Fair Use Vs. Fared Use: The Impact of Automated Rights Management on Copyright's Fair Use Doctrine

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Scholars have explained fair use in at least three ways: (1) as a proxy for a copyright owner's implied consent; (2) as part of a bargain between authors and the public, struck on their behalf first by courts and then by Congress; and (3) as a response to a market failure in private attempts to protect authors' expressions from undue copying. The first of these three explanations has fallen into disfavor because it does not explain why fair use protects parody and other uses of copyrighted material that owners find disagreeable. The second explanation receives due consideration below. The present subsection addresses the third explanation of fair use and argues that, as a response to market failure, the fair use doctrine can and should give way in the face of the effective enforcement of authors' rights through automated rights management.

Lawmakers enacted the Copyright Act to cure an alleged case of market failure: creating a work can cost authors a good deal, whereas copying a work costs free riders very little. Absent special protection from such copying, the argument goes, authors will underproduce and the public will suffer. Copyright, as Justice Holmes explained, therefore "restrains the spontaneity of men where but for it there would be nothing of any kind to hinder their doing as they saw fit;"n118 namely, copying others' expressions at will. Perhaps in the digital intermedia automated rights management will cure this market failure by protecting authors' works through technological and contractual means. ARM's other curative effects interest us here, though.

Markets, like squeezed balloons, bulge outward where unconstrained. In its attempt to protect authors from the discouraging effects of unfettered copying, copyright law has thus created market failure elsewhere. The costs of avoiding infringement by obtaining permission to use a copyrighted work, and thus avoiding infringement claims, often exceed the benefits of the desired use. Such transaction costs threaten to prevent many socially beneficial uses of copyrighted works from taking place. The doctrine of fair use attempts to cure this particular market failure by excusing as non-infringing a limited (though poorly defined) class of uses of copyrighted works. As Professor Gordon describes it, "courts and Congress have employed fair use to permit uncompensated transfers that are socially desirable but not capable of effectuation through the market."n121

Understanding fair use as a response to market failure does much to explain the vagaries of its development in the case law. More to the point, it lends support to the holding in American Geophysical. Consistent with the market failure theory of fair use, the court reasoned that "a particular unauthorized use should be considered 'more fair' when there is no ready market or means to pay for the use, while such an unauthorized use should be considered 'less fair' when there is a ready market or means to pay for the use." In other words, the scope of the fair use defense rises and falls with the transaction costs of licensing access to copyrighted works.

118. White-Smith Music Publ'g Co. v. Apollo Co., 209 U.S. 1, 19 (1908) (Holmes, J., concurring).

121. Wendy J. Gordon, Fair Use As Market Failure: A Structural and Economic Analysis of the Betamax Case and Its Predecessors, 82 COLUM. L. REV. 1600, 1601 (1982) (footnote omitted).