Pricing, not Piracy, Hurts Culture Trade (Part 3): William Patry

The universal nature of music, art and literature explains their enduring appeal and allows their creators the opportunity to reach a global audience.

The ability of copyright owners to be paid for exploitation of their works beyond their own national boundaries has been important since at least the late 18th and early 19th centuries. Beethoven, Haydn, Mozart and other composers entered into simultaneous publication agreements in order to prevent unauthorized printing of their works in other countries.

Including intellectual property within trade agreements is a relatively recent strategy -- originally developed by the U.S. in the early 1980s. In such agreements, intellectual property issues are subsumed within a larger trade agenda. For large, intellectual property-exporting countries such as the U.S., obtaining ever-stronger rights is seen as a way to obtain ever-stronger control over foreign markets. But what are the benefits for countries that are net importers of intellectual property? Few if any. On the contrary, they experience a net loss.

When the United States was itself a developing country, it rejected the pleas of Britain and other developed countries to protect foreign authors. From 1790 to 1891, the U.S. deliberately denied protection to foreign published works, and this policy greatly benefited American economic development.

Not surprisingly, developed countries argue for strong, uniform intellectual-property laws worldwide. A rising tide lifts all boats, they say.

Rising Tide

That metaphor promises equality for all, and if the yachts are lifted up a bit more than dinghies, the dinghies might not complain so long as they are lifted up, too. The implied promise is that developing countries will end up with the same access to pharmaceutical drugs, the same creative works and so on as developed countries have. Yet countries that lack an educated citizenry, adequate domestic research-and-development companies, meaningful participation in financial markets and effective means to bring domestic innovations to market will not realize the benefits.

Consider, for example, how a small domestic record industry in a developing country can be easily eliminated if the floodgates are opened to foreign record companies.

The rising-tide metaphor can also be thought of in conventional economic terms. In the 18th century, Adam Smith claimed that an increase in the size of markets leads to increases in the diversity of offerings. Trade among countries increases this diversity by introducing people in one country to the goods, services and cultures of others.

In the 19th century, however, Alexis de Tocqueville took a different view. After studying life in the U.S., he concluded that “market growth serves as a magnet, pulling creators towards mass production and away from serving niches.” And he said this results in “a culture of the least common denominator.”

De Tocqueville’s view seems to have prevailed. There is considerable evidence that our best-selling creations are dumbed down. (In 2010, the top-grossing film in the U.S. was “Toy Story 3.”)

At the same time, large markets such as New York City do provide diverse, niche offerings. And the growth of Internet platforms such as YouTube and blogs has provided fantastic offerings for specialized tastes. The economist Tyler Cowen had it right when he said, “Markets bring more homogeneity and more diversity. This dual trend characterizes consumer taste as well as cultural products generally.”

Cultural Dominance

Yet dominance of U.S. cultural works leads to a dominance of U.S. culture, and it is easy to see why. No country can foster the creativity of its own citizens if the financing, production and distribution of works is controlled by large, wealthy foreign corporations.

The conventional notion in the U.S. that stronger copyright laws can deter bootlegging of DVDs and the like is a fallacy. Unauthorized markets arise when demand for copyrighted works is created but not met. So the best way to prevent the sale of unauthorized goods is to flood the market with authorized goods. The vast unauthorized markets that exist around the world are not a sign of moral shortcomings among people in those countries; they’re simply the result of copyright owners clinging to failed business models.

Multinational corporations make the bulk of their profits in developed-country markets, and thus have little interest in serving other ones, especially when doing so means that they need to compete in terms of price.

In a comprehensive study of how media is consumed around the world, the Social Science Research Council concluded: “Media piracy has been called ‘a global scourge,’ an ‘international plague,’ and ‘nirvana for criminals,’ but it is probably better described as a global pricing problem.”

Where goods owned by multinational corporations are sold at all in developing countries, they are offered at the same prices as in developed countries, or at comparable prices that place the goods out of reach of all but the wealthiest consumers.

This pricing problem is strikingly absent from most discussions of intellectual property. Policy makers are still focused on enforcing tough copyright and trade regulations. Yet the Social Science Research Council found “no evidence -- and indeed no claims -- that enforcement efforts to date have had any impact on the overall supply of pirated goods.” In none of the nations studied was the comparative price -- the price that reflects cost-of-living differences --the same as in the U.S.

Soybeans for Software

Consider the example of Microsoft’s Office 2007: In 2004, Marcelo D’Elia Branco, Brazil’s liaison between the open source community and the government, estimated that one license for Microsoft’s Office suite meant Brazil had to export 60 sacks of soybeans. As then-President Luiz Inacio Lula da Silva observed, “For the right to use one copy of Office plus Windows for one year or a year and a half, until the next upgrade, we have to till the earth, plant, harvest and export to international markets that much soy. When I explain this to the farmers, they go nuts.”

The solution here is simple: Offer the same goods at different prices in different countries, based on people’s ability to pay. There will still be those who engage in large-scale unauthorized copying. And going after the very small number of those who are doing most of the harm is entirely justified. What’s unjustified is threatening the broad population with lawsuits and crippling penalties.

Copyright owners should support the good guys by providing reasonably priced and convenient authorized goods. If they can’t do this, no copyright law can help them.

(William Patry, senior copyright counsel at Google Inc., is the author of “Moral Panics and the Copyright Wars” “Patry on Copyright” and “Patry on Fair Use.” This is the first in a three-part series of excerpts from his new book, “How to Fix Copyright,” to be published Jan. 5 by Oxford University Press. The opinions expressed are his own. Read Part 1 and Part 2.)

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