Policy

The fair use or fair dealing debate continues Down Under

by Hugh Stephens

New Zealand has just launched its long-anticipated Copyright Act review, releasing an Issues Paper on November 23. This paper kick-starts a consultation process that will continue through to until next April. The release of the paper is the first stage of consultation in the review of the Act, and involves “identifying problems with the way the Copyright Act is operating or opportunities to improve its operation”. The paper outlines the background of copyright law in New Zealand, puts forward a number of factors potentially affecting the application of the law, and poses no less than 97 questions on which the Ministry of Business, Innovation and Employment is seeking input. These questions are wide-ranging and cover everything from the scope of fair dealing exceptions to the potential impact of copyright on Maori culture.

Interestingly, while the much-debated issue of fair use is raised in the discussion paper, the paper slides over the topic by noting that “we need a much better understanding of the problems with the current exceptions regime before we consider alternative options…Submitters should, therefore, focus on the problems or benefits with the current situation…rather than on reasons why New Zealand should incorporate a fair use exception.” Accordingly, no questions are specifically posed with regard to fair use. This is reassuring and suggests that, like Australia, New Zealand is not currently contemplating upending a system that seems to be working pretty well for both its tech industry as well as its creative sectors.

The Ministry’s paper makes it clear that, from its perspective, the prime policy motivation for copyright law in New Zealand is economic, “to incentivise the creation or dissemination of works that would not otherwise be created or disseminated”, while taking into account the opportunity cost for users who—but for copyright–would otherwise have unimpeded use of the protected work. From this definition it is apparent that economic factors will loom large in developing policy recommendations. Indeed, the paper urges stakeholders to submit economic analyses in concrete terms;

“Your experiences can be used as evidence of a problem and can be a valuable source of information. This type of evidence will be more compelling if you describe the practical impacts of the current regime and the nuts and bolts of how it works, e.g. as a result of X, I need to do Y, which costs me Z amount of time and/or $.”

The result of this economic focus will inevitably translate into weighing the impact that copyright policy has on economic activity in New Zealand–on jobs, economic activity, value created and GDP.

I am not personally convinced that putting everything on to an economic weigh-scale is the only approach to assessing the value of copyright, as I think that important cultural and social justice issues are also involved. Make no mistake; economics are extremely important and there is a lot of money riding on the outcomes. Creators want to ensure that they get fairly compensated for their work, with effective provisions to prevent piracy and free-riding, while users not surprisingly want to minimize their costs for accessing content. However, a risk that accompanies an exclusive economic interpretation with regard to copyright piracy can lead what I call the “zero-sum fallacy”. This is the hypothesis that piracy doesn’t really cause losses to the economy because what is not spent on legitimate content (because of consumer access to “free” pirated products) is redistributed and spent on other things. Put another way, if robust copyright settings deter piracy, consumers who used to get a free-ride on content now have to pay for it resulting in less money available to spend on other activities, such as buying baby formula, going to restaurants or whatever. Notorious anti-copyright blogger Mike Masnick has employed this argument, citing a 2010 GAO study that, among other conclusions, refers to the redistribution effect of piracy.

However, the zero-sum argument has two major weaknesses. First, it equates economic welfare for consumers with illegal activity. It is equally valid to say that consumers would be better off if they didn’t have to pay for gasoline for their cars, and could just help themselves at every gas station, because this would leave more money in their pockets to spend on other things. Yet the theft of goods for consumption will deter further production of the stolen commodity. If theft of gasoline from service stations becomes the norm, refineries will cease to have an incentive to produce gasoline and society will be the poorer. Not only that, but the tolerance of illegal activity will send a message to consumers that evading payment for legitimate products is acceptable, with the attendant long-term consequences.

The second weakness is the assumption that one sector of the economy should be expected to subsidize other sectors. Why should gas stations be expected to subsidize consumers so that they can have more money to spend on other things? Or why should the content industry? This is one of the arguments used by universities to push back against paying publishers for content on the basis that these costs will either have to be absorbed by or passed on to students (who are financially stressed). Therefore payment of licensing fees for copying course packs is taking money out of students’ pockets that could be spent on something else (like a case of beer perhaps?). Students themselves take the same approach. In a Canadian example, the organization, “Undergraduates of Canadian Research Intensive Universities” stated to the Parliamentary Committee reviewing the Canadian Copyright Act;

“As the cost of attaining a post-secondary degree continues to rise, the educational fair dealing provision is increasingly more important to improve affordability…(which) continues to be an issue for students, particularly in relation to educational materials….The University of Toronto reported that thanks to the 2012 fair dealing provision amendment… student savings had totalled more than $400,000 since 2014”.

Now anyone who is not sympathetic to the challenges faced by students owing to the rising cost of education and high levels of educational debt has simply not been following what has been going on. But this argument is basically saying that students are better off because now they are getting something for nothing that they used to pay for. And who is subsidizing that reduction in costs? Publishers, that’s who.

If reducing student costs is the overriding consideration, why not instead reduce the cost of student parking, or dormitory rental fees, or cafeteria food or any other educational input? Or is it just easier to do it on the back of content creators—with the additional negative economic impact of hollowing out the educational publishing sector?

There is no question that calculating the costs and benefits of a stronger or weaker copyright regime is a fundamental question that policy makers face everywhere. Australia, Canada and New Zealand are all currently undergoing reviews of copyright policy and in grappling with the question as to what the right copyright settings are for a given country, economic impact is always given considerable weight. When it comes to competing interests, by which I mean those industries seeking weaker copyright settings and wider exceptions thereby allowing them to use protected content without permission or payment, versus those seeking to retain or strengthen current settings, namely rights-holders and creative industries, a lot of numbers are generated to try to persuade officials and politicians that each of these alternatives will bring greater value to the overall economy.

Coming back to New Zealand, there are plenty of numbers in play. Google has commissioned a study attributing a value of $16.2 billion and 120,000 jobs to the ICT sector, arguing that these numbers would increase if a US-style fair use regime were introduced, thereby allowing “innovators” to more freely use content (without consent of the rights-holder). The study, from Deloitte/Access Economics on behalf of Google, recommended fair use for New Zealand largely on economic grounds;

“the evidence suggests that innovative digital activities are more likely to develop in countries with fair use provisions as compared to countries with fair dealing provisions”. (emphasis added)

However, the study was unable to document any specific degree of increased economic activity. In fact, the report admits that;

“there are several challenges to rigorously quantify the economic impact of a shift from fair dealing to fair use.”

The assumptions and methodology of the Deloitte report were heavily criticized by Dr George Barker of ANU and LSE in his study, “More Unfair Claims about Fair Use: This Time in New Zealand”. Barker refers to an earlier study he did for the New Zealand film industry which showed that over a ten year period (2005-15) there was a shortfall of overall screen industry revenues of $4.6 billion against what would have been expected if the revenues had kept pace with inflation and economic growth. A large amount of this shortfall can be attributed to digital piracy. Alternative scenarios put the losses as high as $9 billion.

The Deloitte study and its claim that New Zealand’s current copyright settings are an impediment to technology development imply that the tech industry is the sole driver of innovation. This is far from true, with content industries also heavily investing in many new ways of creating and delivering content. Just look at WETA Workshops and WETA Digital. And of course, content industries also create jobs and economic welfare. Recorded Music New Zealand studies indicate the recording industry contributes $552 million per year to New Zealand’s GDP, directly and indirectly supporting over 6,000 jobs with strong potential as an export industry, earning foreign exchange to New Zealand’s benefit. But there is a problem. Recorded Music NZ estimates that 25% of New Zealanders access music from unlicensed sites leading to losses to the industry of more than $50 million (NZD) per year.

It is always difficult to assess with precision whether reducing piracy by X percent will lead to the creation of Y jobs and economic benefits (in other words, incentivising the production of content that would not otherwise be produced). Everyone recognizes that not every pirated movie or TV show (as an example) will be replaced by a paid one, although studies on blocking of pirated websites in the UK showed that consistent blocking of offshore pirate streaming sites not only reduced access to these sites significantly (by more than 50%), but it also leads to a directly correlated 10% uptake of content from legitimate streaming sites.

At the end of the day, when coming to a decision as to what kind and level of copyright settings are appropriate, policymakers must look at economic impact but need to do so broadly. This evaluation has to take into account the impact on the overall economy, on job creation and preservation, on cultural expression and national identity and on other social values, such as respect for the law. Moreover, there is no proof that weaker copyright settings will incentivize growth in technology and innovation. Weaker settings may actually harm it.

Copyright does not impede innovation; indeed it encourages it, as the example of digital content industries clearly shows. There is nothing to stop any would-be innovator from using copyrighted material other than the consent of the rights-holder, through the negotiation of a license. The price arrived from a market transaction between a willing seller and willing buyer demonstrates the full worth of the content to both upstream producer and downstream consumer/innovator, creating value and economic benefit for both.

Calculating the economic benefits of a robust copyright regime to an economy is not a simple or straightforward task. It is complicated and involves qualitative as well as quantitative measures. That is the challenging task facing New Zealand officials and policymakers as they embark on what will be a long process of copyright review.

This blog post first appeared on Hugh Stephens blog as New Zealand Launches its Copyright Review: Calculating the Economic Benefits will be a Key Issue

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