Newsflash: Kookaburra damages award case sounds like bad economics

July 6, 2010

By Assoc. Profs. Beth Webster and Paul Jensen

Yesterday’s decision of Larrikin Music Publishing Pty Ltd v EMI Songs Australia Pty Ltd (No. 2) – [2010] FCA 698 to grant damages to Larrikin Music heralds a new chapter in bad economics.  To understand why, consider the economic rationale for the existence of IP rights.  As a matter of economic principle, IP rights only exist to stimulate investment in creation of new technology, music or books.  IP rights achieve this by protecting against imitation, thereby enabling their owner to sell their works for a higher price than would otherwise be the case.  So, decisions to award damages for breach of IP rights should depend solely on the loss of profit sustained by the IP owner.

In February’s judgment, (click here for a summary) Justice Jacobson ruled that Men at Work’s song ‘Down Under’ had indeed infringed Larrikin’s copyright in the tune ‘Kookaburra Sits in the Old Gum Tree’.  Yesterday’s ruling dealt with the issue of the damages that this infringement caused.  Using our simple economic framework, it is obvious that damages should only be paid if it can be shown that Larrikin suffered an economic loss as a result of the infringement.  The relevant question is the following: if ‘Down Under’ had not been recorded and sold, would Larrikin’s profits from ‘Kookaburra’ be higher?  The answer is clearly “no”.

So, what did Justice Jacobson rule with regard to damages?  Well, he awarded Larrikin damages equal to 5% of profits since 2002.  Given the success of the song, this will probably amount to several hundred thousand dollars.  Justice Jacobson makes it clear in his judgment that these are not damages for copyright infringement.  So far, so good.  Instead, they are damages payable under s82 of the Trade Practices Act 1974 as a result of misrepresentations made by the composers (and recording companies) of ‘Down Under’ to musical royalty collection agencies APRA and AMCOS.

Say that again?  You mean the damages are due because the composers of ‘Down Under’ falsely filled out their APRA form when identifying who wrote the song (and therefore who was entitled to the royalty revenue stream)?  In other words, they failed to recognise the contribution of the composer of ‘Kookaburra’.  But that’s absurd.  The sales of ‘Kookaburra’ were not affected in any way shape or form by the success of ‘Down Under’.  Quite simply, Larrikin should not be due any damages at all.

However, upon a finding of infringement, the parties agreed that damages be determined by taking a percentage of Men at Work’s royalties.  The parties agreed that the percentage be based on the hypothetical bargain that would have been struck between a willing licensor and a willing licensee of the copyright in Kookaburra.  The judge stated that “this approach is in accordance with the principles commonly applied in assessing damages for the infringement of the rights of the owner of an item of intellectual property.”

Once again, this approach illustrates how IP law and IP practitioners operate under a veil of ignorance with regard to the economic rationale of IP rights.  The problem is quite simple: the law typically assumes that IP rights are based in ‘natural rights’.  Viewed through this lens, Larrikin is entitled to capture some of the value created by ‘Down Under’ because it relied on a tune owned by Larrikin.  But this is clearly flawed logic: the only reason copyright exists is to provide sufficient incentive for artists to create new works.

We don’t use ‘natural rights’ logic to determine the rewards for doctors who save lives, civil engineers who bring us clean drinking water, or teachers who teach our children to read and write, so why should we use this rule for the creators of music?  Hopefully, the outrage over this decision will force a major re-think about the way in which we view IP infringement cases.

Beth Webster and Paul Jensen, IPRIA, University of Melbourne

(return to the top of this edition)

ACTA reaches a critical new stage

April 23, 2010

By Kim Weatherall

What a difference a fortnight can make!

Two weeks ago on this Review, I noted that we had no (official) access to the text of the Anti-Counterfeiting Trade Agreement, or ACTA.  As of Thursday this week, though, we do (available here), following a decision by the negotiators last week to meet the demands of civil society and politicians for transparency.

There has been a reasonable amount of commentary already from the likes of Michael Geist, Margot Kaminski at Yale, and Sean Flynn at American University.  In fact, Michael Geist has a useful blogpost with links to commentary across the web.

This official text is perhaps most interesting in showing where the negotiators have got to since January.  My summary?  There are some improvements: there seems to have been some attempt to respond to industry and civil society concerns; and so some (definitely not all) of the nastiest stuff has been taken out and new flexibilities are proposed, if not yet agreed.

The language that had been interpreted as potentially imposing ‘three strikes’ legislation (or graduated response) – that is, requiring ISPs to engage in a process of graduated responses to file-sharing by customers in response to copyright owner complaints culminating in suspension or termination of internet service – that’s kind of gone.  It was in a footnote to the text that now starts on page 19 of the official draft text, and it used to refer (back in January) to ISPs having a policy for the termination of repeat infringers. Now the text just says (on page 21) that at least “one delegation proposes to include language in this footnote to provide greater certainty that their existing national law complies with this requirement”.  In other words, I think that the US, and probably Australia, and maybe another country want confirmation that their domestic requirement for a termination policy complies with the language of ACTA. But they won’t tell us what that text is right now – maybe its not been drafted yet.

There are some general provisions at the front now (at least proposed) referring to important concepts like the protection of privacy and confidential information, proportionality, and that the agreement does not require countries to redistribute scarce enforcement resources to prioritise IP over everything else (my paraphrase).

The statutory damages provision now includes a proposal to allow additional damages instead.  As I’ve explained at length elsewhere additional damages are better than statutory damages, largely because they allow courts to decide who is an appropriate person to be punished (rather than the rightsholders): they put in place more discretion.  That said, they can be pretty darn arbitrary. But better.

There’s a proposal to allow countries to choose whether to apply border measures to patent and design infringements rather than mandating their coverage.  As I’ve noted before, inclusion of patents is problematic because of the potential impact on legitimate businesses including generic pharmaceutical manufacturers.

On the other hand, some of the material I described as concerning in the post a fortnight ago, and in a more lengthy paper that’s available online, is still there.

There is still a proposal to allow rightsholders (and, by the way, rightsholders includes representative groups like the RIAA or MPAA) to get injunctions against intermediaries whose services are used by third parties to infringe – even where the intermediary is not itself liable – thus potentially turning the ISP into the enforcement arm of the rightsholders and courts.

There is still a provision that seems to be proposing the creation or ‘confirmation’ of secondary liability – something not found in international treaties anywhere else and something that is entirely about substantive law, not enforcement, and so inappropriate here.

The draft still proposes an elaborate ACTA superstructure which, for reasons Geist has explained, is pretty darn concerning.  Let’s face it: bodies like this need to justify their own existence and will create work for themselves.  Including working groups for new and even more exciting enforcement provisions into the future.

There’s a nasty possibility that Kaminski points out: they’re debating criminalizing “[i]nciting, aiding and abetting” infringement.  These provisions are both up for debate, and should not be included in the final draft if ISPs don’t want to become subject to criminal investigations.

And there’s still plenty of provisions where the possibility of applying the provisions to patent is still on the table, albeit with border measures those measures are optional.

And there’s more.  This post can only touch on the kinds of detail we are seeing in this proposal.  There is much yet to work through. At least we now have something to go on.

In this edition (#3)…

March 25, 2010

The Fortnightly Review’s Legal Eagle surveys Australian laws addressing cyber-bullying and sexting.  In our second article, lawyer Michael Crawford reports on a recent conference regarding controversial copyright cases – the Telstra directories case, the Men at Work case and the iiNET case.  Finally Associate Professor Paul Jensen provides an economist’s perspective on what the damages in the Men at Work case should be.

Economist Paul Jensen gives us his perspective on damages in the Men at Work case.

March 25, 2010

by Associate Professor Paul Jensen

This was a fascinating seminar featuring a learned panel who were discussing the implications of three recent contentious copyright cases in Australia. I will focus my attention on Larrikin Music Publishing Pty Ltd v EMI Songs Australia Pty Limited [2010] FCA 29 (the Larrikin/Men At Work case), primarily because it cuts right to the heart of the fundamental rationale for the existence of copyright. Melissa de Zwart did an excellent job of engaging the audience on this vexed issue. And, by playing the “Kookaburra” and “Down Under” songs to the seminar participants and taking a straw poll, she was able to demonstrate (rather surprisingly) that only around 50% of people can detect the similarities between the two. Despite this, there seemed to be consensus amongst the legal commentators that Men at Work had reproduced a substantial part of the Kookaburra song.

Given this, the more interesting issue is whether (and how much) compensation Larrikin is entitled to. And on this issue, there was some interesting debate. As noted by Melissa, this was an issue that Justice Jacobson provided scant guidance on. In fact, he was careful to state that his judgement made no determination about the issue of damages. However, the lawyer for Larrikin, Adam Simpson, is on the record as stating with regard to damages that: “Obviously the more the better, but it depends. I mean, anything from what we’ve claimed which is between 40 and 60 [per cent] and what they suggest which is considerably less.”

For the legal scholars, the debate on damages hinges on whether the flute riff which constituted the “copying” is in fact an important component (or that it is the “hook”) of the song Down Under. Such logic would suggest that if it is a trivial part of the song, then damages should be minimal, but if it is the key “hook”, the compensation should be much larger. This logic makes perfect sense from the ‘natural rights’ view of intellectual property – where you are entitled to capture the fruits of your intellectual labour (in this case, the contribution that the flute riff made to the total sales revenue generated by the song).

From an economist’s perspective, this makes no sense whatsoever, as Beth Webster was at pains to point out. What matters from an economic point of view is whether the copying has done any damage to the incentive to create new pieces of music. Following this, the logic of the compensation rule should be “damage-based”, not “gains-based”. The focus should not be how much of Men at Work’s revenues Larrikin is entitled to, but how much damage Men at Work’s copying did to the ex ante incentive to create original musical material. The fact that the original creator of the Kookaburra tune licensed it on very reasonable terms only seems to reinforce the notion that Larrikin is entitled to little or nothing.

More generally, this case underpins an important (and ongoing) debate about the rationale for the intellectual property system. In my view, the sort of copying observed in the Larrikin case is not analogous to piracy, looting, or theft. To argue this would be to deny the fundamental nature of information as a non-rivalrous good. As long as such “copying” causes no harm to the incentives to create original material, it shouldn’t be a concern.


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