A view is held (in both expert and non-expert circles) that unless an infringement of copyright causes proven lost sales, that infringement should not be actionable. Under the logic of this view, to award damages for infringements that do not cause proven lost sales would be vindicating intellectual property rights without triggering incentive effects.
In relation to the damages award in the now famous Larrikin v EMI litigation (comprising a notional usage price of 5% of APRA׀AMCOS royalties paid to the infringers) two of our economists Beth Webster and Paul Jensen have supplied this critique of the law – emphasis in the original:
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.
It is worthwhile to think more about (in law and economics) the creation of property rights – including those rights’ remedial scope – for copyright subject matter. A fine vehicle to do this is infringing file-sharing.
Research undertaken at the University of Ballarat in April 2010 reveals something of the global extent of infringing file-sharing. The University’s Internet Commerce Security Laboratory (ICSL) – which is funded by the State Government of Victoria, IBM, Westpac, the Australian Federal Police and the University – was commissioned by Village Roadshow to measure the volume and nature of BitTorrent file-sharing global traffic. It estimated that 97.9% of files made available encoding non-pornographic content were clearly not authorised by the copyright owner. Under the BitTorrent system the term ‘seeders’ refers to people who have completed their download and then make the file available for others to download. That is to say, a seeder is a person who is making that content available online to the public. The ICSL produced a list of what was estimated to be the top 100 seeded files as at April 2010. The top 10 in that list were:
1. The Incredible HulkDvDrip-aXXo97065494792.4447: 1,112,628
2. Indiana Jones And The Kingdom Of The Crystal Skull-aXXo: 1,029,695
3. CollegeDvDrip-aXXo339166021846.017: 509,576
4. Sherlock Holmes (2009) DVDSCR XviD-MAX: 479,655
5. Avatar (2009) PROPER TS XviD-MAX889790305026.795: 332,665
6. Meet DaveDvDrip-aXXo: 311,894
7. Lady GaGa – The Fame Monster 2CDRip 2009 [Cov+2CD][Bubanee]: 308,117
8. The Andromeda StrainDvDrip-aXXo: 284,221
9. Shutter Island (2010) R5 DVDRip XviD-MAX851029283088.936: 282,628
10. 2012 (2009) R5 DVDRip XviD-MAX883775626338.402: 277,043
With this list it should be pointed out that a title like Avatar reappeared twice again in the top 100 list under different file names – i.e. Avatar 2009 DVDScr H264 AAC-SecretMyth (Kingdom-Release) 94,781 seeders and Avatar TS XviD-IMAGiNE(No Rars) 82,977 seeders.
It is commonly considered that unless an infringing file-sharer, but for infringing, would have paid for the relevant content then there is no harm to the copyright owner arising from the infringement. Consider these three published readers’ comments to Asher Moses’s essay-style article ‘Piracy – are we being conned?’ (Fairfax Media, 22 March 2011)
- Why would they assume that an unpaid download is a lost sale? Kale – Sydney
- The figures are obviously predicated on the presumption that each illegal download would convert into a legitimate purchase, which is a palpably fatuous assumption to make. The ghost of common sense - My bedroom
- So are they counting every movie i have downlaoded then as lost revenue? cos i have a surpirse for you, you never were gong to get the money in the first place! [sic] Danny – Melbourne
The commonality of this sentiment is so pervasive that a survey-based analysis of direct loss to the film industry conducted in Australia by IPSOS Media CT and Oxford Economics for the Australian Federation Against Copyright Theft (AFACT) made explicit allowance for it. Deducted from ranks of loss-causing Australian infringers were those who would never have paid to watch the film. That is someone like Danny above. Danny might have unlawfully downloaded Avatar using BitTorrent, but never would have paid to obtain a copy. The AFACT-commissioned survey estimated that 23% of Australian infringers were in Danny’s boat, and so a 23% deduction was made in arriving at the final figure of $575m direct loss to the film industry for the 12 months Nov 2009-Sept 2010.
Is it correct, as our economists Beth and Paul say, that infringement not causing proven lost sales should yield zero damages? Or is it correct, as the Fairfax readers imply, that an infringing download not substituting for an actual purchase should be removed in the calculation of owner harm? And is it therefore correct to make that 23% deduction? Or, to put it another way, is infringement not resulting in a proven material loss benign?
In economic analysis of copyright law as it applies to (say) the film industry, copyright is justifiable to the extent that it provides an effective promise to film producers and creators that if investment and risk is undertaken to make a film, some of the value that film generates is capable of market appropriation through the conferral of property rights. Avatar is a good case-in-point. Would it have been created without the promise of copyright? It is difficult to imagine this type of content being produced through non-market means such as philanthropy or public funding. Market demand stimulates such content’s creation. In copyright, property rights in creative expression are deployed as an instrumental device to permit that market demand to induce productive endeavour. This is the incentive effect of intellectual property. It does not mean that those property rights per se generate economic value – the film could be an unmitigated box-office flop. Rather, the rights simply provide a way for a film copyright owner to capture some of the market demand for its film.
Given that copyright in economic theory is a promise of appropriability what, in private law, does that promise mean by taking the form of a property right? Property as an owner’s right to exclude forges a special norm which governs relations between the owner of the property and users of the property. When relations are governed by a property norm violation by a user means that the owner receives less than the owner deserves, and that the user obtains more than the user deserves. Restitution scholarship regards this as an ‘expense’ to the owner mirroring a ‘gain’ to the user. The expense and the gain are de jure rather than de facto concepts. This restitutionary idea has been applied in intellectual property cases since as long ago as the 1867 patents decision of Penn v Jack where Page Wood VC assessed damages by asking: ‘What would have been the condition of the Plaintiff if the Defendants had acted properly, instead of acting improperly. That condition, if it can be ascertained, will, I apprehend, be the proper measure.’ Here, ‘acted properly’ meant to have paid a reasonable usage price for the use of the intellectual property.
Subsequent UK, US and Australian authority has assessed the lower-end quantum of monetary relief in copyright and patent cases to be the reasonable price for the use of the IP regardless of whether the particular defendant user would have agreed to pay. Indeed this approach is seen in the Larrikin v EMI case itself, where evidence was before the court that a lead member of Men at Work would have resisted paying anything for use of the Kookaburra copyright. But why should at least usage price damages be paid in the Larrikin v EMI litigation, and indeed by people such as Danny in the unlikely event that they are sued for downloading Avatar? For instrumental reasons society has promised the conferral of copyright property. That promise is one of appropriability which entails a particular norm governing relations between owners and users. Failure to at least award usage price damages (or recognise a legal entitlement to such a usage price) represents breach of that promise. It does so by creating the perverse situation of rewarding users who infringe rather than act lawfully. Moreover, why should anyone pay for the enjoyment of Avatar if the law accepts as benign the consumption of ‘you never were gong to get the money in the first place’ Danny?
Stripped away, the point made by the above economists and the Fairfax readers seems to resolve to a more fundamental matter of property delineation. The infringements of the 23% of users identified in the AFACT-commissioned survey should be removed from the copyright promise. That is, removed from the definition of property rights in copyright. Arguably, it presents us with this stunning new conception: copyright is the legal entitlement to exclude the whole world from the exercise of certain defined rights – except those people who would never have paid for the exercise of those rights.
David Brennan is an Associate Professor at the Melbourne Law School