Collectivizing Rights; Privatizing Taxation: The Unarticulated Function of Copyright Collectives

In his famous speech before the House of Commons in 1841, Lord Macaulay observed that copyright “is a tax on readers for the purpose of giving a bounty to writers.”   Macaulay, who opposed a bill to extend the term of copyright, equated copyright to a tax rhetorically—to emphasize that copyright entails a social cost, and to claim that copyright is justified only as long as it is commensurate with its attendant benefits of encouraging authors. But for economically oriented analysts of copyright, the similarity between copyright and a tax extends beyond mere rhetoric. Both are instruments which governments often employ to overcome the inherent failure of the market to produce desirable public goods. Both are means to finance what otherwise the market might fail to do. Yet unlike taxation, which relies heavily on a centralized government in both the collection of money and its distribution to various purposes, the copyright system is based on granting private property rights in creative works and allowing their voluntarily exchange in the market place. In essence, this system fits into the broader structure of modern liberal market-based economies, which are based on voluntary exchange of private property rights in decentralized competitive markets and rely on market mechanisms instead of command and control by centralized bureaucracies. Specifically in the case of creative works, it is often thought that the copyright system is preferable because it relies on the invisible hand of the market in deciding which works to create thus freeing authors from reliance on politicians and bureaucrats and their attempts to censor works unfavourable to them (Brenda Cossman's post on Bill C-10 is a case in point).

Collective administration of copyrights sharply departs from this paradigm of market exchange. Under collective administration, individual right holders relinquish direct control over their works: instead of negotiating the terms of use of their works with individual users, the collective deals with every user on behalf of all its members, and usually issues a “blanket license” covering all of the works in its repertoire. Moreover, instead of competing among themselves in setting prices and other terms of trade, copyright holders empower a single centralized entity to do so on their behalf. Since this entity effectively operates as a monopoly, governments often respond by subjecting collectives to a regulatory agency which sets or oversees prices and other terms of trade, and often intervenes in the way the collected fees are distributed. Thus, in those cases when copyrights are administered collectively, private property rights are collectivized and a system of private exchange of property rights mediated through the market is effectively replaced by a regulated monopoly. 

Viewed from this perspective, and realizing that the practice of collective administration only quaintly resembles the ideals of market exchange, it becomes apparent that collective administration of copyrights shares many features of a taxation system. In some cases, such as in the case of private copying levies, the similarity is very high. Not only because the term “levy” is used (instead of “license fees” or “royalties”), but also because the levy is imposed not on those who use the copyrighted works, but on suppliers of devices and ultimately borne by a wider population that includes many non-users. But even in the more traditional forms of collective administration, there is strong resemblance between the system of collective administration and a taxation system. The most salient similarities are the disconnect between one’s duty to pay and one’s actual use, the lack of market competition and the central role of an administrator who sets tariffs, collect them, prosecute evaders and distribute the monies collected. 

Such similarities, of course, should not obscure the differences. Unlike tax collecting agencies, typically part of the government apparatus and accountable to the public at large, copyright collectives are typically private entities, owned and governed by authors or copyright owner members, and accountable only to them.  Moreover, as a matter of law, in the usual case, collectives operate in the realm of private law. They administer their members’ copyrights or neighbouring rights, grant licenses, collect license fees and distributes the proceeds to members. These differences are not merely semantic: they determine who is liable to pay, for what, who is entitled to receive, and the consequences of non-payment. They also impose limits on the extent and form of government regulation, and affect the way in which the system is designed. Nevertheless, the similarities and differences between collective administration and a taxation system may lead one to recognize that in essence, collective administration has become a unique taxation system—a privatized taxation system—which plays an increasingly important role in markets for creative works and the financial resources available to them.

So far, collective administration has been analyzed primarily on a micro level. Various authors (including myself) have elaborated on various functions that collectives fulfill, and whether they do or do not address various market failures. Other authors have claimed that collective administration promotes distributional or cultural concerns that the market-based paradigm of copyright has failed to adequately address. In this paper, I plan to take another approach. I take special notice of the fact that the number of collectives and the scope of their activities has increased dramatically in recent years. Therefore, rather than analyzing instances of collective administration on a micro level, as topical responses to discrete problems,  I would like to ask, on a macro level, what broader lessons we can learn from the proliferation of collective administration.

I intend to consider whether this proliferation of collective administration indicates an unnoticed but radical and systemic shift in the traditional role of copyright as a tool of innovation and cultural policy; whether the increased number and types of copyrights administered collectively reflects a growing number of market failures (real or perceived); whether it signals that systematically the model of private property rights in creative works fails to achieve its goals. I will examine the hypothesis that we might be witnessing the emergence of an alternative system of incentives, in which the license fees collected by collectives should not be regarded merely as prices paid in exchange of property rights, but more properly as taxes or levies imposed on users and used to subsidize creators. I will further investigate the potential implications of this view on how this system of reward is structured to determine what reforms would be necessary to optimize it.

Such re-conceptualization of the phenomenon raises important questions about the roles of the various players involved. It allows us not to be constrained by the requisites of a system which administers private copyrights but rather to seek for an optimal design of this de facto tax-like system. Thus, a property-rights perception of collectives’ role presupposes that to the largest extent possible, a financial link between uses, users and owners should be preserved; that every use of a work should be accounted for and entitles the owner to compensation as a matter of right. If this use implicates more than one right or more than one right holder, the resulting complications in administering the system and problems of royalty stacking or double marginalization are at best seen as secondary considerations. In contrast, appreciating the tax-like property of collectives’ functions allows for a more rational system. It does not presuppose an ideal use-user-owner link, but instead can seek to establish the most efficient method of collection and distribution.

Moreover, under the property-rights market paradigm, collective administration is an exception to what otherwise would be a competitive market. Naturally, they attract close attention from a competition law or competition policy perspective. From a competition policy perspective, collective administration should be allowed if and only if competitive administration is impractical. If competitive administration is feasible, collective administration should not be permitted, no matter how effective it is in generating income for copyright owners. A taxation system works under different parameters. Ideally, it seeks to impose a tax that facilitates the collection of revenues, while distorting consumption patterns as little as possible, and while keeping the administrative costs of the system at minimum. The two approaches can lead to very different results. For example, it might be quite possible that there is no market failure preventing record labels from entering into direct agreements with broadcasters to license their public performance (or communication to the public by telecommunication) right. In such a case, from a competition perspective, collective administration should not be permitted. From a taxation perspective, however, a music-tax levied on broadcasters and used to subsidize music creation may make much more sense. It allows generating substantial amount of income, it is relatively easy to impose, enforce, collect, and distribute, and if it does not significantly distort programming decisions may be a very efficient method for subsidizing music creation.   

Re-conceiving collective administration as a taxation system raises a host of other questions. For instance, it raises the issue of accountability. Should collectives be regarded as private organizations accountable only to their members, or should they be understood in essence as organizations performing a very public function: the collection of levies and the distribution of subsidies. In such case, who are they accountable to? To whom should they be accountable? And how, precisely, should they be? Does the public have a stake in determining who the tax is levied on and how the proceeds are distributed? Other questions involve the scope of copyright after some of the income available to authors is collected through taxation. Should authors retain the full scope of rights currently available under copyright law? What is the meaning of infringement under such a system? Other questions pertain to the distribution of income. Should authors whose works have been used more frequently be paid a larger share of the collected fees because “their” works in which they have property rights have been used, or should these fees be rather used to subsidize more creative or more diverse endeavours that may have great cultural value, albeit smaller commercial prospects? Who should make these kinds of decisions? If the moneys collectives collect are conceived as taxes and their distribution as subsidies, is the process of determining those in an adversarial manner before a tribunal such as the Copyright Board optimal? What is the optimal way to reconcile between seemingly conflicting goals: decrease the dependence on government and the danger of censorship, allow the market to signal which works should be created, while at the same time subsidize less commercial works, and how to prevent the system from becoming a rent-seeking orgy? 

In my research I plan to develop these questions in more detail and draw the possible contours of a new understanding of the roles copyright collectives should play in cultural-economic policy.   Any insights and comments are welcome.