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94-1476 at pages 67-71) includes the texts of agreements between educators on one side and authors and publishers on the other establishing standards of fair use for educational purposes. These agreements were reached at the urging of the Congressional committees, after a series of meetings between the opposing parties.

The problem of library photocopying for scholars and researchers is dealt with in Section 108 of the 1976 Act. The language of Section 108 makes it clear that library rights do not extend to "the related or concerted reproductions...of multiple copies...of the same material," or "the systematic reproduction...of single or multiple copies." In addition, the Conference Report on the proposed 1976 General Revision (House Report No. 94-1733 at pages 71-73) contains a set of guidelines agreed to by the opposing parties that define the extent of loans permitted in interlibrary arrangements. These guidelines were developed with the assistance of the National Commission on New Technological Uses of Copyrighted Works (see Section 3.8, below).

3.6.3 Current Situation

Despite the successful negotiations that resulted in the provisions of the 1976 General Revision, the photocopying problem is not fully solved. There does not exist at this time any fully-established clearinghouse or other mechanism for payment of royalties for photocopying beyond the guidelines established, nor is it clear that the current guidelines can be enforced. At present, an effort is underway through the auspices of the Association of American Publishers to establish a clearinghouse

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The decision to accept for copyright registration a work on a micromedium that would otherwise be copyrightable if intelligible to the unaided eye was made independently by the Copyright Office through its regulations. It was believed by that office that the 1908 Supreme Court decision in the White-Smith case, which had never been overturned, would not prevent the registration of a work on micromedia since that court ruling concerned a piano roll which was not intended to be made visually intelligible in its normal use. Since a work on any type of micromedia was intended to be made visually intelligible (with the aid of devices) when communicating information to people, the Copyright Office did not believe that the White-Smith ruling took precedence. The same reasoning was applied in the later acceptance for copyright of works on videotape. These regulations of the Copyright Office were generally accepted and not challenged in the Courts. The 1976 General Revision of Copyright Law removed any lingering doubts about these regulations by making copyrightability independent of the medium in which a work is fixed.

3.8 THE ESTABLISHMENT OF CONTU

Significant recognition of the need for the National Commission on New

Technological Uses of Copyrighted Works (CONTU) dates from 1967. It became clear at that time that the lack of adequate study of the problem of the impact of computers and information storage and retrieval systems on copyright would conflict with efforts to enact a general revision of copyright law.

The question of how the law would view computer uses of copyrightable works during the time that CONTU was deliberating and before Congress acted on CONTU's recommendations prevented quick agreement on the formation of CONTU and delayed its establishment. Ultimately, agreement was achieved among opposing interest groups on inserting a section in the proposed general revision of copyright law that provided that the law on the use of copyrighted works in computer systems was to be unaffected by enactment of the general revision. This paved the way for establishment of CONTU on Dec. 31, 1974 as P.L. 93-573.20

In addition, the "hold constant" section, Section 117, was enacted as a part of the 1976 General Revision of Copyright Law, P.L 94-553 on Oct. 19, 1976. The new Act takes effect on January 1, 1978. Section 117 states that:

"... this title does not afford to the owner of copyright in a work any greater or lesser rights with respect to the use of the work in conjunction with automatic systems capable of storing, processing, retrieving, or transferring information... than those afforded to works under the law...in effect on December 31, 1977..."

The function of CONTU (according to P.L. 93-573, Section 201) is to
study and make recommendations to Congress on legislation or procedures
concerning:
"(1) the reproduction and use of copyrighted works of author-

ship--
(A) in conjunction with automatic systems capable of
storing, processing, retrieving, and transferring in-
formation, and
(B) by various forms of machine reproduction, not in-
cluding reproduction by or at the request or instructors

for use in face-to-face teaching activities; and
(2) the creation of new works by the application or inter-

vention of such automatic systems of machine reproduc

tion."

It may be noted also that CONTU is to be concerned with:

"Changes in copyright law or procedures that may be necessary
to assure...access to copyrighted works, and to provide recog-
nition of the rights of copyright owners" (Section 201 (c)).

In the above, the balancing of the needs of users and producers may be

seen. Similarly, the balancing of several interest groups may be noted in the establishment of the requirements for memberships on the Commission (Section 202 (a)):

"The Commission shall be composed of thirteen voting members,
appointed as follows:

(1) Four members, to be appointed by the President, selected

from authors and other copyright owners;
(2) Four members, to be appointed by the President, selected

from users of copyright works;
(3) Four nongovernmental members to be appointed by the

President, selected from the public generally, with at
least one member selected from among experts in consumer

protection affairs;
(4) The Librarian of Congress."

CONTU must present its final report to Congress by July, 1978, if the extension of time it has requested is enacted by Congress. Otherwise its final report is due in December, 1977.

3.9 SUMMARY

This chapter has examined policymaking about copyright through a review of some important litigations and some aspects of enacted law and regulation which have concerned the impact of technological change. The review appears to show that some significant litigations in this field have concerned the boundaries of property rights left ambiguous because of the occurrence of technological change unforseen by Congress in previous revisions of law or the occurrence of specific situations not definable in legislation.

In general, the Federal Courts have approached the question of ambiguities due to technological change from two distinct points of view. The first viewpoint is that, if the general concept of current law can be easily extended to new situations without stretching the law's meaning too far, it should be done. The second viewpoint is that stretching the law's meaning (or specifically defining the ambiguous) beyond a certain point would be to take on a responsibility better left to Congress, particularly if a judicial decision would be precedent setting, involving relations between interest groups, not just the particular litigants.

The first viewpoint may be seen in the final decisions of the cases described involving broadcasting, motion pictures, and sound recordings except for White-Smith. The second viewpoint was taken in the prevailing decisions in White-Smith, the cable TV cases Fortnightly and Teleprompter, and in Williams & Wilkins.

Significantly, during all the cases above involving the second viewpoint, Congress was in the process of actively revising the copyright statute. Such statutory revision often involves representation of many opposing

interest groups and the ultimate statutory language may involve interest group compromise setting forth obligations and responsibilities and establishing new institutions in a manner completely impossible to accomplish through a judicial decision. In fact, in the 1976 General Revision, the new statutory language and associated legislative documentations involving cable TV and educational and library copying are examples of such a complex balancing of interests.

Furthermore, in the more recent situation described above, a new balancing of interests may be seen which is not apparent in the earlier

If persons concerned with copyrighted works may be considered either producers or users, the earlier cases described are all essentially conflicts between original producers and secondary producers. (The enactment of the compulsory license for phonorecord manufacturing in 1909 could be viewed as expression of user concern, however).

In the Fortnightly decision (1968), the view was taken that the cable TV company was the viewer's (i.e. user's) agent. In photocopying, the conflict between authors and publishers on one side and librarians and educators on the other is essentially a user-producer conflict (although some educators are also producers). This increasing concern with the user in the copyright field has been carried forward in the establishment of CONTU where both representatives of users and producers and "at least one member selected from among experts in consumer protection affairs" are included in the membership of the Commission by statutory requirement. Finally, it seems clear from the above that, in this field, administrative regulation plays a relatively small role in contrast with some other Federal domestic responsibilities. Nevertheless, the Copyright Office has played a role in technological change by agreeing to accept for copyright registration, works in micromedia and videotape by its interpretation of existing law rather than through explicit congressional action or judicial orders. However, see Section 5.5.1 and 5.5.2 for an important policy-impacting function of the Register of Copyrights.

4.

TOWARDS AN EFFICIENT MARKETPLACE FOR COPYRIGHTED WORKS

The previous chapter considered the legal framework for copyright. This chapter is concerned with economic questions relevant to the market for copyrighted works. Clearly, an effective legal structure and an efficient marketplace for copyrighted works are both necessary and mutually supportive.

In this chapter, the fundamental question of transaction costs is considered. The question of exclusion and enforcement is discussed in light of the ease of modern technology to permit easily available and low-cost duplication of works. Mechanisms for the minimization of transaction costs are described including types of efficient pricing schedules. In addition, fair use is considered from an economic viewpoint. Lastly, the question of monopoly is discussed and government remedies are described.

4.1 THE PROBLEM OF TRANSACTION COSTS

The view of Professor Kenneth Arrow is that transaction costs are more fundamental than market failure as a basic problem pertinent to the choice of whether a particular good should be provided through the market mechanism or through some form of collective action. He states that:

"...transaction costs....are attached to any market and indeed
to any mode of resource allocation. Market failure is the par-
ticular case where transaction costs are so high that the exis-
tence of a market is no longer worthwhile."21

Two major sources of transaction costs, according to Arrow, are:

"(1) exclusion costs [ and ī (2) costs of communication and
information, including both the supplying and the learning of
the terms on which transactions are carried out."22

Steiner sees transaction costs specifically involved when there is an

"inability of the market_to translate potential willingness to
pay into revenues [ and I where the private market is techni-

cally able to collect revenues, but at a high cost. "23 Hurt and Schuchman are, to a large extent, considering transaction costs when they ask:

"If there is a benefit from the copyright system, is it offset,
at least in part, by various administrative costs and frictions
inherent in the system?"24

Specifically, transaction costs play a large role in copyright problems, and overcoming high transaction costs plays a large role in the solution of copyright problems.

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