Furniture, Rent-Seeking And The Problem With Laws

Law often takes on a life of its own.

We see this all the time. First, parliament introduces a law to solve a public policy problem. Decades pass. Things change. Perhaps the problem might no longer be considered a problem. Technologies change. Opinions change. But it is easier to pass a bill than repeal an act. Special interests come to rely on the status quo. As a result, governments often reconceptualise why the law was first introduced in order to defend that status quo.

Nowhere is this pattern more obvious than in that cesspit of special interest rent-seeking that we call intellectual property law.

The United Kingdom has decided to increase the intellectual property protection for design – which covers manufactured artistic creations like furniture, jewellery, and architecture – from the life of the creator plus 25 years for registered design works, to the life of the creator plus 75 years. An extension of 50 years.

In practice this means design works will get the same length of protection enjoyed by other artistic creations. Furniture, architecture and jewellery designs will be treated much the same as songs and movies in copyright law. Once their protection expires, other manufacturers are free to reproduce the designs, as long as they describe their products as “replicas” or “reproductions” of original designs (lest they violate trademark law).

In Australia, furniture designers want the same changes. Here design protection lasts just 10 years. An Australian manufacturer told BRW in January that Australian design protection was inadequate. A spokesperson from the furniture manufacturer Herman Miller told Fairfax’s Domain last week that companies selling replica design furniture are “tricking the consumer and undervaluing the original design”.

There’s a lot of money at stake. The iconic Eames lounge chair will set you back about $8,000 if you buy an authentic one produced by Herman Miller. But the chair was first designed in 1956 and is long out of design protection. So you can get a replica of the Eames lounge chair for a tenth of that price from any number of retailers.

A licensed edition of the even more ubiquitous, and older, Eames plastic moulded side chair will cost the better part of $1000. Or you could pick up a replica for $80 or so.

Part of this price difference is due to quality. Another is the price of the brand – manufacturers are able to charge a premium for customers who want the real deal rather than an inauthentic product.

But none of that price difference is because the designers have to recoup the cost of the original design. It has been a long time since Herman Miller recouped the design cost on their lounge chair.

And that is all that matters. Justifying the UK change, the minister for intellectual property, Baroness Neville-Rolfe, argued it would right the “unfair” imbalance between manufactured designs and other artistic production.

But what does fairness have to do with it? Intellectual property law is not about being fair to furniture designers. Intellectual property has a purpose.

Standard economic theory says the market will under-provide creative products because creative products are easy to copy. To fix this, intellectual property offers creative producers a monopoly over their work. But that monopoly is only available for a time, because we, the consumers of creative work, have an interest in accessing and repurposing the back catalogue of human creativity.

All these caveats mean that intellectual property isn’t really property, as I’ve argued in the Drum before – it’s a regulatory workaround to an assumed market failure. It only has value insofar as it resolves that failure. It does not exist to funnel consumers into high-priced authenticity.

Furniture design is an example of a creative market that thrives despite lacking much of the intellectual property protection enjoyed by other creative works. Indeed, the fact that Herman Miller can still charge enormous sums for a design available at a tenth the price shows that both the cheap and expensive wings of the market can co-exist.

The availability of replica mid-century design means more people can enjoy better aesthetics at home. It is hard to see what public benefit restricting these designs to people who can spend $800 on a single side chair – as the UK government is doing – would provide.

Sure, on the scale of national politics, how long the design monopoly over Eames chairs should last is a pretty minor thing. But it is an informative one. If the government establishes privileges for one group others will want equivalent privileges.

The content of intellectual property law is almost never considered from first principles – that is, what do we fundamentally want our intellectual property regime to achieve. Rather, it is a scruffle of political power, long divorced from the theory of market failure and a textbook need for clever regulatory intervention.

The Coalition Government has spent the last few years trying to crack down on copyright infringement. If policymakers cared about the purpose of copyright protection they would only do so if it was clear that such a crackdown would lead to the creation of more new creative works. Of course there is no evidence that it will. But the holders of the rights to movies and music believe that pirates are depriving them of revenue. And governments listen because they’ve forgotten why copyright protection was introduced in the first place.

In other words, intellectual property has become its own justification. Put down your textbooks. This is how law works in the real world.

Opening statement to Commonwealth Legal and Constitutional Affairs Legislation Committee inquiry into the Copyright Amendment (Online Infringement) Bill 2015

Copyright is a limited quasi-monopoly privilege granted by the state to authors of creative works for a specific and utilitarian purpose, which is to encourage the development of new creative works. This, in my view, is the proper frame in which to consider any changes to copyright law or any new mechanisms to control copyright infringement such as are proposed in the Copyright Amendment (Online Infringement) Bill. To what extent will changes in the law encourage or discourage the creation of new works?

Parliament has a complicated balancing act to perform. Copyright, after all, is not socially costless. It constrains what we might be able to do otherwise with our own property. It prevents us from exercising rights to how we might use our printing presses, musical and television equipment, computers or internet connections. This is not at all to say that the copyright privilege is unjustified or unjustifiable—far from it—but that the utilitarian calculation that society needs to make when considering copyright is whether the benefits of any marginal changes to these privileges outweigh the costs to more fundamental rights like freedom of expression and the right for individuals to use their property and possessions as they see fit. This is why the Howard government’s 2000 Ergas report into intellectual property argued:

Over-compensating rights owners is as harmful, and perhaps even more harmful, than under-compensating them.

Quite apart from any freedom of expression concerns with the copyright bill before parliament, it is not at all clear to me that the social benefits conferred by this new censorship power to block access to websites outweigh the social costs. The Institute of Public Affairs has an in-principle objection to internet censorship on free speech grounds, which I think by now most people will be familiar with, but there is a specific issue I want to raise in the context of this bill.

The bill dramatically lowers the bar for which internet censorship is being proposed. After all, while the previous government’s internet filter proposed to block websites that were hosting violent pornography, child abuse material and so forth, the bill before parliament today proposes censorship on the basis that some websites host copyrighted content. The two censorship proposals are hardly the same scale and, in the case of copyright infringement, we are actually talking about a civil rather than a criminal wrong. The language in the bill is excessively vague. Other submissions have pointed to the undefined and broad consequences, for instance, of the word ‘facilitate’ and warned of possible judicial creep. But I would like to make a final observation.

Parliament, and the political process, is not a venue well-designed to calculate dispassionately the most efficient level of copyright privileges and the most efficient changes to enforcement mechanisms. This is a well-known collective choice issue. It may be possible to draw blackboard diagrams that determine the ultimate copyright rules and level of enforcement. However, unfortunately, policymakers lack the necessary information to do so. Copyright law therefore suffers from what Friedrich Hayek famously called the ‘knowledge problem’. That problem, in our view, presents a strong presumption against further increases in the copyright enforcement powers and an absolute presumption against internet censorship for copyright purposes.

Submission to the Senate Standing Committees on Legal and Constitutional Affairs inquiry into the Copyright Amendment (Online Infringement) Bill 2015

Executive Summary: The Copyright Amendment (Online Infringement) Bill 2005 is an internet censorship bill. It creates a new and potentially dangerous power for courts to censor websites. This power is not proportional to the harm it is intended to ameliorate.

The bill enables copyright holders to apply for court orders against internet service providers to block access to websites whose “primary purpose” is to facilitate the infringement of copyright. This amounts to a form of judicial censorship of the internet in the private interests of copyright holders. It is inappropriate in a free society.

In a submission to the September 2014 Discussion Paper into Online Copyright Infringement, the IPA argued that proposed copyright reforms will “do nothing to tackle the underlying dynamics” that have enabled a shift in social attitudes as to the desirability of copyright enforcement. This submission is substantially drawn from the arguments made in that previous submission. The previous submission, which outlines many of the arguments below in greater detail, is attached.

Copyright is not an unlimited right. Copyright enforcement needs to be carefully counterweighed against the rights that such enforcement might limit. Intellectual property enforcement is not a sufficient justification for the abrogation of a more central right: the right to freedom of expression. The Australian government does not censor websites that can encourage much more serious harm than copyright infringement. Internet censorship for the purposes of copyright enforcement constitutes a serious and disproportionate overreach of government power and a consequent threat to freedom of speech.

Available in PDF here.

Submission to Australian government Online Copyright Infringement Discussion Paper

The law governing copyright infringement in Australia is characterised by uncertainty and complexity. Technological change has exacerbated these problems, enabling large scale copyright infringement, which in turn has exposed a lack of social agreement on the desirability of copyright protection.

This submission argues that the Commonwealth government’s proposed reforms to copyright law do nothing to tackle the underlying dynamics that have led to these developments. Instead, they seek to tip the balance in favour of copyright holders. The proposed reforms:

  • Will do little to prevent copyright infringement;
  • Have an unacceptable impact on freedom of speech;
  • Increase, rather than decrease, the underlying uncertainties of copyright law in Australia, particularly while Australia lacks a ‘fair use’ exception;
  • Give the government the power to create new copyright frameworks by regulation; and
  • Constitute an attempt to shift the costs of copyright protection from copyright holders to internet service providers.
  • Furthermore, while the proposal to extend the safe harbour provisions in the Copyright Act is welcome, it helps illustrate the underlying uncertainties of Australia’s copyright regime.

This submission first outlines the principles by which copyright law reform must be judged.

Copyright is not an unlimited right – it is granted by the government in order to provide incentives for the production of creative work. As such, copyright law has to strike a balance between the interests of monopoly rights-holders and other users of creative works. The political bargain sustaining copyright is inherently unstable, and the instability is further exacerbated by unpredictable technological change.

In Australia, the imbalance of copyright is represented most obviously by the lack of a fair use exception for copyright infringement. This creates a great deal of uncertainty in its own right, but in the context of the government’s proposed reforms, weighing the copyright balance further in favour of copyright holders without introducing a fair use exception will substantially increase that uncertainty.

The submission concludes by outlining specific problems with the government’s proposals.

Available in PDF here.

Coalition In Murky Waters In Hunt For Online Pirates

One of the quickest ways for a company to cut costs is outsourcing. Even better when you can have the Government do your outsourcing for you.

This is the basic political logic behind the upcoming crackdown on online copyright infringement.

For the last year George Brandis has been hinting at a legislative crackdown on copyright infringement. It wasn’t quite an election promise in 2013, but it was definitely on the cards.

Now nine months into Government the Coalition is reportedly on the brink of announcing its approach. (Momentum for the policy was temporarily slowed by the unfortunate political storm around the budget – it was due to go to cabinet in early May.)

Here’s what we know. There are two proposals being considered, “graduated response” and a website blocking scheme.

In a graduated response scheme – sometimes called “three strikes” – internet service providers are required to penalise their users for pirating material on a scale of increasing severity.

Graduated response has been introduced in a number of countries around the world, including France, New Zealand, the United Kingdom, and South Korea.

Typically the scheme works like this.

Copyright owners notify an ISP that they believe a user has pirated copyright material. The infringing user is initially issued with warning notices by their ISP.

If those warning notices are ignored and the user continues to infringe, more serious consequences follow.

The final punishment is the disconnection of internet service altogether.

Why disconnection? Simply because disconnection is the most severe penalty ISPs can mete out. Their only “coercive” power over their customers is to stop doing business with them.

Under Australian law downloading copyrighted material is not illegal – it is not a crime, in any formal sense. (There are some copyright offenses which are criminal: things like importing, selling, or exhibited pirated material. Basically copyright infringement on a commercial scale. But simply downloading a movie for personal use is not.)

Rather, piracy is a civil matter. Enforcing copyright requires a copyright holder to sue the pirate themselves. But litigation is complicated and expensive. Determining exactly who has pirated a particular film or music track is not easy. Lawyers are pricey.

Litigation has an even bigger cost – to reputation.

American copyright holders did themselves enormous reputational harm earlier this century when they tried to sue the piracy problem into submission.

There were some appalling cases. Take the legal action against this single mother in Minnesota, who was threatened in 2004 with a $540,000 lawsuit after her daughter downloaded some music – a damages bill orders of magnitude larger than her $21,000 annual salary.

Stories like these didn’t just make the industry look greedy – it made them look cruel and vindictive.

Outsourcing the problem to ISPs with a graduated response scheme avoids the costly and controversial need to sue otherwise law abiding citizens.

Better to have the ISPs look like they’re the cruel and vindictive ones.

So unsurprisingly, as Nicolas Suzor and Brian Fitzgerald pointed out in an important 2011 paper, graduated response is counter to basic principles of the rule of law.

Disconnecting someone from the internet is a big deal. It’s easy to forget how integrated internet access is to the modern world. There is hardly a public or private service that does not rely on digital interaction with customers.

Graduated response schemes impose such a punishment on internet users without also granting them the legal protections they would receive if they were taken to court.

For instance, graduated response schemes offer little in the way of due process. Copyright infringement is not always clearly proven. The schemes place the burden of proof on the accused, rather than the accuser. Graduated response can easily become draconian.

And for what? There is no reliable evidence to suggest that graduated response schemes reduce copyright infringement, as one detailed study published in the Columbia Journal of Law and the Arts found this year.

The second proposal the Abbott Government is considering to tackle piracy is certain to be even less effective: requiring ISPs to block websites that facilitate the downloading of pirated material. Websites like the Pirate Bay host torrent files through which people share content.

Never mind that some of that content is “legitimate”. The last decade has conclusively demonstrated that when one avenue for piracy is closed off, another quickly appears. Exhibit A: Napster.

But more importantly, any such policy would come head to head with the Government’s professed support of freedom of speech.

In 2010 Malcolm Turnbull claimed that the previous Labor government’s internet filter was “dead, buried and cremated, and if it shows any signs of revival it will then be exorcised”.

But a policy that blocks torrent websites will be, in a very real way, the internet filter by other means.

A crackdown on copyright infringement was not one of the Coalition’s 2013 election promises. Defending free speech was.

If the copyright lobby convinces the Government to take responsibility for protecting its business model, that promise will be completely broken.