Evidence-based policy making and the private copy

The Graduated Response does not require specific legislation - it can be founded on simple contract between right holders and ISPs (as in the US). However, its structure and, one might say, public legitimacy depend on the underlying copyright law. One of the most debated proposals of the Hargreaves Review of IP and Growth was that the United Kingdom should introduce a private copying exception. The Copyright Directive 2001/29/EC allows Member States to adopt such an exception and most EU countries have done so, usually introducing a levy on blank media or copying devices from which authors are compensated. The UK has long been implacably opposed to any kind of levy. This has accordingly been a key element in the case for or against a private copying exception.

In some countries, such as the Netherlands, the view is widely held that the downloading of pirate copies is sanitised by the exception for private copying. The downloader is not infringing copyright, so the argument goes - the legality of the source is irrelevant. However, right holders would argue that this notion is inconsistent with the Directive and some jurisdictions have agreed. In accordance with the Berne Convention, the Directive requires that all exceptions to the reproduction right must satisfy the so-called Three-Step Test, namely that the exception applies only "in certain special cases, provided that such reproduction does not conflict with a normal exploitation of the work and does not unreasonably prejudice the legitimate interests of the author" (Article 9(2), Berne). 

In September 2012, in ACI Adam BV and Others v Stichting de Thuiskopie and Others (Case C-435/12) the Dutch Supreme Court referred this question  to the Court of Justice of the European Union (CJEU), so we shall find out eventually who is correct. Of course, Member States are free to provide that copying from an illegal source is not permitted and many do, whether or not Berne and the Directive require it.

Mr Hargreaves and the UK IPO have been emphatic about the need for evidence-based policy-making. Curiously, it seems that evidence-based policy-making can proceed retrospectively: a policy is adopted, then evidence is sought to support it. The dangers of this approach became apparent yesterday with the publication by the UK IPO of economic research into the so-called pricing-in of the cost of private copies.

In December 2011, the IPO consulted on Hargreaves' proposals for exceptions and in December 2012 published its response, approving its proposal for a private copying exception without compensation.

Under the Directive, the "legitimate interests" of authors are protected by the requirement that it is a condition of a Member State's adoption of a private copying exception that "the rightholders receive fair compensation which takes account of the application or non-application of technological measures" (Article 5(2)(b), Directive). In Padawan v SGAE (Case C-467/08) the CJEU held that private copying "must be regarded as an act likely to cause harm to the author of the work concerned" - in effect a presumption that compensation is required to the right holder if there is a private copying exception. However, it clearly remains a factual matter how far right holders are harmed by the loss of their right to license private copying. The Directive says that "where the prejudice to the rightholder would be minimal, no obligation for payment may arise" (Recital 35). 

The UK maintains that right holders suffer no harm from private copying, as they can "price in" the cost of the opportunity to make a private copy when selling the content. Therefore, no compensation is required. This idea first appeared in the Gowers Review of Intellectual Property (2006), in a more nuanced form (it was recognised that the pricing-in could not be assumed for existing copies in consumers' hands). Although Gowers was on a different level of quality compared with the Hargreaves Review, this was a piece of nonsense, as it assumed that the market for content was always completely price-inelastic. Hargreaves simply asserted that "As rights holders are well aware of consumers’ behaviour in this respect, our view is that the benefit of being able to do this is already factored into the price that rights holders are charging." As for evidence, however, there was none.

Yesterday the IPO published an empirical study by Roberto Camerani and others, Private Copying. The research shows that home entertainment distributors can and do charge more for copies which can be copied – such as UltraViolet-enabled copies. This is what one would expect in a market which gives at least some protection to copyright works and in which technological measures are at least somewhat effective to allow retailers to segment the market in accordance with willingness-to-pay.

At the same time, the economists say in relation to music: “We did not find any evidence in support of a widely-held view that stores are including in their price the permission to copy.”  In the summary, they say: “However as private copying for personal use is widespread and allowed in the UK, it is plausible that private copying is already largely or fully priced in the UK market.” I cannot notice any basis for that rider in the body of the report (and one wonders whether the sentence was not suggested by some helpful civil servant), but it may be right: if content is very widely available without copy-protection, right holders are probably not able to charge a supplement for the opportunity to make a private copy. It does not follow, however, that they can in fact charge all purchasers for that possibility by pricing it into all retail prices - even if right holders were the price-setters. All that is for another discussion.

Be that as it may, it results that price discrimination in the audiovisual market is empirically observed. Home entertainment retailers can charge more for the right to make private copies - or not do so.  Two points follow. First, the market has worked to provide private copying solutions, so an exception is not required for audiovisual content (unless we think it is a bad thing that people can get the content they want by paying for it). Second, the assumption that the possibility of copying is priced-in to non-licensed products is false. This is surely because digital rights management works well enough to prevent the average consumer from copying – as the film industry has always said.

I wonder whether this means the end of the UK proposal for a private copying exception for audiovisual content - or the end of the short life of evidence-based policy-making...