Eldred v. Reno

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Legislative Purpose - Harmonization with European Union Law?
The European Union's passage of a 1993 directive that extended European copyright protection to the life of the author plus seventy years appears to have provided the primary rationale for Congress' passage of the 1998 Sonny Bono Copyright Term Extension Act. This EU directive provided further cover for legislators by adopting the so-called rule of the "shorter term" under the Berne Convention. Consequently, while European authors would receive protection in Europe of life plus seventy years, Europe would only have protected U.S. works for a period of life plus fifty years, the prevailing copyright protection under U.S. law prior to the Sonny Bono Act. As a result, Congress was able to raise the specter of losing a favorable balance of trade in copyrighted material because our limited copyright protection placed us at a significant disadvantage in international trade vis-à-vis Europe. In reality, however, the 1998 Copyright Term Extension Act is little more than a piece of special interest legislation that cannot be justified as a limited protection designed to promote the useful arts and sciences under Article I, Section 8, of the Constitution.

Without regard to sub rosa motivation, Congress expressly stated the purpose of the copyright extension in their discussion of Senate bill 483 the Copyright Term Extension Act of 1996, the predecessor to S.505, which became the Copyright Term Extension Act of 1998.

The purpose of this bill is to ensure adequate copyright protection for American works in foreign nations and the continued economic benefits of a healthy surplus balance of trade in the exploitation of copyrighted works. The bill accomplishes these goals by extending the current copyright for an additional 20 years. Such an extension will provide significant trade benefits by substantially harmonizing U.S. copyright law to that of the European Union while ensuring fair compensation for American creators who deserve to benefit fully from the exploitation of their works. Moreover, by stimulating the creation of new works and providing enhanced economic incentives to preserve existing works, such an extension will enhance the long term volume, vitality, and accessibility of the public domain.

As such, the 1998 Copyright Term Extension Act can be viewed in a similar light to the 1995 effort to harmonize international patent law. This movement led to an international standard of 20 years rather than the former U.S. standard of 17 years. Clearly in the realm of international trade and commerce, Congress has broad discretion. Such broad discretion, however, should not, however, enable Congress to circumvent the Constitution's prescription of a limited copyright monopoly. If Europe had adopted a copyright in perpetuity, harmonization would clearly not be justified under the Constitution's copyright clause. As such, a threshold determination that a copyright term of life of the author plus seventy years satisfies the Constitution's mandate of a limited copyright monopoly designed to promote the useful arts and sciences is still necessary despite the importance of fixing international standards.

Additionally, Congress argued that U.S. passage of the Copyright Term Extension Act was essential to harmonize with an evolving international standard. However, given that the United States is the foremost producer of copyrighted works, how can an international standard even exist in the absence of U.S. participation in that standard? The Berne convention still mandates a minimum international copyright protection of life plus fifty years. As such, it becomes difficult to argue that greater European protection mandates U.S. passage of extended copyright protection as well. Once again, how far does this logic extend? If Europe passes a perpetual copyright tomorrow, should the U.S. follow suit simply to provide a level playing field for large multi-national corporations?

The claim of an attempt to harmonize U.S. and European copyright law is also factually specious. There has been no wholesale effort to harmonize U.S. and European copyright law. European law for example does not recognize the work for hire doctrine and in general takes a natural rights view of copyright at odds with the Constitution's mandate of a limited monopoly designed to promote the useful arts and sciences. As such, the claim of harmonization is simply a way to distract attention form what otherwise can only be viewed as corporate welfare.

Congress also offered several other secondary purposes for the Copyright Term Extension Act including:
1) the increase in life expectancy,
2) the effectiveness of the copyright term in securing adequate protection to authors and their heirs, and
3) the advent of the global information infrastructure and digital technology which have increased the marketable life of creative works. See Senate Rpt. 104-315, 104th Congress, 2d Sess. Copyright term extension act of 1996 at Sec. III Discussion.

Secondary Purposes - Protection of Artist's Heirs, Retroactive Incentives to Create
Of these secondary purposes, securing an additional twenty years of revenue was seen as essential to the protection of artist's heirs. Bill sponsors noted that it has long been accepted by Congress that copyright protection should protect the author and at least one generation of heirs. Consequently, due to increases in life expectancy, many authors are now outliving the 75 years of protection afforded to works published prior to 1978. As a result, legislators argued that the heirs of such authors will not receive the benefits to which they were entitled.

Even if the consideration of heirs is permissible under the copyright clause of the Constitution, the legislators argument is irrational at best. If a work over 75 years old is not generating significant revenues at the date of copyright expiration, the grant of an option for entitling a creator's heirs to another twenty years of monopoly revenues on an out of print work seems trivial at best. Conversely, if a work has remained commercially viable for seventy five years after its publication the heirs of such an author are unlikely to need any protection. Such a work seems likely to have generated royalties more than large enough to provide a generous annuity to the author's heirs. Consequently, granting a copyright extension for an additional twenty years is little more than a regressive tax on the public domain. The vast majority of America's are unable to gain access to materials at a competitive price or to produce derivative works based on the originally copyrighted material for an additional twenty years to provide additional income to people who are likely to be extraordinarily wealthy already. As such, to argue that the extension of the copyright term is necessary to protect heirs appears contrary to basic economic logic. Additionally, it is unclear whether, any additional revenues would actually flow to heirs. Most successful copyrighted works were likely sold to publishers years ago. As such, the Copyright Term Extension Act appears to be little more than a corporate windfall.

Economics of Copyright Extension

Present Value Estimation
If most copyrighted works return the vast majority of their revenue in the first seventy-five years, then an additional twenty years of revenue is virtually meaningless to the author in net present value terms. Additionally, at the time most authors negotiate to sell their rights to publishers the prospect of additional revenue many years in the future will be significantly discounted by the probability that such a work will remain commercially viable for over seventy five years. As such, the net present value stimulus to authors from an additional twenty years of protection is likely to be completely insignificant. Over forty copyright professors made precisely this argument in 1994 stating,

"Only a small percentage of copyright-protected works retain significant economic value 50 years after the author's death, and it is essentially impossible to predict at the time of creation which works will have long term economic survival value. This inherent economic riskiness makes the present value of a work at the time of creation only marginally greater."

See Dennis S. Karjala, "Comment of US Copyright Law Professors on the Copyright Office Term of Protection Study," 12 EIPR 531, 534 (1994). For the sake of argument, however, let's take the case of a copyrighted work that earns a constant stream of profits in for the entire period in question. As such, the value of the copyright on such a work can be analyzed as if it were an annuity. As such, assume that a given work generates 1 million dollars a year for either 75 or 95 years. Furthermore, lets assume the appropriate discount rate for this income stream is 10 percent.

    The Net Present Value of the Annuity for 75 Years at 10% = $9,998,831.32
    The Net Present Value of the Annuity for 95 Years at 10% = $9,992,137.71

As a result, an additional twenty years generating profits of $1,000,000/year at a discount rate of 10 percent is only worth an additional $6,693.61 to the author at the time of creation in net present value terms. Such a trivial amount is unlikely to alter the author's incentive to create or to significantly benefit the author's heirs in fact. This analysis, however, is not even essential to invalidate the copyright term extension's retroactive application. In the case of retroactive application, it impossible to provide incentives to create works that were already created over seventy-five years ago.

Bargaining under the Background of Law
It is, however, possible to argue that the retroactive extension is not an unanticipated corporate windfall. Since the beginning of the Republic copyright laws have been extended at least 3 times (1831, 1909, 1976). As such, it is conceivable that authors actually factored in the possibility of a copyright extension discounted by its improbability into the value of their copyrighted works. As such, the price a publisher paid for a given copyrighted work might have actually included the value of a potential copyright extension that could be considered an out of the money call option. Like any option, increasing the time to expiration increases its value. To assume that artists discounted the probability of a change in the legal regime into the negotiated price of their copyrighted work seems unlikely at best. The argument, however, does provide a weak counter argument, however, to the claim that the copyright extension is simply a corporate windfall.

It seems more likely, however, that both parties bargaining against the background the copyright term of seventy-five years prevailing for works published prior to 1978 have actually received precisely what they bargained for, i.e., 75 years of monopoly profits. When they purchased the rights in question they were well aware that the designs or literature in question would one day enter the public domain. As such, to provide them with an additional twenty years of revenue is simply to provide publishers with a windfall unanticipated at the time they purchased such rights.

The Useful Arts and Sciences
Presumably, copyright law must secure the Constitution's mandate that the copyright monopoly promote the useful arts and sciences. As such, in the absence of standing issues, a constitutional challenge to the copyright act on the grounds that it fails to promote the useful arts and sciences has theroretical plausibility. The Supreme Court has even made it abundantly clear that the primary purpose of the copyright monopoly is to serve the public interest. The court made this point clear in Twentieth Century Music Corp. v. Aiken, 422 U.S. 151, 156 (1975) stating,

"Creative work is to be encouraged and rewarded but private motivation must ultimately serve the cause of promoting broad public availability of literature, music, and other arts. The immediate effect of copyright is to secure a fair return for an author's labor. But the ultimate aim is, by this incentive, to stimulate artistic creativity for the general public good."

See also H. Rept. 2222, 60th Cong. 2d. sess. 7 (1909) noting, ("Copyrights are given not primarily for the benefit of the author, but primarily for the benefit of the public"). The court also emphasized copyright's public function in Fox Film Corp. v. Doyal 286 U.S. 123, 137 (1932) noting, "the primary purpose of copyright is not to reward the author, but is rather to secure the general benefits derived by the public from the labors of authors." See also Melville B. Nimmer and David Nimmer, "Nimmer on Copyright" 1.03 (A)(1996) (quoting Fox Film Corp. v. Doyal 286 U.S. 123, 127 (1932)) Based on these two cases, as well as the Constitution's mandate that copyright be used to promote the useful arts and sciences it seems at least plausible that a copyright statute which is unquestionably detrimental to the promotion of the useful arts and sciences is per se unconstitutional.

A retroactive extension of copyright cannot create incentives for artistic expression. The works have already been created and in most cases the authors are already dead. Additionally, if the rights to such a work were sold to a publisher such a windfall cannot possibly reward the author or his heirs who have alread bargained away their claims decades ago. Conversely, this 1998 copyright term extension clearly harms academics, libraries, artists, and students who are unable to cheaply access works that would otherwise be in the public domain. Current artists are also unable to utilize copyrighted material to produce derivative works. As such, the Copyright Term Extension Act leads to an unambiguous harm to academic research and artistic expression without providing for a corresponding increase in incentives to create artistic expression in the first place. Such an unjustified alteration of the delicate balance mandated by Article I, Section 8 of the U.S. Constitution is unjustified. As more works are taken out of the public domain the ability to create derivative works inspired by the classics is dramatically reduced. Such a loss of artistic expression is not offset by additional creative enterprise and, as such, cannot possibly be consistent with copyright's goal of promoting the useful arts and sciences.

Last modified April 11, 1999. Berkman Center for Internet & Society