Abstract
This study analyses the law and economics of introducing flexibility in the system of
exceptions and limitations in Dutch copyright law. Such flexibility would exist in an open
norm, on the basis of which the courts can decide whether certain uses of copyrighted
material are permissible or not, instead of explicitly defining this in the law. First, it assesses
problem areas where the lack of flexibility creates legal disputes and potential barriers to
innovation and commercialisation. Second, it analyses the economic rationale and economic
effects of introducing flexibility. The study was commissioned by the Dutch Ministry of
Economic Affairs, Agriculture & Innovation. Research methods used are literature review
and in-depth interviews. The study includes a case study of Israel, where a fair use exception
was introduced in the Copyright Act in 2007.
Exceptions and limitations in the current copyright system are meant to balance the
protection granted to rights owners with the public interest’s need to make certain
unauthorized uses. However, this report identified a number of situations that do not fit well
within the current set of exceptions and limitations and attributes this to a lack of flexibility.
Among these uses are the activities of search engines, the use of works in User Created
Content, cloud computing, data mining, distance learning, and transformative uses by, for
instance, documentary filmmakers.
Several of these problem areas have given rise to court proceedings with varying outcomes.
The interpretation given by courts to existing exceptions and limitations - such as the
quotation right, the exception for transient and incidental copying, the private copying
exception, and the incidental use exception - is usually too narrow to respond to new
technological developments, new developments in the creation process, or new
commercialisation models. These types of uses generally do not ‘fit’ the narrowly defined
exceptions and limitations and therefore lack legal basis. The same is true for things not yet
invented.
Because the law is not flexible in itself, courts have increasingly found inventive ways to
create legal space for uses that are not covered by the exhaustive list of exceptions. In these
cases flexibility with specific evaluation criteria could have been more satisfactory from a
legal perspective.
Flexibility could be obtained by introducing an open norm in the copyright system. This
report defines such an open norm for the purpose of analysing the effects of more flexibility
in copyright law. The norm has two main properties. First, it would coexist with the
exhaustive list of exceptions and limitations in the current Dutch Copyright Act. Second, a
use of a work would only benefit from the open norm if it passes the so-called three-step test,
which takes the interests of the author or right holder into account.
The first category of economic effects of introducing an open norm is that for some known
uses that otherwise require licensing, the open norm would allow unlicensed use. Thispotentially reduces the reward to the creator of a work and therefore decreases the incentive to
create. By contrast, it is also likely to reduce the creator’s costs of using another work as an
input when producing a new work, and therefore to increase the incentive to create. It is
difficult to predict which of these two opposing effects ultimately turns the scale in specific
markets. Traditional creators generally worry about the negative effect on their reward and
seem to believe that the first effect dominates. For businesses that use large numbers of
protected works as an input for their services, such as Google, the opposite is true. They
emphasise the benefits of reduced input costs and are likely to improve their legal position
with an open norm. Collective rights management organisations in turn fear that their
bargaining power vis-à-vis users like UCC-platforms, such as YouTube, would suffer from an
open norm.
However, given the design of the open norm, it is unlikely that rewards for creators are
significantly affected. The application of the open norm by the courts tests for adverse
effects on the business model of the rights holder (the previously mentioned three-step test).
In case of severe adverse effects on the rights holder, the open norm does not apply. The
shift in bargaining power from rights holders to user (platforms) is limited to cases that are
currently licensed and where parties are sufficiently confident that the use benefits from the
open norm.
The second category of economic effects of introducing an open norm is that the legal
delineation between infringement and permissible use becomes capable of accommodating
developments in technology and society. This enables entrepreneurs to develop new
products and services that rely on currently unforeseen use of protected material. On the
downside, flexibility may reduce legal certainty in the short run, until jurisprudence on the
practice of flexible copyright has developed.
The countries that have recently introduced an open norm in their copyright laws have not
produced any ex-ante or ex-post studies on the magnitude of these economic effects. The
case study of fair use in Israel shows that the change may decrease legal certainty in the short
run (as case law needs time to develop), but improve legal certainty in the longer run, as the
legal position of acts that do not ‘fit’ a rigid system with an exhaustive list of static exceptions
is being clarified.
In sum, the main effects of introducing an open norm seem to be of a legal nature: it
changes the legal position of some businesses and therefore affects the costs these businesses
make to comply with copyright. ‘Tomorrow’s inventions’ are likely to be facilitated by an
open norm. Since most businesses seem currently not chilled by the lack of flexibility, the
effect on products and services available in the market is likely to be secondary to the legal
effects.
exceptions and limitations in Dutch copyright law. Such flexibility would exist in an open
norm, on the basis of which the courts can decide whether certain uses of copyrighted
material are permissible or not, instead of explicitly defining this in the law. First, it assesses
problem areas where the lack of flexibility creates legal disputes and potential barriers to
innovation and commercialisation. Second, it analyses the economic rationale and economic
effects of introducing flexibility. The study was commissioned by the Dutch Ministry of
Economic Affairs, Agriculture & Innovation. Research methods used are literature review
and in-depth interviews. The study includes a case study of Israel, where a fair use exception
was introduced in the Copyright Act in 2007.
Exceptions and limitations in the current copyright system are meant to balance the
protection granted to rights owners with the public interest’s need to make certain
unauthorized uses. However, this report identified a number of situations that do not fit well
within the current set of exceptions and limitations and attributes this to a lack of flexibility.
Among these uses are the activities of search engines, the use of works in User Created
Content, cloud computing, data mining, distance learning, and transformative uses by, for
instance, documentary filmmakers.
Several of these problem areas have given rise to court proceedings with varying outcomes.
The interpretation given by courts to existing exceptions and limitations - such as the
quotation right, the exception for transient and incidental copying, the private copying
exception, and the incidental use exception - is usually too narrow to respond to new
technological developments, new developments in the creation process, or new
commercialisation models. These types of uses generally do not ‘fit’ the narrowly defined
exceptions and limitations and therefore lack legal basis. The same is true for things not yet
invented.
Because the law is not flexible in itself, courts have increasingly found inventive ways to
create legal space for uses that are not covered by the exhaustive list of exceptions. In these
cases flexibility with specific evaluation criteria could have been more satisfactory from a
legal perspective.
Flexibility could be obtained by introducing an open norm in the copyright system. This
report defines such an open norm for the purpose of analysing the effects of more flexibility
in copyright law. The norm has two main properties. First, it would coexist with the
exhaustive list of exceptions and limitations in the current Dutch Copyright Act. Second, a
use of a work would only benefit from the open norm if it passes the so-called three-step test,
which takes the interests of the author or right holder into account.
The first category of economic effects of introducing an open norm is that for some known
uses that otherwise require licensing, the open norm would allow unlicensed use. Thispotentially reduces the reward to the creator of a work and therefore decreases the incentive to
create. By contrast, it is also likely to reduce the creator’s costs of using another work as an
input when producing a new work, and therefore to increase the incentive to create. It is
difficult to predict which of these two opposing effects ultimately turns the scale in specific
markets. Traditional creators generally worry about the negative effect on their reward and
seem to believe that the first effect dominates. For businesses that use large numbers of
protected works as an input for their services, such as Google, the opposite is true. They
emphasise the benefits of reduced input costs and are likely to improve their legal position
with an open norm. Collective rights management organisations in turn fear that their
bargaining power vis-à-vis users like UCC-platforms, such as YouTube, would suffer from an
open norm.
However, given the design of the open norm, it is unlikely that rewards for creators are
significantly affected. The application of the open norm by the courts tests for adverse
effects on the business model of the rights holder (the previously mentioned three-step test).
In case of severe adverse effects on the rights holder, the open norm does not apply. The
shift in bargaining power from rights holders to user (platforms) is limited to cases that are
currently licensed and where parties are sufficiently confident that the use benefits from the
open norm.
The second category of economic effects of introducing an open norm is that the legal
delineation between infringement and permissible use becomes capable of accommodating
developments in technology and society. This enables entrepreneurs to develop new
products and services that rely on currently unforeseen use of protected material. On the
downside, flexibility may reduce legal certainty in the short run, until jurisprudence on the
practice of flexible copyright has developed.
The countries that have recently introduced an open norm in their copyright laws have not
produced any ex-ante or ex-post studies on the magnitude of these economic effects. The
case study of fair use in Israel shows that the change may decrease legal certainty in the short
run (as case law needs time to develop), but improve legal certainty in the longer run, as the
legal position of acts that do not ‘fit’ a rigid system with an exhaustive list of static exceptions
is being clarified.
In sum, the main effects of introducing an open norm seem to be of a legal nature: it
changes the legal position of some businesses and therefore affects the costs these businesses
make to comply with copyright. ‘Tomorrow’s inventions’ are likely to be facilitated by an
open norm. Since most businesses seem currently not chilled by the lack of flexibility, the
effect on products and services available in the market is likely to be secondary to the legal
effects.
Original language | English |
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Place of Publication | Amsterdam |
Publisher | SEO/IViR |
Commissioning body | Ministry of Economic Affairs, Agriculture and Innovation of the Netherlands |
Number of pages | 73 |
ISBN (Print) | 9789067336574 |
Publication status | Published - 2012 |