Copyright as Trade Regulation

C. Open and Populous Markets

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C. Open and Populous Markets

In 1890, Congress enacted the Sherman Act, which prohibits companies from monopolizing trade or from entering into any “contract, combination …, or conspiracy, in restraint of trade or [interstate] commerce.”74 Congress expanded its reach in the Clayton Act of 1914, which proscribes specific acts, such as mergers and acquisitions, the result of which is “to substantially lessen competition” or “to create a monopoly [of] any line of commerce.”75 In 1914, Congress also created the Federal Trade Commission to investigate and prosecute “[u]nfair methods of competition in commerce”76—that is, acts “which if left untouched would probably create the evils prohibited by the Sherman … Act.”77 While scholars disagree as to the legislative intent behind these enactments,78 Professor Herbert Hovenkamp has argued that, “consistent with nineteenth century American ideology generally, … the antitrust laws were passed out of a pervasive fear of private ‘bigness’ and the political power that it engendered.”79

“[P]rivate ‘bigness’” also can lead to market power: Large companies (and combinations of companies) have greater resources than their competitors enjoy, thus giving them the ability to price their goods below the cost of producing them—at least for a time. Competitors who do not have the resources to lower their own prices soon find themselves enjoying reduced shares of the market. As the large companies gain market share by squeezing out competitors, they also gain the ability to return prices to higher levels. Consumers, who are forced to pay those higher prices, experience a reduction in what economists term “consumer surplus.” Consumers also may lose the opportunity to purchase products from those companies who never enter the market because of “barriers to entry” like the predatory pricing practices described above.80 Antitrust law was meant to “protect the public against [these] evils commonly incident to monopolies”:81 higher prices; products or services of lesser quality; and fewer choices as a result of competitors exiting the market.82 “When a producer is shielded from competition, he is likely to provide lesser service at a higher price; the victim is the consumer who gets a raw deal. This is the evil the antitrust laws are meant to avert.”83

If Congress has addressed itself to “bigness,” it also has expressed its concerns about “concentration,” or the tendency of an industry to consolidate through mergers, acquisitions, and other such transactions.84 In 1890, Senator Sherman himself spoke of his “desire to put an end to great aggregations of capital because of the helplessness of the individual before them.”85 And in 1950, Congress amended section 7 of the Clayton Act in 1950 because it “fear[ed] … what was considered to be a rising tide of economic concentration in the American economy.”86 Congress did not target industry concentration simply because it leads to higher prices, although it can do that, too. Congress also wished to “perpetuate and preserve, for its own sake and in spite of possible cost, an organization of industry in small units which can effectively compete with each other.”87 Such competition yields a host of benefits including product diversity, which is most important when the “product” is information.88 As the Supreme Court famously wrote in Associated Press v. United States,89 “the widest possible dissemination of information from diverse and antagonistic sources is essential to the welfare of the public …”90

As the foregoing discussion should make clear, the antitrust laws target public evils, not private ones. Accordingly, the laws exist not to “protect deserving private persons, but to vindicate the public interest,”91 which the case law describes as “paramount.”92 Courts have described the nature of that interest in several ways: First and foremost, the consuming public has an interest in the existence of free “price competition in an open market”93 characterized by that particularly American value, “equality of opportunity.”94 Second, the public interest lies in the existence of a populous market in which “small units”95 (such as individuals) can have an impact. The public also has an interest in promoting these market structures because they facilitate public access to a diversity of products.

These conceptions of the public interest are not unique to the antitrust laws. In regulating the communications industries, Congress repeatedly has stated its wish to open markets to increased competition. In some cases, these statements may be precatory; as Professor Timothy Wu has revealed, Congress supported the oligopolistic broadcast industry in its fight to exclude cable companies from the market.96 On the whole, however, there are plenty of indications that Congress does believe in the benefits flowing from competitive markets, including lower prices, higher quality, and diversity of expression. As part of the Telecommunications Act of 1996,97 for example, Congress required telecommunications carriers to provide competing local telephone companies with “nondiscriminatory access” to networks and equipment.98 Similarly, in the Cable Television Consumer Protection and Competition Act of 1992,99 Congress sought to reverse the effects of industry concentration100 by requiring cable companies to dedicate some of their television channels to local and nonprofit broadcast stations, respectively,101 which action Congress viewed as “critical to an informed electorate.”102 In holding these “must-carry” provisions constitutional, the Supreme Court identified several “important governmental interest[s]” they served, including: (1) “‘promoting fair competition in the market for television programming’”; and (2) “‘promoting the widespread dissemination of information from a multiplicity of sources.’”103

To date, copyright law has not embraced these goals, or has not done so expressly. One reason, perhaps, is that copyrights themselves are offered as solutions to the problem of competition;104 they are “legal monopolies”105 under which copyright owners enjoy the right to exclude competitors from using their works in various ways. If they choose to exercise that right, copyright owners can market fewer copies of their works to fewer consumers at higher prices. “Thus, at least in a particular market and for a particular period of time, the Copyright Act tolerates behavior that may harm both consumers and competitors.”106 This produces what seems to be a direct “conflict[ ]”107 between copyright law and the antitrust laws: Copyright law gives copyright owners the right to inhibit competition, but “[i]ntellectual property rights do not confer a privilege to violate the antitrust laws.”108 Courts are left to balance the two statutory schemes, producing inconsistent results.

Scholars have sought to minimize this conflict by tinkering with how they define the “relevant market” for antitrust purposes: Instead of defining a product market to include, for example, a particular book or books by a particular author, scholars might broaden the definition to include books of a particular type. If, as Professor Christopher Yoo has argued, “substitutes are readily available for most works,”109 then copyrights do not create market power at all: Competitors can create or purchase their own copyrighted works, or use works in the public domain. To quote Professor Richard Epstein, “No one has to use any particular song or story for a particular project, but can draw on a rich culture, including items that have fallen out of copyright protection.”110 As for consumers, if they lack the resources to buy a novel about Harry Potter, they can buy a novel about Oliver Twist instead.

As the foregoing example suggests, there may be problems with this approach. While some works may readily be substituted for others, some works (like Harry Potter novels) almost certainly may not. Other examples abound. Moreover, even if Professor Yoo is correct, it does not follow, as Professor Epstein has concluded, that potential uses lost to the copyright monopoly are “of little consequence for any dynamic development of the arts …”111 The reason lies in the structure of those industries in which market participants are most likely to hold copyrights (the “copyright industries”). As Professor Benkler has explained, “strong” copyrights provide the most benefit to organizations who hold large inventories of existing works.112 In addition to marketing existing works, those organizations can adapt existing works into new ones, thus integrating the creation function with the inventory management and marketing functions.113 Using the returns from this vertical integration, they also can acquire other organizations, thus increasing the number of copyrighted works in their inventories. Competitors who lack inventories of their own find themselves increasingly marginalized.114 Not only does this arms race lead to industry concentration through acquisitions, but it also perpetuates itself by creating “incentives systematically to misapply human capital to information resources.”115 It also subjects consumers to rising prices, diminishing supply, and a wearying homogeneity of expression.116 If Disney is not “repackaging Mickey Mouse cartoons,”117 it is buying Winnie the Pooh and making deals with Pixar, and in the end, everything looks the same.118 Thus, if copyright law is not opposed to open and populous markets, per se, it is not particularly productive of them, either.

Until now, lawmakers (and many scholars) have assumed that the public must tolerate these evils in order to induce creation, which is thought to be more important than promoting the benefits of competition. In fact, however, the conflict between these values is overstated. Like copyright law, the antitrust laws and the communications laws recognize that some return on investment, including the grant of property rights, is necessary to induce investments of capital and labor. Yet the existence of those rights does not prevent the government from regulating the behavior of those who enjoy them. Congress has not hesitated to place limits on property rights in order to protect the public interest—requiring telephone companies, for example, to provide their competitors with access to lines and switches so that consumers could enjoy the benefits of price competition in the market for local and long distance service. Yes, the regulated companies held property rights in their infrastructure, but as the Supreme Court wrote in a case brought under the Sherman Act, “rights … may be pushed to evil consequences, and therefore restrained’” by law.119

Copyright law operates under the same principles, for rights in copyrightable works are perfectly capable of being “pushed to evil consequences,” too. Imagine, for example, how it would impact competition in the publishing industry if J. K. Rowling could prevent other novelists from writing about boy wizards who engage in epic struggles with dark lords. The Copyright Act prevents this competitive harm by providing, in section 102(b), that “[i]n no case does copyright protection for an original work of authorship extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery …”120 In extending protection to creative expressions of ideas but not the ideas themselves, “Congress balanced the competing concerns of providing incentive to authors to create and of fostering competition in such creativity.”121 There are other ways in which copyright law has fostered competition, too: the compulsory license is an ancient example; the defense of “copyright misuse” is a recent one. But these examples are not evidence that Congress views the Copyright Act as an adjunct to the antitrust laws. In fact, the evidence points the other way. The structure of the copyright industries and their resistance to technological change are indications that Congress has given too much weight to inducement at the expense of providing access to both competitors and the public.

Consider the several strands of the public interest in copyright: First, the enterprise of learning depends on granting creators the right to prevent others from making at least some uses of their works. Second, that enterprise depends on granting the public access to copyrighted works for at least some purposes. Third, that enterprise also depends on promoting at least some forms of competition in the markets in copyrighted works. These strands need not contradict each other; they can, and should, be woven into a coherent fabric that “promote[s] the Progress of Science.”122 What is needed is a guide by which lawmakers and courts can mediate the seemingly conflicting demands of exclusive rights and access, of “legal monopolies”123 and open markets, of inventory management and “expressive diversity,”124 and of private reward and public benefit. Fortunately, that guide already exists; it is the law of unfair competition, and its spirit already resides at the heart of copyright law.125

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