age: An economic assessment of fair use in New Zealand”. This new report purports to assess the economic effect of introducing in to New Zealand law a US style statutory fair use exception to copyright found in the section 107 of the US Copyright Act of 1976 (henceforth called US Style fair use).
This new Deloitte New Zealand (Deloitte) report is in fact very similar to, and copies a lot of the material, from another paper in Australia written for Google in Australia, again by Deloitte: Access Economics (2018), also entitled ‘Copyright in the Digital Age’, which was the subject of one of my previous (second) review papers mentioned above Barker (2018). It is notable that as with the Australian report, the New Zealand report carries the same rider from Deloitte: “This report is prepared solely for the use of Google. This report is not intended to and should not be used or relied upon by anyone else and we accept no duty of care to any other person or entity. The report has been prepared for the purpose developing an analytical framework for assessing the introduction of fair use”.
In this paper I review a number of errors in the New Zealand report. Many of these errors replicate the Australian Report. However this report includes significant new material, as there are key new elements in the Deloitte New Zealand report to address.
The new material is in part due to differences between Australian and New Zealand law, and the fact Deloitte New Zealand replaced the anecdotal evidence in the Australian report, with anecdotal evidence from interviews in New Zealand to make its case more relevant to the local market. The New Zealand report also relied heavily on a model from Scotchmer (2004) to make the case for US style fair use. This was not presented or relied on in the Australian report. I therefore provide a number of additional sections on this in my review of chapter two of the Deloitte report. I also present a new critique of the Deloitte economic model of the responsiveness of US style fair use in my review of chapter five of the Deloitte report, and include a new and better model that clearly contradicts Deloitte’s predictions.
The main conclusions of my review of the Deloitte New Zealand Report outlined below however remain the same as that for the Deloitte Australia Report.
Deloitte New Zealand’s report claims that “the digital economy represents a big opportunity”3 for economic growth of the New Zealand economy, but that this growth cannot be maximized unless the legal framework supports innovation better. It suggests that adopting a US style fair use system will do just that. The report also claims that under New Zealand’s fair dealing system significant downstream value is lost, that cumulative innovation is reduced and that there would be no negative affect on creative output from introducing US style fair use. In fact, the report goes as far as to say creative output would increase under US style fair use, and that transaction costs would be lowered. As I will demonstrate here, these assertions are untrue and fundamentally flawed and this report should not be relied on by policy makers, – especially given the rider on the report noted above.
Assertion 1: Deloitte’s report claims that substantial downstream value is lost as a result of the current policy settings
Assertion 2: Deloitte’s report claims that this downstream value is lost due to the current policy settings reducing cumulative innovation, and asserts that US style fair use can remedy that.
Assertion 3: Deloitte’s report suggests that creativity is booming in the digital world and claims US style fair use will benefit creative output.
Instead of relying on reliable data and analysis, the Deloitte report relies on discredited earlier research like The Sky is Rising Report.10
Assertion 4: Deloitte’s report claims that transaction costs would be lower under a US style fair use system.
It is disappointing that the Deloitte report presents such an unbalanced picture of the impacts of Google’s proposal to adopt US style fair use in New Zealand, and that it doesn’t present any real new evidence. Given the big data capabilities of Google, and the financial capacity to support credible research, it is disappointing that this report doesn’t move the dialogue forward in a constructive and balanced manner.
A more useful contribution would be an examination of the practical limitations of licensing which may be addressed by digital technologies, including machine learning, artificial intelligence and distributed ledger in order to enhance innovation. The report’s blindness to the opportunities of licensing is fundamental to its misinterpretation of copyright which does not prevent any use; it merely requires the creator’s consent.
2 Barker (2016) and Barker (2018)
3 Deloitte NZ (2018) “Copyright in the digital age: An economic assessment of fair use in New Zealand” page v and page 20
4 Deloitte Access Economics NZ, ‘Copyright in the Digital Age An economic assessment of fair use in New Zealand’, page 56 https://www2.deloitte.com/nz/en/pages/economics/articles/copyright-nz-digital-age-google.html. The paper purports to explain what it calls “The economics of second generation innovation” on page 56 section A.3, and the role of copyright law and in particular fair use, using the analysis of Scotchmer (1991), that paper however related solely to patents. Scotchmer, S. 1991, ‘Standing on the Shoulders of Giants: Cumulative Research and the Patent Law’, Journal of Economic Perspectives, 5(1): 29-41.
5 ibid p53 and p54.
6 Yoo C. (2004) Copyright and product differentiation. (2004) 79 N.Y.U. L. Rev. 212
7 The paper places heavy reliance on the economic monopoly model of copyright adopted by the Australian Law Reform Commission (ALRC) and the Productivity Commission (PC). The PC looked at all forms of intellectual property and used an economic model that assumed IP creates monopolies. That may have been correct for patents, as noted above, but is certainly incorrect for copyright.
8 See Yoo C. (2004) on page 269 Yoo was writing in the USA and focused his discussion of the limited and declining role for copyright exceptions on fair use. However the same point is true both for: (1) the fair dealing exceptions, which are also damaging to the licensing market (as the collapse of the education publishing market following Canada’s extension of its fair dealing purposes to education demonstrates); and (2) the so-called internet safe harbours adopted in the US Copyright Digital Millennium Act that have spread around the world.
9 The production and post-production sector are involved in making screen productions, such as films, television programs or television commercials. Production refers here to all work leading up to and including filming, such as hiring crew, choosing locations and building sets. Post-production refers to all the work involved in putting scenes together to complete a production, such as editing, physical and digital effects, sound and picture post production.
10 The Sky Is Rising, authored by Mike Masnick (of the blog, Techdirt), for the Computer and Communications Industry Association (CCIA), that misrepresents the state of the entertainment industry in the United States, falsely claiming “there has been an explosion in creative output over the past couple of decades”. This report has been thoroughly discredited see Barker, George Robert, (2016) Claims to Expand Copyright Exceptions Driven by ‘Bad Science’ Available at SSRN: https://ssrn.com/abstract=2795498 or http://dx.doi.org/10.2139/ssrn.2795498
11 See George Barker & Ivan Png 2013, Unfair Evidence on Fair Use,3 June, available at https://law.anu.edu.au/news/cle/unfairevidence-fair-use; George R Barker 2013, ‘Agreed Use and Fair Use: The Economic Effects of Fair Use and Other Copyright Exceptions’ paper presented to the 2013 Annual Congress of the Society for Economic Research on Copyright Issues (SERCI), MINES ParisTech, Paris (France). Barker, George Robert, (2016) and Dr George S. Ford (2016) “The Economic Impact of Expanding Fair Use in Singapore: More Junk Science for Copyright Reform” Perspectives: Phoenix Centre for Advanced Legal and Economic Public Policy Studies http://phoenix- center.org/perspectives/Perspective16-01Final.pdf;
12 Ghafele, R. and Gibert, B.(2012) The Economic Value of Fair Use Counterfactual Impact Analysis In Singapore Oxfirst Available at: http://fordhamipconference.com/wp-content/uploads/2013/03/2013.ghafele.present.pdf page 5
13 This immediate short run or static loss of revenue and sales in the copyright market from statutory fair use laws outlined above will have a further dynamic effect of reducing investment in creative activities and creation of copyright works over time. The short run or immediate loss of revenue and sales in the copyright market from the fair use law will therefore have a negative feedback effect over time, reducing future copyright output and the overall size of the copyright market over time.
14 In 2012 the Australian Digital Alliance (ADA) commissioned and released two reports written by Lateral Economics (LE) that adapted and applied to Australia, the methodology used by Computer & Communications Industry Association (CCIA) in the US and EU – see Lateral Economics (LE) Report for Australian Digital Alliance (ADA) (2012) Excepting the Future: Internet Intermediary Activities and the Case for Flexible Copyright Exceptions and Extended Safe Harbour Provisions Part 1 http://www.digital.org.au/media/167 and Part 2 http://www.digital.org.au/media/166
15 See Barker (2017) ibid p4 and p33; Beard T. R., Ford G. S., and Stern. M. (2016) “Fair Use in the Digital Age” at http://www.phoenix-center.org/pcpp/PCPP51Final.pdf
16 see Delloitte Access Report pp 50-52
17 See George Barker (2019) Copyright Law and Copyright Exceptions. In Encyclopedia of Law and Economics, Marciano, Alain, Ramello, Giovanni Battista (Eds.) Springer-Verlag New York ISBN 978-1-4614-7754-9 forthcoming