Copyright and Contract Law: Economic Theory of Copyright Contracts
Journal of Intellectual Property Law
Volume 18 | Issue 1
Article 6
October 2010
Copyright and Contract Law: Economic Theory of
Copyright Contracts
Richard Watt
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Recommended Citation
Richard Watt, Copyright and Contract Law: Economic Theory of Copyright Contracts, 18 J. Intell. Prop. L. 173 (2010).
Available at: https://digitalcommons.law.uga.edu/jipl/vol18/iss1/6
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Watt: Copyright and Contract Law: Economic Theory of Copyright Contract
COPYRIGHT AND CONTRACT LAW: ECONOMIC
THEORY OF COPYRIGHT CONTRACTS
Richard Watf
TABLE OF CONTENTS
175
I.
INTRODUCTION
...........................................
II.
CONCEPTUAL FOUNDATIONS
III.
COPYRIGHT AND THE CONTRACTABLE SPACE ......
IV.
COPYRIGHT LAW AND THE PARTIES TO CONTRACTS FOR
COPYRIGHTED GOODS .....................................................
175
.........................
............
176
179
V.
STANDARD CONTRACT THEORY, AND SPECIAL CHARACTERISTICS
180
.....................................
OF COPYRIGHT CONTRACTS
VI.
INDIVIDUAL CONTRACTING
VII.
THE STRUCTURE OF ROYALTY CONTRACTS-ROYALTY VS.
.................... 185
BUY-OUT.............................
VIII.
COPYRIGHT ROYALTY CONTRACTS AND RISK SHARING...................
186
IX.
CONTRACTS AND INFRINGEMENT (PIRACY)
....................
189
X.
THE EFFECT OF COPYRIGHT LAW ON ROYALTY CONTRACTS......... 191
XI.
ASPECTS RELATED TO THE "FAIRNESS" OF COPYRIGHT
CO N TRACT S..................................................................................................
............................
.....
184
198
* Associate Professor of Economics at the University of Canterbury in New Zealand, and
General Secretary of the Society for Economic Research on Copyright Issues (SERCI).
173
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XII.
COLLECTIVE ADMINISTRATION OF COPYRIGHT CONTRACTS.......... 199
XIII.
OTHER ALTERNATIVES
..........................................................
X IV .
CONCLUSIONS ....
......
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...................................
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Watt: Copyright and Contract Law: Economic Theory of Copyright Contract
2010]
ECONOMIC THEORY OF COPYRIGHT CONTRACTS
175
I. INTRODUCTION
The economic theory of copyright is now well advanced and has covered
many issues related to the grant of copyright and the supply and consumption
of copyrighted goods. However, a very important aspect of the value chain has
been largely ignored-the fact that between creation and consumption, many
contracts are likely to be involved, and copyright will, logically, have effects
upon the way those contracts are written and interpreted. It is interesting that
economists themselves have not put the issue of contracts into the forefront of
the economics of copyright, since certainly the study of contracts and the
incentives that they create is of primordial interest to economists generally.
This Article reviews the scant economics literature that does deal with the
relationships between the legal institution of copyright and the contracts that
are then written along the value chain. It is to be emphasised that this Article
only deals with the economic theory literature, and does not consider the legal
literature. The principal objective is to clearly identify the research gaps that
exist, and to gain some perspective on the question of how these gaps might be
prioritised in terms of importance or urgency.
II. CONCEPTUAL FOUNDATIONS
The study of the economics of copyright often approaches the topic using
an incentives argument-copyright is granted to authors in order that they can
be appropriately remunerated for their work, so they thereby have the
appropriate incentive to provide that work. Under this approach, the central
problem for determining the correct legal copyright parameters is the balancing
at the margin of the incentive provided to authors and the access to works that
is available for users.
However, the mere grant of copyright, regardless of the parameters
involved, provides no guarantee of remuneration of any type or amount, and so
copyright alone cannot provide any sort of incentive for authors. There are two
other crucial elements that are also required in order that copyright does not
become a "straw-man." These elements are enforcement of copyright, and
contracts between rights holders and eventual users. Only contracts can
provide remuneration and thus incentives, while copyright together with its
effective enforcement are what pave the way for contracts to be written. That
is, without copyright and enforcement, contracts would be impossible. Thus, in
short, copyright itself is not an incentive mechanism, but (assuming that it is
enforced) it does allow an incentive mechanism, namely contracts, to operate.
It is also true that, under an enforced copyright system in the digital
environment, it is only via contracts that users actually gain access to
copyrighted material. Naturally, some of these access contracts might be very
simple-you pay me $20, and I allow you to take a CD-Rom with my content
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saved to it in such a way that you can access it, but payment of the price and
acceptance of the disk imply that you have contracted not to repackage and
resell the content in any way. Of course, there are other, minor, ways in which
one can gain some access to copyrighted content outside of a contract. For
example, any fair use that is provided for within the copyright law structure
does precisely this. However, the principal means of access is via contracts,
either explicit or implicit.'
If we then accept that the incentives provided to authors, and access
provided to users, stem not so much from the grant of copyright itself, but
rather from the ability that an enforced copyright law gives for bringing the
parties together via contracting, then we are justified in looking closely at the
way in which contracts for access to copyright are structured. Further, the
analysis of contracts is a very common theme within applied microeconomic
theory. For that reason, in the present document, I propose to look at both the
general economic theory of contracts, and the specific literature on contracts
for copyrighted works, in order to see what sort of overlap (...truncated)
