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An economic analysis of the exception of ‘Fair dealing’ and the provision of Digital Rights Management in the Copyright Law of India

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[Volume 2, Issue 6] – June, 2017

Author – Ayushi Agarwal, B.A.LL.B, Delhi National Law University

INTRODUCTION

Intellectual Property refers to creations of the mind or the intellect, such as literary and artistic works, designs, symbols and inventions. Intellectual Property rights are the set of bundle of rights which assign monopoly to the designated owners of such creation. Copyright is one of the intellectual property rights which provide an exclusive legal right to the originator to print, publish, perform, film or record literary, artistic or copyright material. The Copyright is an important form of intellectual property rights. Intellectual property rights are broader set of rights and copyright is one of the elements of it. The Copyright protection gives the copyright owner the right to prohibit others from making copies without permission. The rationale for providing copyright protection is to provide incentive to the creators to create work and invest their time and efforts which they will be able to recoup at a later stage. The reason for providing such an incentive is the nature of the goods which is non-rivalrous and non-excludable. There is a problem of free-riding. This free-riding problem will not allow the creators to recoup the costs of their investment. This would lead to under production of the work.((William M Landes & Richard Posner, An Economic Analysis of Copyright Law, 18 Journal of Legal Studies 1989))

There is a variance in the concept of the exception of ‘fair dealing’ which is provided under the Indian Copyright Act and the concept of the exception of ‘fair use’ which is provided by the US Copyright law. The purpose of the research paper is to understand the costs and benefits of introducing the exceptions in the Indian Copyright law and the costs and benefits attached from moving from ‘fair dealing’ exception to ‘fair use’ exception into the Indian Copyright law. Also, the Research paper attempts to do an economic analysis of the introduction of the Digital rights Management provision in the Indian Copyright Act and the various costs and benefits attached to it.

Economic Analysis

2.1)  Fair Dealing and Fair Use

Copyright law has to preserve a balance between providing an incentive for the creation of copyrighted work and circulation of such work to the public at large. And thus, to balance the competing interest of the parties, the Copyright act provides with some exceptions to the general rules regarding copyright infringement.  One such exception is ‘Fair Dealing’. An exclusive right is granted to the creator of a creative work by the Copyright Law and Fair dealing is an exception to it. This limitation of the fair dealing allows the users to use the copyrighted work without constituting infringement of Copyright. The exception provides increased access to the copyrighted works.

What is ‘Fair Dealing’ And ‘Fair Use’?

Section 52 of the Copyright Act deals with the law relating to the exception of Fair Dealing. This Doctrine is one of the significant aspects of the Copyright Law which clearly distinguishes a bonafide use of the copyrighted work from the malafide copy of the work.  This exception of fair dealing allows the users to use the copyrighted work for particular purposes such as parody or satire, study or research, criticism or review, news reporting, for the purpose of judicial proceeding or any legal advice.((Section 52, Indian Copyright Act 1957)) Section 52 of the Copyright Act provides a very exhaustive list of the actions that come under the purview of fair dealing. Any action that falls outside the purview of the list provided by the section is termed as infringement. Hence, whether the use of the copyrighted work is fair or malafide depends on the circumstances in which the work is copied.((Giuseppina D’ Agostino, Healing Fair Dealing: A comparative Copyright Analysis of Canada’s Fair Dealing to UK Fair Dealing and Fair Use, 53 McGill Law Journal 2008)) That is why, this provision in the Act providing for exception is often termed as restrictive and limited. The purpose of fair dealing has been limited. For the exception of fair dealing to apply,

  1. The action of the user must be confined to the ones which are enumerated in Section 52 of the Act.
  2. It has to be a ‘fair’ dealing.
  3. The recognition of the source must be there.

The court in the case of Blackwood and Sons Ltd. V. A.N. Parasuranam((Blackwood and Sons Ltd. V. A.N. Parasuranam, AIR 1959 Mad 410))has held that in order to get the protection under the exception, the use must be confined to the actions enumerated in the Copyright statute under ‘fair dealing’.

On the other hand, there is the American Copyright Law which uses the term fair use as the exception. This provision under the US law is very broad and works on interpretation and certain guideline factors that determine whether the use of the work is fair or not. It is open to any exception that may be a bonafide use of the work and can be included within the exception. It takes into account four factors:

  • The purpose and character of the use
  • The nature of the copyrighted work
  • The amount and sustainability of the work copied
  • The effect of the use on the potential market((Section 107, US Copyright Act 1976))

In the case of India TV Independent News Services Pvt. Ltd. v. Yashraj Films Private Limited & Super Cassettes Ltd((FAO (OS) 584/2011))., where a segment was shown on TV where some singers were live performing their songs and together with that, certain clips from the movie form which the songs belonged were also shown. The case of Infringement of copyright was filed and the Delhi High Court broadcasting, distributing or publishing any cinematographic work which is owned by the producer. Now, here comes the necessity of fair use. How unethical it would be to not let a singer sing his own song because the legal rights over it are possessed by someone else. The fair dealing exception does not fulfill the terms of equity and justice. The division bench of the Delhi High Court later on reversed its judgment.

Therefore, the restrictive approach of this exception puts a question on its credibility and efficiency. In light of the above problems, it is often suggested that India must adopt the American modal of Copyright Law of using ‘fair use’ exception which is rather broad than the current ‘fair dealing’ exception. To understand as to how beneficial the move from fair dealing to fair use would be, it is necessary to have a cost benefit analysis of the same.

Costs And Benefits Associated With Moving From ‘Fair Dealing’ To ‘Fair Use’

There are certain costs and benefits attached to the introduction of the fair use doctrine in the Indian context. There have to be a proper cost benefit analysis of the shift from the fair dealing provision to the fair use provision to see how far this shift lead to welfare of the society as a whole.

Costs:

Uncertainty: The movement from fair dealing exception to the fair use exception would result in uncertainty as to what would constitute infringement of copyright since there will be no exhaustive list of actions that would be covered under the fair use. Rather, an interpretative approach will have to be adopted by the court to determine the extent of fairness of the use. This uncertainty will lead to an increase in the unauthorized use of the work. Due to which, the monitoring costs of the copyright holders would also increase.

Reduced Incentive for the creation and distribution of the Copyrighted work: Due to the element of uncertainty, the Copyright holders would be less willing to enforce their rights due to increase in the costs. There will also be reduction in their revenue. Thus, there will be lesser incentive for the creator to create any work. 

Besides reduction in the creation of original works, there will be increase in the administration costs for the copyright holders and decrease in the administration costs for the users of the copyrighted material. Administration costs can be divided into three categories. a) Transaction costs b) Compliance costs c) Enforcement costs. Costs also include the opportunity costs which are the lost investment and the sales opportunities due to legal uncertainty.((Supra Note 3))

Transaction costs

It includes all the costs which are associated with facilitating the transaction between the copyright holders and the copyright users for the use of the copyrighted material. For a copyright owner, the transaction cost can be manifested in several forms:

  1. When the potential user contacts the copyright owner, the cost that is associated with understanding and settling the acceptable terms of use.
  2. The time and effort that is spent and the legal expenses that are incurred in negotiating and agreeing to acceptable commercial terms.
  3. The cost that is associated with the administrative processes of recording of agreements in the computer and receiving of payments for the use of the copyrighted work.((Ibid))

A user of the Copyrighted work faces several transaction costs as well which are as follows:

  1. The cost associated with the search of the copyright owners.
  2. The time and effort that gets spent on explaining the copyright holder about the usage and then agreeing on the acceptable terms.
  3. The cost that is associated with the administrative processes of recording of agreements in the computer and for facilitating payments for the use of the copyrighted work.

The introduction of the fair use doctrine in the Indian context would increase the transaction cost for the creators of the copyrighted work by reducing the economies of scale for them. This is because, their level of production will be reduced and thus their savings in costs will also be reduced. After the introduction of the fair use doctrine, it will the creator who will be incurring the transaction costs of negotiation which is required to settle the appropriate commercial terms or to setup an accounting and payment system to manage the transaction or to monitor the market etc.((Australian Law Reform Commission, Copyright in the Digital Economy: Final Report [2013]))

Compliance costs:

It refers to the costs of monitoring to see whether the agreed terms and conditions which are associated with the use of the copyrighted work are being complied with or not. The compliance costs can be manifested in various forms.

  1. To evaluate as to whether the terms and conditions are being fulfilled.
  2. The costs associated with finding the users of copyrighted work in order to discuss any acts of non-compliance.
  3. In case any disputes arises, the costs to resolve those disputes.((William M Landes & Richard Posner, An Economic Analysis of Copyright Law, 18 Journal of Legal Studies 1989))

It is very difficult to assess the compliance costs because the exception of fair use is quite ambiguous and it becomes difficult to say that the work created by the user of the copyrighted work is substantially same to that of the original work or not. This becomes very subjective.((Supra Note 3))

Enforcement Costs

Introduction of the fair use exception in the Copyrighted work would result in more uncertainty as whether the use of the copyrighted work comes under the exception or not will have to be interpreted as against the fair dealing exception where an exhaustive list of actions is provided. There will be uncertainty as to whether the use if fair or it is in breach of the copyright. This will lead to increased enforcement and monitoring costs. The Copyright owners will incur higher enforcement costs. And hence most of the small content creators will not enforce their rights due to high cost of the proceedings. It will result in the change of their behavior as most of them even after witnessing the infringement of their copyright will prefer to let it go. This will also have an impact on the behavior of the users of the copyrighted work. They would be encouraged to use the work under an impression that most of the content creators will not sue due to high enforcement costs and their work may be given broad interpretation by the courts. Also, the court cases take time to resolve and the copyright work has limited life so that would also preclude the owner to file a suit.((Stan J. Liebowitz, Copying and Indirect Appropriability: Photocopying of Journals, 93 Journal of Political Economy 1985))

Benefits

The introduction of the fair use exception will bring in more flexibility as compared to the fair dealing exception. Fair use involves the usage of certain guidelines and principles to decide the extent of fairness rather than providing with an exhaustive list of the actions in which the exception would apply as in the case of fair dealing. This exception would be able to accommodate the increasing new technologies more easily and prevent frequent government intervention. The increase in the flexibility would lead to more innovation which would ultimately result in more economic profits. This flexibility of the fair use exception would enable the individuals and companies to respond to the technological changes taking place. This is turn, would lead to increase in experimentation in terms of technologies and uses of copyright material which is not covered by the fair dealing exception. It will result in increasing competitiveness in the markets related to copyright. This flexibility will also allow more third party uses of the copyrighted material. The third party use means the third party use the copyrighted material to deliver a service whereby the same use by the end user would be covered under the exception. This third party use leads to innovation and growth. We can take the example of cloud computing services.((Ibid))

Most of the cloud computing services are third party uses as they involve making end user access of the copyright material easier. Cloud services are really important for the growth and maintainability of the digital services industries. It allows the end users of the copyrighted work to share the computing resources and thereby achieve the economies of scale. Thus it leads to both productive and dynamic efficiency.

However, it is not that the fair dealing exception in the current copyright law does not allow for third party use but it causes certain hindrance in its use. It is only permitted when the purpose for the use of the copyrighted work by both the third party and the end user matches the specific purposes mentioned in the exception list in the Act. Most of the times, the purpose of the use by the third party and that by the end user is different. So it leads to a lot of hindrance. Greater flexibility in the exceptions under the copyright law would also result in the promotion of education, great research, user generated content and free speech. The introduction of the exception of the fair use provision would lead to the reduced costs for the consumers. They will incur less cost in using the copyrighted work. One of the major arguments put before the court in favor of fair use is that it would result in more transformative uses. The transformed work is more than the original work which provide new solutions to existing problems. The reduction of the costs for the consumers would lead to more access of the work for the users. This would increase the supply of the innovative works to more public. The broadened exception of fair use would increase the transformative uses.

 

2.2)   Amendment to the Indian Copyright Law

Indian Copyright Law is governed by the Indian Copyright Act of 1957. It has been amended six times one each in the year, 1983, 1984, 1992, 1994, 1999 and 2012. However, the significant changes in the Copyright Law were brought by the Copyright Amendment Act of 2012.((Zakir Thomas, Overview of changes to the Indian Copyright Law, 17 Journal of Intellectual property Rights 324-334 [July 2012]))

Introduction of the Digital Rights Management Provisions

The emerging internet access has opened a great range of possibilities for the copyright owners to reach a large number of audiences. However, at the same time it has increased the opportunities of unauthorized accessing of the copyrighted products. This would result in loss of revenue for the investors of the copyrighted work and thus would result in reduction in the supply of works. In order to tackle the growing threat of this unauthorized copying, the DRM technologies emerged.  The DRM technologies enable the Copyright owners to have better control over their works by allowing the users only the access and the use of work which is permitted by the Copyright holder. Examples of the DRM applications involve requests for the user authentication to enter a database, encryption, watermarks, locking the use of a particular digital product to a particular devise or region. There are two new provisions added to the Copyright legislation. Section 65 A and Section 65 B have been added to the Indian Copyright law to provide adequate protection in the growing digital environment. Section 65A provides protection against circumvention of technological measure. While 65B deals with protects the Rights management information.((Section 65A & Section 65B, Indian Copyright Act 1957, added through the Indian Copyright Amendment Act 2012))

The enshrinement of the DRM provisions in the Copyright law has affected various stakeholders including the consumers and the creators of the copyrighted work.  It has been argued by the Researcher that the DRM provisions have been incorporated in absence of any cost-benefit analysis.

Positive Impacts

The introduction of DRM provisions in the Copyright law provides a greater protection to the holders of the copyrighted work by making sure that there is no market failure. By allowing the creators of the work to recover their investment, the stream of work continues to flow.  

The copyright owners will derive benefits from the reduction in free-riding problem and this would lead to increase in their profits. This would let the right holders to bring the goods in the market at a low average price. It has lead to increase in the efficiency of information access. The entertainment industry in India is considered to be one of the fastest growing sectors of the Indian economy. There is a great problem of piracy in the entertainment business.  The DRM provisions provide protection against the piracy problem in India.((Supra Note 20))

Incentive to create more work

There is a very basic economic rationale behind the introduction of the DRM provisions. By reducing the possibilities of unauthorized copying and reproduction, the DRM provisions create incentives for the people to create more works. It primarily addresses the market failure that may arise due to the non-excludability and non-rivalrous characteristic of the goods that are once produced and that remain in the public domain.((Ibid)) There is a problem of free riding. And hence, the creators of the work will have less incentives to create the work and thus this will ultimately lead to under production which is harmful for the economy.

Better Price Discrimination strategies

The willingness to pay for a particular good differs from one consumer to another. The strategy of price discrimination enables to producers to charge different prices from the consumers according to the willingness of the consumer to pay. The DRM technologies would help the producers to deliver the products to the consumers according to their needs. For example, If the consumer is interested in purchasing just one song instead of the entire album, then through the DRM technologies, the providers will be able to provide that one song to the consumer. This way, the product would reach a greater population and the deadweight loss is reduced.((Martin Kretschmer, Digital Copyright: An end of an Era, 25 European Intellectual Property Review )) DRM technologies help the right holders to accurately capture the consumption preference of the consumers and deliver tem the products according to their tailored needs. Thereby, providing the legal protection through the introduction of DRM provisions would help the holders of the digital product to engage in price discrimination strategy confidently.((Ibid))

Negative Implications

Internalization of Benefit

The DRM provisions allow the copyright holders to internalize the benefit which results from digital content market transactions by providing an effective fencing of the copyrighted work. Fair use on the other hand, results in positive externalities. The society is benefitted  by using the copyrighted work. By the introduction of DRM provisions, the benefits get internalized in part by the copyright holder. Thus, DRM internalizes the economic return to copyright holder and externalizes the costs of reduced accessibility to the users and increased costs to the society resulting in market failure.((Nick Scharf, Digital Rights Management and Fair Use, 1 European Journal of Law and Technology 2010))

Monopoly

The creators of the Copyrighted work may get more than the reasonable amount of returns as they may charge more to the consumers and may also prevent entry of various competitors leading to creating monopoly. It stifles competition. The DRM provisions would impose higher transaction costs on its users and thus they will turn to alternatives in order to increase their benefits. This will result in Market failure.((Supra Note 18))

Tinkering of the Balance

The Copyright Law aims at achieving a kind of balance between the incentive to the creators to produce more work for the society and at the same time making those works accessible to the society. The amendment through the introduction of the DRM provisions have in fact given rise to the transaction costs for the users who want to exercise their legitimate right. Because of the introduction of these provisions, many copyright holders would place their work in access and use controls. At many times, it is seen that the users of the products do not have the technical expertise to circumvent the protection measures employed by right holders and then they depend upon the third party software for facilitating such circumvention. This involves huge transaction costs for the users.

Economic inefficiency of the Criminal Punishment prescribed by the provision

The new DRM provisions provide punishment for upto 2 years and fine in case of violation. The criminal remedy of imprisonment is not at all efficient for circumventing technological protection measures. As we know that imprisonment brings in a lot of costs for the society and should not be opted for in every case. Enforcement always has some positive costs associated with it and is very high in case of punishments. The state will have to employ more officers to investigate the case, build new prisons and employ more officers to guard those prisons. The Marginal cost of enforcement must be equal to the marginal benefits arising from enforcement. It should limit the imprisonment on crimes that are less serious. The DRM provisions advocate for the inefficient approach for the violation of the DRM provisions. The remedies should have limited to civil remedies or fines as it would have been much more efficient as its enforcement costs is lesser and dead weight costs associated with it is very marginal. This remedy would also provide for a far more deterrent effect.   

2.3)  Right Of Fair Use And Digital Rights Management

The introduction of DRM provisions come in the way of the fair dealing exception. The exception of fair dealing reduces the transaction cost for the user by allowing the use of the copyrighted work. For example, the use of work for research purposes is fair under Indian copyright Act. Through the use of this exception the researcher is able to avoid the transaction cost that might arise if the researcher had to take prior permission to use the work for his research. And thereby, there will be lack of research. There is the blocking of the content to the users and demanding permission for the use raises an important question as to the application of DRM provisions and the exception of fair dealing and Fair use doctrine which allows the users to make use of the copyrighted work for certain purposes.

The DRM provisions over-ride the exceptions of fair dealing and fair use. When a copyrighted work is protected by a technological measure, the exception provided in the copyright act cannot possibly be exercised and causes the clearest restriction on the privileges of the people that they would be entitled to under the exception. To use the copyrighted work for some specific purpose is allowed under the exception given in the Copyright Act. It leads to creation of new work by the user and also would result in development of knowledge. The exception ensures that no absolute right is created in favor of Copyright owner. However, the Digital Rights Management provisions have locked the copyrighted contents and do not allow the users to use it despite the use coming in the exception of fair use. These provisions will not allow the user to use the work or engage with the existing work, thereby resulting in pure monopoly of the copyright holder which was never the objective of the Copyright law. The amendment, thus virtually demolished the exception provided in the copyright law. There is no way, the DRM system could decide whether the use is fair or not.((Divyesh Pratap, Is ‘Fair Use’ of Copyrighted Work a thing of the past (August 30, 2015) http://lexpress.in/law-development/digital-rights-management-provisions-and-indian-copyright-law))

Conclusion And Suggestions

Taking into account the costs and benefits associated with moving from the fair dealing provision to the fair use provision, the researcher is of the view that the complete adaptation of the fair use provision may not be there because there are costs associated with it. But the provision of fair dealing with some features of fair use exception must be incorporated under the current copyright law.  The doctrine of fair dealing has not been interpreted in a right manner by the court even after having an exhaustive list of permissible actions under Section 52 of the Act. There are grey areas in this field. If we had the exception of fair use instead of the fair dealing, may be the dispute regarding the photocopy shop might not have even come before the court. The Researcher concludes that the rigid and strict approach must be discontinued in India and the doctrine of fair dealing be amended keeping in mind the growing technological advancement. It is not that the doctrine of fair dealing be completely abolished but some changes needs to be incorporated like the flexibility that the fair use doctrine provides. The current exception can be expanded and it is not necessary that the entire doctrine of fair use be adopted. The judiciary must be given the power to interpret the fairness of the use so that it is able to accommodate the growing technological advancement. There can be an addition of the ‘such as’ clause in the exception provision of ‘Fair Dealing’.  

Secondly, it is question of fact to see if the introduction of the DRM provisions was really necessary just for the little benefits that it gives. The Researcher is of the DRM provisions are not appropriate to deal with the digital copyright issue in India. The decision to include DRM provisions has been taken without proper cost benefit analysis. There are some benefits that may be attached to it like control over the piracy issue and incentive for the producer to create more work, however, clearly the costs outweigh the benefits. There are only little additional benefits which are brought about by this legislation. Thus, the DRM provisions require reconsideration. The introduction of DRM provisions also has negative impact on the exception of ‘Fair Dealing’ and ‘fair use’. In the presence of DRM provisions, the anaylsis of the important aspect of the copyright law i.e. the fair use doctrine and its use might just become redundant. The unfair advantage to the big firms must not be there. The introduction of the DRM provision has reduced the total social welfare. The biggest concern is the right of fair use of the consumer which is kept at stake due to DRM provisions. At any cost, such a right must not be curtailed. Strengthening of contributory infringement liability or using the Information technology law excluding the criminal liability is more beneficial. This would provide adequate protection to both the users of copyright and protect the rights of the right holders. What Copyright law needs today is effective enforcement and not restricting the works by putting them into loc-ups as envisaged by the DRM provisions.

Bibliography

  • Indian Copyright Act 1957
  • Agreement on Trade-Related Aspects of Intellectual Property Rights (1994).
  • US Copyright Act 1976.
  • Australian Law Reform Commission, Copyright in the Digital Economy: Final Report (2013)

Online Articles And Journals

  • William M Landes & Richard Posner, An Economic Analysis of Copyright Law, Journal of Legal Studies, 1989.
  • Giuseppina D’ Agostino, Healing Fair Dealing: A comparative Copyright Analysis of Canada’s Fair Dealing to UK Fair Dealing and Fair Use, McGill Law Journal 2008
  • George R. Barker, Agreed Use and Fair Use: The Economic Effects of Fair Use and Other Copyright Exceptions (9th July, 2013).
  • Stan J. Liebowitz, Copying and Indirect Appropriability: Photocopying of Journals, Journal of Political Economy, 1985.
  • Zakir Thomas, Overview of changes to the Indian Copyright Law, Journal of Intellectual property Rights (July 2012).
  • Martin Kretschmer, Digital Copyright: An end of an Era, European Intellectual Property Review, (2003).
  • Nick Scharf, Digital Rights Management and Fair Use, European Journal of Law and Technology, 2010.
  • Jacqueline Lipton, Solving the Digital Privacy Puzzle: Disaggregating Fair Use from the DMCA’S Anti-Device Provisions, Harward J.L. & Tech
  • Divyesh Pratap, Is ‘Fair Use’ of Copyrighted Work a thing of the past (August 30, 2015) http://lexpress.in/law-development/digital-rights-management-provisions-and-indian-copyright-law (Last Visited on April 20, 2017).