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Beyond Lobbynomics, or the Competitive Advantage of Easy Licensing

June 1, 2011 ,

Last month there was (rightly) a great deal of attention surrounding the release of Professor Ian Hargreaves’ “Digital Opportunity” report in the UK.  The independent report, commissioned by Prime Minister David Cameron, asked the question “Could it be true that laws designed more than three centuries ago with the express purpose of creating economic incentives for innovation by protecting creators’ rights are today obstructing innovation and economic growth?”  The answer was a simple “yes.”

Most of the initial coverage focused on Hargreaves’ use of the term “lobbynomics” to describe the economic evidence that rightsholders marshal in support of ever increasing protections.  While this is an important practice to draw attention to (and one that our own Government Accounting Office has commented on as well) it may not be the most important point that the report makes.

That honor goes to the report’s focus on digital licensing.  Digital licensing is a mess.  That is true in the UK, that is true in the US, and it is true just about everywhere in the world.  As people have recognized, the copyright system simply is not set up to facilitate the kind of large scale semi-automated licensing of rights that the digital world requires.

What is new is how the report frames the solution.  Instead of focusing exclusively on enforcement, it looks for a way to encourage ways to more effectively match creativity and innovation.

Whatever their actual size, Hargreaves recognizes that creative industries are “of great national importance” to the UK.  The only way for the UK to be competitive in a world economy built on creativity is to find effective ways to incubate creative industries.  He proposes the creation of a Digital Copyright Exchange to facilitate efficient licensing.  Such an Exchange would rely on the very digital technology that creates the licensing problem to solve it.  Digital technology could be used to help automate and simplify the digital licensing process.

It is an understatement to say that there are limits to the effectiveness of the kinds of support that large rightsholders have traditionally requested from the government.  Devoting more and more resources to imposing ever more draconian punishment for copyright infringement has a point of diminishing returns.  The Digital Copyright Exchange is a potentially new way forward. 

This does not mean that a Digital Copyright Exchange should be used as a short-term way to boost revenue for creators.  It cannot be used as an excuse to monetize each and every interaction a person has with media.  Simply because we can imagine a world where I get charged every time I look at a painting or hear a song playing on the street does not mean that is a world we want to create.

The Exchange could draw both sides of the creative economy equation to the UK.  Creators would be drawn by the fact that there is an easy way for them to widely license their products.  That means they could spend more time creating and less time selling.  Innovators would be drawn by the fact that it is easy to get access to creative works.  The terms would be easily understood and predictable so they could spend more time innovating and less time negotiating licenses.  Perhaps most importantly, the process would be efficient.

Hargreaves views this as a strategic investment in the economy.  If the economy relies on licensing creative works, and the process for licensing creative works is inefficient, the economy as a whole suffers.  Furthermore, creating this Digital Copyright Exchange could position the UK as the place to do creative business, making it easy for small and medium sized startups to efficiently access the works they need to grow.  As the report points out, everyone loses when transaction costs are high in digital markets.   

As a general statement, the idea of the government helping to reduce transaction costs is not a novel innovation.  The government does all sorts of things, from building roads to operating courts to standardizing processes, designed to reduce unnecessarily high transaction costs.  In a digital world, that means facilitating the creation of a largely automated marketplace for licensing IP that does not exclude all but the largest players from the market.

Hargreaves is right to see this type of Exchange as a competitive necessity.  The nation that figures out the way to make digital licensing easy first is going to have a massive competitive advantage in the digital economy.  It will become a magnet for the best operators in the creative economy.  Critically, creating this competitive advantage does not mean finding a way to avoid paying to access works.  In fact, it means just the opposite: finding ways to make it as easy as possible to pay to access works when payment is required.

Hopefully the lawmakers here in the United States (and maybe even the new Register of Copyrights) will see this report as the challenge that it is and work hard to make sure that it is the US, not the UK, that manages to get there first.