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P E R S P E C T I V E S PHOENIX CENTER FOR ADVANCED LEGAL & ECONOMIC PUBLIC POLICY STUDIES Free Markets, Monopolies, and Copyright George S. Ford, PhD June 25, 2014 Critics of copyright law sometimes refer to it as In this PERSPECTIVE, I present a brief argument a grant of a “monopoly” right to the author, against both the use of the “monopoly” artist, or creator of a copyrighted work. In fact, terminology for copyright and the related claim the use of the term “monopoly” in the copyright that copyright is incompatible with laissez-faire context is a misnomer: While a copyright holder capitalism. To do so, I appeal to authority by retains the exclusive rights over his or her own looking at the writings of arguably the three particular work, the artist must compete in the most respected and vocal advocates for laissez- market with many close substitutes and thus faire economics—Ludwig von Mises (mentor of lacks the character of the “textbook” monopolist Friedrich Hayek), Milton Friedman, and and its associated market power (i.e., the ability philosopher Ayn Rand. Given the work of these to raise prices above competitive levels for three, and some modern documents on the issue extended periods of time). Indeed, the related to the “monopoly” lingo, I conclude that consensus today among experts is that the artist the arguments that copyright is inconsistent does not hold a “monopoly” in the usual with laissez-faire capitalism and constitutes a economic/antitrust sense of one actor having “monopoly” are exceedingly difficult positions control of an entire market; rather, the owner of to defend.4 As such, the keys to intellectual a copyright only has control over certain uses of debate surrounding copyright do not lie in such his or her particular work in the market. arguments, but rather rest in a detailed, rational analysis of the trade-offs inherent in specific Notwithstanding the above, those wishing to proposals. argue that copyright is antithetical to laissez- faire capitalism often seek to invoke the word What is Copyright? “monopoly” because of its pejorative nature.1 Since the concept of laissez-faire emerged in the The current legal regime of copyright in the U.S. 16th century as a counter to the widespread use is based on Article I, Section 8, Clause 8, of the of monopoly grants in the mercantilist model U.S. Constitution, which authorizes Congress: adopted by the European governments of that To promote the Progress of Science and useful era (including monopolies over printing), this Arts, by securing for limited Times to Authors link is not terribly surprising.2 Modern and Inventors the exclusive Right to their copyright law secures no such monopoly over respective Writings and Discoveries. printing (or any other mode of expression), but This clause empowers the legislature to secure by casting copyright in opposition to laissez- for authors and inventors the exclusive right to faire capitalism, some hope to sway their respective works and discoveries.5 “conservative” lawmakers to weaken copyright enforcement.3 Of course, the idea of copyright was not original in the U.S. Constitution, but dates back to PHOENIX CENTER PERSPECTIVES 14-04 P E R S P E C T I V E S ancient Jewish and Roman law.6 Yet, the real continues in use to this day, though it is plainly need for formal copyright began with the a misnomer. invention of the printing press in the 15th and 16th centuries. As they did with many In the formative years of the United States, the businesses at this time, the governments of need for copyright was well understood. Europe granted monopolies (in the true sense of However, the development of copyright law the word) in printing and document registration was somewhat ad hoc at first. Congress passed (e.g., the Stationers’ Company in England, the first formal law with the Copyright Law of which had exclusive control over essentially all 1790 (based heavily on the Statute of Anne), printing). Such monopolies were created by which granted a 14-year exclusive right for government so that it could both share in the books, maps and charts (extendable for another profits of such ventures and exercise censorship. 14 years if the author survived the first 14 year At the time, the government’s chosen actors term).7 Subsequent laws and treaties, typically controlled virtually all printing, and thus were extending the term of copyright and broadening very much like a monopolist as understood in its scope (e.g., to musical compositions, pictures, modern economics (i.e., a single seller protected sculptures, derivate works, and so forth), by entry barriers with no close substitutes). appeared in 1831, 1909, 1954, 1971, 1976, 1988, 1992, 1994, 1992, 1994, and 1998.8 Today, copyrights generally expire 70 years after the Given the work of [von Mises, author’s death, a term set in the Sonny Bono Friedman and Rand] … the Copyright Term Extension Act of 1998,9 a term arguments that copyright is proposed, interestingly enough, by John Locke in 1694.10 The Digital Millennium Copyright Act inconsistent with laissez-faire of 1988 is another significant law on copyright.11 capitalism and constitutes a Notably, none of the copyright laws in the U.S. “monopoly” are exceedingly awarded a monopoly right to control the difficult positions to defend. production or distribution of all creations. Since the ratification of the U.S. As with most monopoly privileges of the era, Constitution, the issue was not such exclusive rights began to be curtailed or whether or not to secure the eliminated during the Age of Enlightenment in exclusive right, since that much the late 17th century. The British Statute of Anne in 1710 laid the foundation for most modern seems required. Rather, the issue is copyright law. Rather than creating the form such rights take and the government-sanctioned printing monopolists, types of work the law encompasses. the Statute of Anne granted an exclusive right, limited in duration, directly to the author (and his or her chosen printer) of a particular work. Since authors and printers were numerous, the market Obviously, copyright law has evolved over time, for intellectual property was now competitive in both generally and in the United States. Since nature, and censorship was greatly curtailed. the ratification of the U.S. Constitution, the issue Unfortunately, even though modern copyright was not whether or not to secure the exclusive law does not grant a monopoly over “printing” right, since that much seems required. Rather, all materials, the “monopoly” language the issue is the form such rights take and the types of work the law encompasses. PHOENIX CENTER PERSPECTIVES 14-04 PAGE 2 P E R S P E C T I V E S Markets, Monopoly and Copyright “laissez faire”—an idea attributed to the 18th century group of economists known as the The copyright equals “monopoly” and is Physiocrats—became popular at a time when antithetical to laissez-faire capitalism positions government-granted monopolies (and other are made most directly in the retracted 2012 forms of regulation) were common, especially in Republican Study Committee (“RSC”) Report: France.14 Adam Smith was heavily influenced by the Physiocrats and their laissez-faire Copyright violates nearly every tenet of laissez- faire capitalism. Under the current system of philosophy, and his Wealth of Nations was copyright, producers of content are entitled to a largely a brief against such monopoly grants guaranteed, government instituted, government (and other forms of regulation, collectively subsidized content-monopoly.12 known as Mercantilism).15 While I do not and cannot ascribe this extreme position to all those calling for copyright reform, … U.S. copyright law does not the sentiments regarding “laissez-faire” and “monopoly” appear, to varying degrees, in other grant monopolies, but rather secures statements regarding copyright. rights to authors, artists, performers, designers and other Certainly, the use of the term “monopoly” can be found in legal scholarship, economic creators in their particular works. research, and case law. I suspect the use of Such artists must compete with “monopoly” terminology is largely attributable thousands of others for the to the practices in the distant past, when, in fact, attention of the consumer, so government-sanctioned monopolies in printing were granted. Again, U.S. copyright law does modern copyright is a far cry from not grant monopolies, but rather secures rights the actual practices centuries ago of to authors, artists, performers, designers and granting a monopoly. other creators in their particular works. Such artists must compete with thousands of others for the attention of the consumer, so modern copyright is a far cry from the actual practices I believe this view that copyright is incompatible centuries ago of granting a monopoly. Also, with laissez-faire capitalism and constitutes a government no longer plays a (meaningful) role monopoly is incorrect, but let’s not take my in what gets printed, sung, or painted in the word for it. Below, I will consider the opinions U.S., so censorship is not an issue. of three of history’s most recognized advocates of laissez-faire capitalism—Ludwig von Mises, Unfortunately, the “monopoly” terminology Milton Friedman and Ayn Rand. Among persists. As a consequence, analysts often economists, Ludwig von Mises (1881-1973) evaluate copyright using the simple economic makes one of the strongest cases for laissez-faire arguments against monopoly despite the fact capitalism. His views are described by the that monopoly is no longer a good fit for Ludwig von Mises Institute (located near my copyright. Monopoly is also most amenable to alma mater, Auburn University) as follows: the mathematical modeling of economists, and I Mises concluded that the only viable economic suspect this fact plays a large role in the use of policy for the human race was a policy of 13 the “monopoly” lingo in economic research.