Too Many Markets or Too Few? Copyright Policy Toward Shared Works

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University of Southern California Gould School of Law




Proper analysis of sharing requires attention to the ways copyright law shapes markets. It also requires an analytic framework that identifies the gains and losses to copyright owners and users operating under the different market forms that can be sustained by different versions of copyright law. My framework will help judges avoid two mistakes that a market failure orientation invites. First, some judges overemphasize transaction costs and fail to appreciate the reasons to apply fair use to sharing even when negotiation and payment costs are zero. One reason is well known: sharing that generates positive externalities may be treated as a fair use in order to subsidize it. This Article shows that fair use can be justified even in the absence of transaction costs and positive externalities. Second, some judges lose track of copyright law's objective, encouraging production and distribution of authors' works, and concentrate too much on simply curing market failure. In some cases it is appropriate to deny fair use to encourage the development of institutions that reduce transaction costs and cure market failure. In other cases fair use should be used to discourage the development of socially wasteful institutions and redundant markets. Too many markets can be as harmful as too few.

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