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2.3 PRIVATE ACTIONS IN THE PUBLIC INTEREST

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Finally, in asserting in The Federalist that "the public good fully coincides. with the claims of individuals [ for copyright and patent protection 7" Madison made a bold statement with profound economic as well as poTitical implications. The statement implies, first, that there exists a "public good" that is distinct and separate from individual or private goods. Second, it is implied that the Government may grant incentive benefits or remuneration to individuals for private and voluntary activities that are consistent with the public good. Third, in the cases of patents and copyrights, the private benefits to be granted by the Government will have no public effects except good effects; and fourth, the value of benefits granted is equivalent to the public good thereby obtained.

These implications raise issues that even today, have not been fully analyzed and may never be fully resolved. They are in the arena of what has been referred to as the theory of public goods or public expenditure analysis, but which Professor Peter Steiner has broadened to call "the theory of the public interest."7 These economic theories "concern the way in which demands for public activity arise, are articulated, and are legitimatized. "8 The theories include the definition and classification of public goods and the mechanisms of their creation, financing, and distribution. In the case of intellectual property, the specific public good is the protection offered to copyright proprietors by the Government through its registration and enforcement mechanisms. Note that the Government protection is the public good; the individually-held copyright is a private asset.

2.4 MARKET FAILURES AND PUBLIC GOODS

Public goods may be differentiated in general from private goods and from collective goods. The necessity for public provision of a good may arise because the technical nature of the good is such that a private market, however perfectly competitive, would not be able to provide it.

The need for a public good may arise also if the imperfections of a real market create public "bads" (e.g., an externality, for example, pollution) which only Government action can cause to correct. In either case, "market failure" is said to occur. If some group of persons acting together take cognizance of the inability of the market to supply the good and provide the good for themselves outside of the free market activity, a collective good results. "Any publicly-induced or provided collective good is a public good,"9 according to Steiner.

In the case of copyright protection, a conventional economic analysis would state that the need for a public good arises because intrinsic technical characteristics of an intellectual work prevents the operation of the perfectly competitive market for such works without Government intervention. One technical characteristic is simply that an original authored work fixed in any tangible medium of expression (i.e., a

copyrightable work) is typically reproducible at a very low cost in the same or similar medium. The work is also subject to plagiarism. In the presence of these technical facts, and with the condition that the author or his assignees have a property right in the work, a market failure would result without the protection and enforcement power of the Government. The market failure is that without copyright protection the author or rights proprietor would not be able to fully appropriate the economic value of originality through sale.

2.5 PROTECTION FOR PUBLICATION AS WELL AS CREATION

The conventional economic analysis given above has been discussed in a perceptive paper on "The Economic Rationale of Copyright" 10 by Professors Robert M. Hurt and Robert M. Schuchman. One question these authors ask is: "Does the copyright system induce the creation of new goods which would not have been created in the absence of copyrights?"11 The authors answer that "copyright does lead to the creation of new goods by encouraging the assumption of greater risks. "12 It is necessary to comment, however, (as Hurt and Schuchman imply) that many kinds of works are subject to copyright, and the importance of copyright for the creation of new works varies with the type of work. In particular, for scientific and technical research papers, copyright is typically of minor importance to the authors of such papers even though publication is very important to them. The remuneration to authors of research papers occurs indirectly through increased salary, improved job security, prizes, travel opportunities and prestige, but not typically from the sale of papers.

However, copyright is extremely important to the publishers of such papers because (as is pointed out in Appendix B of this report), copyright protects the publishers' opportunities to cover their fixed costs. Thus in the case of research papers, copyright does not lead directly to the creation of new goods, but rather to the direct protection of channels of publication for already-existing goods. (This may lead, as a secondary effect, to the further creation of new goods of a similar type for distribution through the protected publication channels.)

2.6 THE VALUE JUDGMENT OF COPYRIGHT

Under the assumption, then, that copyright increases the creation and/or publication of some original works of authorship, Hurt and Schuchman then inquire "whether the reallocation of resources induced thereby is conducive to general welfare." 13 One argument is that copyright encourages literature, which like education, has greater intrinsic merit than its alternative product. Thus social welfare in enhanced. Hurt and Schuchman state that this assumption is in the nature of a value judament. This is undeniable. It may be noted, in addition, that such a judgment was conceivably in the minds of the Constitution ratifiers who voted "to promote the progress of science and the useful arts" without conclusive proof that copyright protection (along with patent protection) was the most economically efficient or socially equitable method of

pursuing that goal.

However, the Judiciary has held that this Constitutional qualification is explanatory and not prescriptive; and that a copyrighted work need not specifically promote anything as publicly valuable as science or the useful arts, however those terms might have been defined in the 18th century or are defined in the 20th. At present, the judgment of (U.S.) society is, as expressed in law, that any "original works of authorship fixed in any tangible medium of expression "14" that are accepted for copyright protection are more valuable than the alternatives, whatever they might be.

Furthermore, copyright protection provides society with no comparative value judgment as to the inherent worth of a particular work of authorship; although the availability of copyright may be a Lockean/Madisonian judgment that all such works are qualitatively worth something. Copyright protection is primarily a mechanism designed to correct a flaw or failure in the competitive economic market. As such, it carries no intrinsic predetermined dollar value for any work so protected. It may be, therefore, that "copyright seems to be an inefficient device for simply rewarding authors "15 as Hurt and Schuchman suggest, but specific financial reward for an individual never has been shown to be the function of copyright. Copyright is directly pertinent to the market for works, and certainly pertinent to the rights of authors, but secondary to authors' specific income. Although copyright protection makes possible a certain monetary compensation for all those involved on the producer side of the economic market for works of authorship, remuneration occurs only to the extent of the revenue that can be obtained from the set of costs, prices, and quantities of sale that market conditions permit. As persons of uncommon taste or strongly-held belief can attest, market prices and revenues rarely reflect an individual's sense of basic priorities or fundamental values. The just rewards to the creators of intellectual works of lasting value that advance the state of civilization will not be through the market mechanism, however protected, by copyright or otherwise.

2.7 SUMMARY

This chapter has provided a background in the foundations of copyright, both ideological and economic. It has considered the question of who gains from copyright protection and the extent, if any, of value judgment in copyright.

The ideological basis for copyright has been shown to be closely related to the concept that each person has the right to control the products of his own creation. This natural right evolved into common law copyright in Great Britain; and the limitations of the protection inherent there was part of the rationale for the Copyright Clause in the Constitution.

Because of the rights of the creator or his assignees, a technical failure exists in the market for intellectual property. The technical

failure, which is the ease of misappropriation through copying or plagiarism, is corrected through a public good, the Government protection of copyright. Note that if there were no inherent right in the copy, there could be no misappropriation, and consequently no implicit market failure. Thus, there would be no reason for Government intervention in the free market.

Copyright is of importance to the publisher as well as the author. This is particularly true in the case of scientific journals. However, the fact of copyright carries with it no comparative value judgment of works so protected. The economic worth of a work is determined in the marketplace where remuneration for the author and/or publisher may (or may not) be obtained. Copyright is not a financial subsidy for authors nor was it ever meant to be. It is a tool through which an author or his assignees may earn an income in the marketplace, if they so choose to use the tool in that manner.

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The Constitution was declared in effect on March 4, 1789, having been ratified by the minimum nine States and two others by that time. The first U.S. Congress began regular sessions on April 6, 1789 and the Copyright Act of 1790 was adopted on May 31 of that year. charts, and books were covered by the first Act. The very early adoption of a Copyright Act may be indicative of the general inclinations of the members of our first Federal government towards the pursuit of knowledge for its practical implications. A less practical, more esthetic class of work, prints, were protected in 1802, although Taubman states that the art of the engraver had been protected in England by 1735.17 Musical compositions embodied as sheet music were added as a protected class in the general copyright revision of 1831. Photographs were added by the Act of 1865 and works of fine arts were enumerated in the second general copyright revision in 1870.

The adaption of the copyright laws to the technologies of the twentieth century (except for computer technology) is detailed in Appendix A, Chapter A.2 of this report. Much of the following part of this chapter is essentially a summary of that material. Special organization and additional information and interpretation have been added to clarify and elucidate certain concepts.

3.2 COPYRIGHT IN SOUND RECORDINGS

This technology is considered first because of the early consideration by the Supreme Court of a principle that was to have effect on thinking about copyright, even with respect to other technologies, until 1976.

The essential question at issue before the Supreme Court in the 1908 case of White-Smith Music Publishing Co. v. Apollo Co. was whether a perforated piano roll constituted a "copy" of sheet music. Now a piano roll, which is simply a cylinder of hard material with holes in it, is a sound recording, as that term is understood today. True, music is only heard when the piano roll is used together with a properly-instrumented piano, but the analogy with a phonograph record or magnetic tape is clear. Neither of those latter recording media contain sounds either; they contain grooves or altered magnetic domains. When a record or tape is used together with properly-instrumented equipment, the intended music is heard; and it cannot be heard from the recording without that equipment or other equipment performing the same function. In effect, the piano used with the piano roll is the playback equipment.

However, sound recordings were not a protected class in 1908 and the Supreme Court decided in White-Smith that the definition of a copy of a musical composition was "a written or printed record of it in intelligible notation." To the Supreme Court in 1908, a piano roll, or for that matter a phonograph record, was not a copy (because it was not

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