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Agreed Use and Fair Use: The Economic Effects of Fair Use and Other Copyright Exceptions in the Digital Age

This paper reviews the merits of arguments being advanced to justify adoption of US style fair use exceptions to copyright law in countries that currently do not have it. Although I outline the background on global initiatives to introduce copyright exceptions, the focus of the analysis is on the Australian Law Reform Commissions’ (ALRC) recent Discussion Paper, which has recommended adoption of broad fair use exceptions to copyright law Australia. This study can be seen as representative of the analysis promoting such reforms globally.In this context the paper also considers empirical studies relied on by the ALRC which have attempted to estimate the economic effects of what they call copyright exceptions industries (CEI) that rely on exceptions to copyright law. These studies in effect attempt to assert that exceptions to copyright law might make a larger economic contribution than copyright law itself. These studies are being promoted to the ALRC and in other copyright law reform processes as providing empirical economic analysis of the economic benefits of copyright exceptions like fair use. To that extent this paper seeks to assess their strengths and weaknesses and whether they are “fit for purpose”.My general conclusion is that moves to extend copyright exceptions in response to the development of the digital economy are mistaken in that it will only serve to reduce incentives for the development of new creative works, which in turn is likely to reduce overall social welfare. Rather I argue the development of the digital economy requires the opposite response – namely the strengthening of copyright and the limiting of exceptions. The reason why is that the Internet has served to reduce transaction costs. Transactions costs provide the basic rationale and define the economic scope for fair use exceptions. To the extent transactions costs are falling, the benefits of fair use also fall. The scope for fair use to contribute to innovation and economic growth is thus reduced. This necessitates a reduction in the extent of fair use laws rather than an extension.