copyright owners from retaining all exclusive rights in situations not involving transfer of ownership of copies.

1.5 CONCLUSIONS

1.5.1 Technological Change and Copyright

1. An essential point at issue, as seen by decisionmakers in copyright policymaking, is the definition of the boundaries of the property right, regardless of the specific technologies involved.

2. A major effect of technological change is that it causes ambiguities in some of the definitions of property rights that may have seemed perfectly clear before the change.

3. An effect of successful technological change is a multiplication of interest groups organized around the new technologies. The increase in number of interest groups causes an increased incidence of inter-group conflict. This often results in additional rules as well as more complex rules regulating group interactions.

4. It seems inescapable that "a complex civilization necessarily develops complex political arrangements" if each interest group is granted a certain legitimacy through a democratic process.

1.5.2 Judicial Decisionmaking Under Technological Change

1. One viewpoint taken by the Federal Courts in copyright litigation is that if the general concept of the law then in effect can be extended to the new situation without stretching the law's meaning too far, it should be done. This interpretation is more likely to be employed when the decision so taken will not extend much beyond the boundaries of the specific case at hand, that is, will not affect the balance among interest groups.

2. A second viewpoint is that stretching the law's meaning (or specifically defining the ambiguous) beyond a certain point would be for the Federal Courts to take on a responsibility better left to Congress. This viewpoint is more likely to be taken in a situation in which a decision has ramifications beyond the particular litigants, i.e., affects the balance among interest groups.

3. In taking the second viewpoint, the Courts apparently recognize that Congress is much more capable of implementing a flexible solution involving give and take among interest groups, while the Courts are simply required to give a right-wrong solution. Therefore, it appears that the Courts have decided these cases

in favor of the side upholding the status quo, so that Congress can receive the situation without the effect of an unbalancing Court decision.

1.5.3 Models of Copyright Policymaking

1. Decisionmaking in copyright in the twentieth century has been essentially a pluralist process, that is, has consisted of compromises among various interest groups gathered around different functions related to copyrighted works.

2. The power arena model of Theodore Lowi which assigns decisions
to the distributional, regulatory or redistributional arenas
is a useful vehicle with which to examine copyright policy-
making.

3. Individual copyrights may be the ultimate distributional good, since they can be dispensed in small units, and since registration of copyrights does not reduce the stock of unregistered or uncopyrighted works waiting for claimants. Originality is an unlimited resource, although nurturing and institutionalizing originality may not be.

4. The effect of technological change has been, in Lowi's terms,
to move copyright policymaking from the distributional arena
(in the nineteenth century) to the regulatory arena (primarily
in the twentieth century). The regulatory arena is very close
in concept to the pluralist model of policymaking.

5.

As long as copyright continues to be seen mainly as a problem
of "balancing the equities" (i.e., in the regulatory arena),
Congress will retain the major role vis-a-vis the Executive
Branch.

6. Increasing concern for consumer welfare and for prevention of monopoly are indicative of redistributional concern and with the potential for increased Executive Branch involvement.

7. While not apparent at present, it is conceivable that changes
in prices of raw materials (such as paper) and other resources,
as well as technological change, may serve to bring copyright
more significantly into the redistributive arena; but probably
as part of a more encompassing and consumer-related issue, such
as "public access to information."

1.5.4 Economic Efficiency

1. Clearinghouses are useful multi-producer organizations for reducing the transaction costs of information and communication in the collection and payment of royalties for a permission system, but there may be a blurring of individual proprietor considerations.

1.6

2. The selection of blanket or per-use licenses on a least-cost basis in a permissions system may be technologically determined. For example, a computerized system of data base access is likely to develop usage information at low cost. In that situation, per-use calculation of royalties is not difficult.

3. With high data-collection costs of usage information, a blanket license is likely to result in lower overhead costs than a peruse license, provided the less-precise information available from the reduced data collection does not result in inequitable treatment of some of the concerned parties.

4. Price differentials in subscription charges between individual purchasers of journals and institutional purchasers are economically justified on efficiency criteria. This concept can be applied to computer-readable works that are sold, as it has been to journals.

5. The exemption from royalty payments for "worthy" users is inefficient because it forces the "less worthy" users to carry more than their share. On efficiency criteria, "worthy" use is public good which should be paid for by everyone.

6. Whether a copyright is an exercisable economic monopoly depends on the substitutability of other copyrighted works as determined by the actions of consumers of such works.

7. Since a researcher must be comprehensive in the literature of his field, there may be very little substitutability among works he must have.

8. The possibility exists that in some field of research, by virtue of economy of scale, an established system of suppliers and customers and already amortized costs of market entry, a single organization may achieve a virtual market monopoly over a class of nonsubstitutable computer-readable data bases.

9. If there were no copyright protection at all, there would still be the transaction costs of increased secrecy, cut-throat competition, and lowered opportunity for recognition of creative talents.

RECOMMENDATIONS FOR FURTHER INVESTIGATIONS

1. The potential for monopoly in the delivery of computer-readable
data-base access services, as discussed above and in Section
5.6.3, may be an area of useful additional investigation.
There is a need to consider the fostering of useful innovations
as well as the potential for monopoly pricing.

2. The effectiveness of discovery of infringements in the copying

and unauthorized sale and use of computer-readable works may need study. The question of the practical value of copyright protection can be raised if significant infringements can be shown to be occurring without discovery, prosecution and conviction.

3. New types of technologically-based intellectual property may be invented and new copyright problems may arise. Continuing review of inventions and innovations might be undertaken to examine the possibility of the need for further changes in the copyright statute.

4. The electronic journal, while strongly forecasted by some, has not materialized. A useful study would be a consumer-oriented (user-pull) survey, determining to what extent such a product would be acceptable and purchased by potential users.

5. The "worthy use" exemption from copyright royalty payments has been suggested to be economically inefficient. It could be hypothesized that innovations of intellectual products serving the market in which there is a worthy-use exemption would be stifled because of the potential for lesser returns. It would be useful to examine this hypothesis in a research project. 6. Additional examination of whether it would serve the public interest if computer programs were protected under a more-encompassing concept than copyright appears to be worthwhile.

7. While the concept of price descrimination between individual and institutional purchasers of scientific and technical information has been shown to be economically efficient, the legal ramifications controlling its use have not been examined in this report. Such an examination may prove valuable.

2. THE FOUNDATIONS OF COPYRIGHT

2.1 COMMON LAW AND THE PRINCIPLE OF NATURAL EQUITY

Article I, Section 8 of our Constitution gives to Congress the power

"To promote the progress of science and the useful arts,
by securing for limited times to authors and inventors the
exclusive right to their respective writings and discov-
eries;..."

The extant documents that might describe for us the original basis used by the framers of the Constitution for inclusion of this clause are very limited. The Federalist, written in 1787 and 1788 by Alexander Hamilton, James Madison, and John Jay in an effort to explain, defend and obtain support for the ratification by the States of the then-pending Constitution devotes just five sentences to the clause. In Federalist No. 43, James Madison wrote:

"The utility of this power of Congress 7 will scarcely be
questioned. The copyright of authors has been solemnly ad-
judged in Great Britain to be a right of common law. The
right to useful inventions seems with equal reason to belong
to the inventors. The public good fully coincides in both
cases with the claims of individuals. The States cannot
make effectual provision for either of the cases, and most
of them have anticipated the decision of this point by laws
passed at the instance of Congress."

Into Madison's short sentences are packed a wealth of social, economic and political philosophy. In his statement that "copyright of authors has been solemnly adjudged in Great Britain to be a right of common law," Madison implied that basic principles of British common law were valuable, and in addition, continued in effect in the United States; at that time newly-formed out of British colonies. Walter Pforzheimer, in a scholarly historical review of copyright law, has similarly quoted an 1807 Massachusetts decision as stating:

"Our ancestors, when they came into this new world, claimed
the common law as their birth-right, and brought it with them,
except such parts as were judged inapplicable to their new
state and condition."1

Professor Emmette Redford, in describing our legal and ideological heritage, has noted that "...early English judges looked not alone to custom, but also to reason and natural equity for their decisions."2 Thus, by citing British common law, Madison implied principles of natural justice which included the concept that each person has an inherent right to control of the products of his own creation.

The philosopher most associated with this principle and whose writings