January 26, 1996
Mr. Donald S. Clark
Office of the Secretary
Federal Trade Commission
Sixth Street and Pennsylvania Avenue, N.W.
Washington, DC 20580
Re: Comments on Hearings on Global Competition and Innovation
Dear Mr. Clark:
I am pleased to offer the following comments on behalf of the Creative Incentive Coalition (CIC) in the above-referenced proceeding.
The Creative Incentive Coalition (CIC) commends the Commission for its hearings on global and innovation-based competition. In its sessions on the relationship between antitrust and intellectual property policy, the Commission has examined some important questions concerning technology transfer, patents, trade secrets, and other matters. CIC is concerned, however, that the hearings may not have sufficiently included the perspectives of the important and growing economic sector that depends upon strong copyright protection. Consequently, we welcome this opportunity to provide that perspective.
CIC is a broad-based copyright industry coalition that works to improve public understanding of the importance of copyright in the digital age.(1) Copyright-based industries, such as those represented by CIC, make a large and growing contribution to America's economic welfare and global competitiveness. Accounting for nearly 4% of the nation's Gross Domestic Product, these industries employ more than 3 million U.S. workers, and are creating new jobs at a rate more than triple the employment growth rate in the economy as a whole.
CIC members already use advanced digital networks to distribute a wider range of creative products to wider audiences than ever before. They are poised to provide the information superhighway with an extraordinary variety of valuable content -- text, data and news services, journals, educational materials, movies, computer software, sound recordings, videogames, and innovative interactive entertainment products.
The economic and social potential of advanced information infrastructure is impressive. But that potential cannot be fully realized without adequate incentives for the creation and distribution of intellectual property through digital networks. These incentives must include the ability to manage access to and use of that intellectual property flexibly and comprehensively, through a wide array of voluntary licensing agreements.
A copyright license, as distinguished from a sale or other transaction, will be the principal legal mechanism through which users of an advanced NII obtain access to the real value of the system: content protected by copyright. As new business relationships form in the new networked environment, commercial dissemination of works of authorship depends upon licensing systems, involving producers, distributors and users of copyrighted materials. The current environment of rapid technological change and market evolution reinforces the need for a flexible, practical legal regime, based upon strong and certain intellectual property rules, that can benefit new entrants and established players alike. A climate of legal stability, in which the parties are free to strike their own deals and enforce their bargains, is essential. (2)
Antitrust law has a critical role to play in ensuring a fair and competitive marketplace in information services, entertainment products, and other copyrighted materials. The optimal antitrust regime for the new information age will encourage and facilitate the voluntary licensing of works of authorship protected by copyright. Conversely, it will avoid to the greatest extent possible any new compulsory licensing systems that displace market mechanisms and consequently dampen incentives to invest in the creation of new works.
Generally, intellectual property licensing agreements should be analyzed under a rule of reason approach, because they have a significant potential to promote competition. It would be particularly inappropriate to apply per se antitrust rules to licensing practices that are permitted under the copyright law. As we understand it, these general principles are fully reflected in the "Antitrust Guidelines for the Licensing of Intellectual Property" which the Commission (along with the Justice Department) promulgated just eight months ago, after an extensive opportunity for public comment. Those guidelines noted that "intellectual property licensing allows firms to combine complementary factors of production and is generally procompetitive." The guidelines also rejected the notion that any "fundamentally different principles" were needed for antitrust scrutiny of transactions involving intellectual property, and ruled out any presumption that a copyright owner necessarily exercises market power. From the point of view of the copyright industries, these conclusions still seem fundamentally sound.
The commission may have heard from a few witnesses that in cyberspace, the concept of intellectual property is obsolete; that the products of creativity and authorship should be given away; and that companies will have to find some other means to recoup their investments in innovative new products and services. The U.S. copyright industries can assure you that Mark Twain's aphorism applies here: these reports of the demise of copyright are greatly exaggerated.
The constitutional bargain embodied in our copyright law -- conferring limited legal exclusivity to encourage the creation of original works of authorship --- is not the only conceivable incentive for investment in creative endeavors. It is only the best incentive so far discovered. Other models -- including barter, advertiser support, provision of related personal services, or reliance on the patronage of government or other large institutions -- are certainly possible, and no doubt will find their niches in various corners of cyberspace. But copyright remains the principal mechanism for recouping the massive investments needed to create, market, distribute and maintain the broadest possible range of information, entertainment, and other copyrighted products for the widest possible spectrum of audiences. It is essential that the Commission's antitrust and other policies support and enhance this extraordinarily successful mechanism.
CIC would be pleased to provide any further information the Commission deems relevant to this topic. Thank you for your consideration of our views.
CREATIVE INCENTIVE COALITION
Steven J. Metalitz, Counsel to CIC
SMITH & METALITZ, L.L.P.
1747 Pennsylvania Avenue, NW, 12th Floor
Washington, DC 20006-4604
MEMBERS OF THE CREATIVE INCENTIVE COALITIONAssociation of American Publishers
Association of Independent Television Stations
Business Software Alliance
General Instrument Corporaion
Information Industry Association
Information Technology Industry Council
Interactive Digital Software Association
International Business Machines Corporation
Magazine Publishers of America
Motion Picture Association of America, Inc.
National Cable Television Association
National Music Publishers' Association
Newspaper Association of America
Recording Industry Association of America
Software Publishers Association
Time Warner, Inc.
The Times Mirror Company
Turner Broadcasting System, Inc.
West Publishing Company
(2) Stability also counsels continuation of the current statutory compulsory licensing scheme for musical compositions, which has been in effect for nearly a century, is well accepted by music copyright owners and users alike, and under which flexible and practical business practices have evolved.