3. THE BALANCE OF THE COPYRIGHT – FAIR USE DOCTRINE
3.3 Efficiency Maximum Approach .1 Efficiency Maximum Approach 198
In the remarkable article “Reconstructing Fair Use Doctrine,” Professor
195 Id. at 458.
196 Id. at 464.
197 Id. at 462.
198 In this approach, the ultimate objective is to select the combination of entitlements that
will maximize net efficiency. Therefore, for the purpose of this proposal, I would self-righteous call it “Efficiency Maximum Approach.”
Fisher suggested another justification for fair use. The primary inquiry is: “What legal rule governing unauthorized use of works of copyrighted materials would yield the combination of production and dissemination of works of the intellect that is most efficient?”199 And the premise of this approach is that the objective of copyright law in general and the fair use doctrine in particular should be the efficient allocation of resources.200
When deciding whether a use of a copyrighted work is fair, Profess Fisher proposes a two-step approach for a judge to proceed in a copyright infringement action. First, the court should determine the optimal levels of copyright protec-tion.201 By granting artists a type of property right in their products, copyright law provides an incentive for creative persons to create. However, the granting of property right to artists also may make them become monopolist, incurring the transfer of wealth and the deadweight loss.202
Under this monopolistic condition, the task of a lawmaker who wishes to maximize efficiency, therefore, is to determine the combination of entitlements that would result in economic gains that exceed by the maximum amount the
199 See Fisher, supra note 113, at 1699. The term “efficient,” means “that allocation of
re-sources which could not be improved in the sense that a further change would not so im-prove the condition of those who gained by it that they could compensate those who lost from it and still be better off than before.” See id. at 1700. As so defined, Professor Fisher’s “efficient” is reference to the “Kaldor-Hicks Efficiency”, a type of efficiency that results if the monetary value of society’s resources is maximized. Kaldor-Hicks efficiency is a technique commonly used to evaluate the desirability of producing public goods (such as parks, highways, or reservoirs). See the definition provided by the website
“AmosWEB is Economics”, supra note 96.
200 See Fisher, supra note 113, at 1695.
201 Id. at 1700-05.
202 Id. at 1702.
tendant efficiency losses.203 Thus, “when the copyright owner’s collected mo-nopoly profits from consumers is greater than optimal amounts, a judge could use the fair use doctrine to chip away at that package until it approximated the most efficient combination.”204
The second step is to rank all kinds of possible use of the work in issue in order to define the appropriate line between fair and unfair.205 Based upon the presumption that the author is a monopolist,206 who expects to enjoy all monop-oly profit and enjoin all possible infringing uses, the ranking standard is “incen-tive/loss ratio” – ranged in order of the relative benefits and costs of legitimating the uses. The purpose of the ratio is to provide the judge with a preliminary indi-cation of the net economic benefits of according author the entitlement in ques-tion207 – the higher the ratio, the larger the loss of efficiency, and thus, the less in favor of finding a fair use. To ascertain the most efficient interpretation of the fair use doctrine in this context, the judge need only identify the point in the series of putatively infringing uses where the difference between aggregate efficiency gains and aggregate efficiency losses is greatest.208 To the point and its left, all uses are unfair; to the right, all uses are fair.
203 Id. at 1703.
204 Id. at 1704.
205 Id. at 1705-17.
206 The figures in the Professor Fisher’s article are drawn based upon a typical monopoly
economic model. See id. at 1701 n.200, 1708 n.232, 1711 n.240.
207 Id. at 1707.
208 The efficiency gains are referred to the increased consumer satisfaction that results when
consumer have access to a better menu of copyrighted work. The “better menu” is result form the great incentive award to the author (if find all uses are unfair) and the other ac-tual and potential writers. See id. at 1715-17 (noting that “The judge thus must estimate the present value of the change in detective-story writing that would be caused by each increase in the aggregate reward offered to successful writers like Plaintiff.”).
3.3.2 Promoting Contractual Price Discrimination Scheme
In his “Reconstructing Fair Use Doctrine,” which published in 1988, Pro-fessor Fisher repeatedly promoted the adoption of “Price Discrimination Scheme,” suggesting that “[t]he more that privileging the activity would under-mine the ability of copyright owners to engage in price discrimination, the weaker the case for fair use, because price discrimination both increases the rewards available to creators (without increasing monopoly losses) and equalizes consum-ers’ access to works of the intellect.”209
Empowered by Copyright Law, the author has the exclusive right to make copies of the work,210 when there are no good substitutes for the work, she be-comes a monopolist. If the author wishes to maximize her profits, she will thus charge substantially more than marginal cost of producing additional copies of her work.211 If an information user wants to use the copyrighted work but only willing or able to purchase that work at a price lower than monopoly price (but higher than marginal price), the result would be that user cannot get access to that work, and thus cause a “deadweight loss” – a loss represents both a failure to sat-isfy individual preferences and public welfare.212
To diminish this deadweight loss, economists have advocated the use of price discrimination scheme. “Price discrimination” means charging different prices to different buyers for the same good. Adopt contractual price
209 See id. at 1782.
210 17 U.S.C. § 106(1) (2002).
211 See William W. Fisher Ⅲ, Property and Contract on the Internet, 73 CHI.-KENT L. REV.
1203, 1234 (1998) [hereinafter Fisher, Property and Contract]; Cohen, supra note 86, at 1801.
212 See Cohen, supra note 86, at 1801-02; James Boyle, Cruel, Mean, or Lavish? Economic
Analysis, Price Discrimination and Digital Intellectual Property, 53 VAND. L. REV. 2007, 2021-23 (2000); Fisher, supra note 211, at 1234-37.
tion scheme onto copyright, economists believe,213 will promote the consumer welfare, and ensure broader public distribution of creative works at various de-grees of price that every individual consumer is willing and able to pay.214
The advantage to the seller compared to a uniform sale price is that more revenue would be generated. In the ideal case of perfect price discrimination, every customer is charged her maximum willingness to pay for the items she pur-chases. The result would be the sharply reduced deadweight loss which mostly transfers to the information providers’ pocket. That means, in Professor Fisher’s language, “first of all, that social welfare losses have been reduced. In addition, we are getting much more bang for our buck – a much larger incentive for crea-tive activity per unit of social cost.”215 Thus, courts and legislatures, suggested by Professor Fisher, should not only facilitate and reinforce this shift form copy-right law to contract law, but should also require that creators (and consumers) when setting up such “private” arrangements abide by restrictions designed to protect the public interest.216
213 See, e.g., id. at 1239. (arguing the Price discrimination would lead to substantial
im-provements in distributive justice – better approximation of the ideal of affording all persons access to works of the intellect); Bell, supra note 81, at 561 (advocating the
“Fared use” would make copyrighted works in the digital intermedia available under reciprocal quasi-compulsory licenses. Although consumers might have to pay fees that the fair use defense would excuse in other media, they would in return gain better access to better information).
214 See Fisher, supra note 211, at 1238.
215 Id. at 1240.
216 Id. at 1203. Engage in price discrimination would produce the following differences from
the current copyright regime: 1. It would enable creators to make more money; 2. It would increase the ratio between the incentives for creativity and the concomitant dead-weight losses – and thus should enhance net consumer welfare; 3. It would increase the likelihood that all persons would have access to works of the intellect. Id. at 1240.