The CCIA's "Fair Use in the U.S. Economy" Report

By Dennis D. McDonald

The Computer and Communication Industry Association (CCIA) has published a research report titled Fair Use in the US Economy: Economic Contribution of Industries Relying on Fair Use. This is how Fair Use is described in relation to copyright law:

Fair Use protects competition by guaranteeing that companies can reverse engineer software so that their products will work and ‘interoperate’ with the products of their competitors. Fair Use guarantees journalists, scholars and ordinary citizens the right to quote and abstract from others’ writings, and so buttresses basic rights of free expression. And Fair Use guarantees that technological innovations such as the Internet itself, whose very function is to copy information from one place to another, can operate normally without running afoul of copyright law. Fair Use thus helps to ensure that the benefits of copyright accrue to the public. It produces a multiplier effect without which we would all be poorer.

That statement intrigued me. It actually says something about the benefits of Fair Use instead of just sticking to the inscrutable language of the Copyright Law that has, for so many years, caused so much uncertainty and disagreement, especially in the educational sector.

One idea behind Fair Use is that there are limits to the rights accorded to copyright owners. Another idea is that there are certain uses of copyrighted works that are permissible without obtaining permission or making payment in advance.

Opinions about where to draw the line on such things have always differed according to which side of the copyright fence you sit on. Since the CCIA doesn't appear to have any publishing, music, or movie companies in its membership, even though most of the companies represented do, in fact, perform significant amounts of publishing and media generation, I was extremely interested to learn about the methodology used in the study as well as its findings. (Early in my own career I was involved in generating studies related to issues like copyright and Fair Use. I therefore have some sympathy for anyone who attempts to generate objective data that illuminates issues in contentious areas such as copyright and Fair Use.)

Which industries benefit from Fair Use? According to the report, these are the ones:

• manufacturers of consumer devices that allow individual copying of copyrighted programming
• educational institutions
• software developers
• internet search and web hosting providers

As you start to read the report, you might see that there is a potential disconnect between what is reported in the document itself and how the report is being publicized and talked about.

In the CCIA's press release, for example, the statement is made: "The exhaustive report, released today at a briefing on Capitol Hill, quantifies for the first time ever the critical contributions of Fair Use to the U.S. economy." Based on reading such statements, the casual reader might be inclined to conclude that the report states that Fair Use exemptions generate -- in a "cause and effect" sense -- massive quantified benefits to the U.S. economy. Is that, actually, what this report  says?

The report's title, after all, is Economic Contribution of Industries Relying on Fair Use. Note the phrase "relying on Fair Use." That is a significant difference. To understand why requires a reading the report itself and how its research was conducted.

In the Executive Summary, a series of definitions is provided of the manner in which industries that utilize Fair Use have grown or contribute to the economy. These categories include:

• Revenue
• Value Added
• Employment
• Productivity
• Exports

For each category data are presented to demonstrate how "Fair Use" industries have grown in size. For Employment, for example, the following statement is made:

"Employment in industries benefiting from Fair Use increased from 10.5 million in 2002 to 10.8 million in 2006. Thus, about one out of every eight workers in the United States is employed in an industry that benefits from the protection afforded by Fair Use."

Does Fair Use actually generate this employment? Such questions are not answered in the Executive Summary since the actual connection between Fair Use and industry and employment growth are not explained.

This type of question begins to be answered in Part I of the report, where "search portals and web hosting" are pointed out explicitly as industries that have benefited directly from Fair Use. Specifically, reliance on Fair Use, according to the report, enables search services to operate, presumably because obtaining individual licenses and permission for everything that is indexed would be prohibitively expensive. Also pointed out in the report is the copying of code that is necessary component of computer programming. Fair Use is described as an enabling factor that makes certain programming related activities possible:

The Fair Use doctrine also permits end users of copyrighted material to make digital copies of programming for personal use. Thus, because of Fair Use, consumers can enjoy copyrighted programming at a later time (“time-shifting”),  transfer the material from one device to another (“space shifting”), and make temporary cache copies of websites on service provided by search engines is Fair Use. Absent the exceptions to copyright law provided by the Fair Use doctrine, search engine firms and others would face greater liability for infringement, a significant deterrent to providing this valuable service. Such an outcome would thwart the educational purposes and growing commerce facilitated by Internet search engines, thereby reducing the value of the Internet to the economy.

There is a lot tied up in the above paragraph. As with many knotty copyright related issues, though, the devil is in the details. Part III of the report, Specific Industry Benefits from Fair Use and Other Limitations and Exceptions to Copyright Law, begins to get at these details.

The report's Table 1 displays a lengthy classification of individual industries along with an industry description and a listing of Fair Use and Copyright related legal definitions that support that industry's business practices. This table appears to be the foundation for the linkage between "Fair Use" and the economic measures that are associated with these different industries. This is a key point, I think, that is not explored fully enough in the report.

Partly in recognition that different types and levels of use are made of copyrighted works in the different industries, the study does distinguish between "core" and "non-core" industries and presents statistics on employment and the other factors separately for the two groups:

Core industries are defined as industries that produce goods and services whose activities depend in large measure on the existence of limitations and exceptions provided in U.S. copyright law. The heart of the core group includes companies whose operations hinge on the Internet. Due to the nature of the Internet – in particular the intensive use of temporary copies – all of the Internet-based industry groups and industries are included in the fair-use core.

"Core industries" are listed  as follows:

• Architectural, engineering, and related services
• Audio & video equipment manufacturing
• Computer and office machine repair and maintenance
• Computer and peripheral equipment manufacturing
• Data processing, hosting, and related services
• Directory, mailing list, and other publishers
• Education services
• Electronic auctions
• Electronic shopping
• Graphic design services
• Independent artists, writers, and performers
• Insurance carriers
• Internet publishing and broadcasting
• Internet service providers and web search portals
• Legal services
• Manufacturing and reproducing magnetic and optical media
• Motion picture and video industries
• Newspaper publishers
• Other financial investment activities
• ther information services
• Other investment pools and funds/
• Performing arts companies
• Photographic & photocopying equipment mfg
• Scientific research & development services
• Securities, commodity contracts, and investments
• Semiconductors and related device manufacturing
• Software publishers
• Sound recording industries
• Video tape and disc rental

The astute reader will note that a number of the "core industries" listed above rely heavily on Fair Use as well as "regular copyright." Some are also creators of copyrighted works. That shouldn't be a surprise but it does point out one of the typical difficulties in addressing intellectual property issues using standard economic concepts. (Of course, there is no reason why the same company can't be both a "producer" and a "consumer" of intellectual property.)

Conclusions

Left unanswered by this report is the manner in which intellectual property accessed under Fair Use actually contributes to the economic size and growth of a particular  industry.

There is a difference between saying that "Fair Use principal X is relevant to the operation of Industry Y" and "Fair Use Principal X Generates Direct Economic Benefits for Industry Y." We don't really know specifically what the linkage mechanism is.

Is it that the intellectual content of copyrighted works contribute to the thinking of creative employees in Industry Y who invent new widgets to sell? Or is it just that Fair Use Principal X means that Industry Y doesn't have to pay for the use of copyrighted works whose intellectual content benefits them?

The report's failure to explore this type of question significantly reduces its value, in my opinion.

Let's assume, for example, that Google early on would have been hobbled had it been required to seek permission and offer payment for all uses it made of copyrighted works in the course of its construction of its indexes and its creation of its processes for selling advertising that is built at least partly on the availability of the materials it indexes.

Would Google have been strangled right from the start? Or would Google have applied its creativity and programming expertise to solving the problem of digitally-enabled rights and permissions transactions?

We can't really know, and such questions as this are hypothetical and academic.

Despite my questions about the study, I think it is valuable. It does provide a different perspective on the value of intellectual property to the economy. I also applaud the inclusion of the details in the appendices of how the calculations were created. But I'm not sure that it's going to change any minds about this issue of Fair Use.