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CONTACT: Amy Smorodin
July 26, 2005
(202) 289-8928
Compulsory Licensing Dire for Digital Content
PFF's Ross Finds Danger in Government
Management of IP Compensation

WASHINGTON D.C. - A new paper released by The Progress & Freedom Foundation, "Why Government Can't Be Trusted With Trust Funds: A 118-Year-Old Case Study Highlights the Dangers of Compulsory Licensing," builds a strong case against applying compulsory licensing to works traded by peer-to-peer filesharing. The Progress on Point, authored by Patrick Ross, PFF vice president for communications and external affairs, explains that the current copyright system should not be abandoned in response to the new and innovative ways consumers can access creative works. He also cautions policymakers against putting the public sector in a management role concerning compulsory licensing. The Federal government has illustrated through its mishandling of the Indian Trust Fund that it would be unable to efficiently perform the transfer of fees from consumer to creator.

Ross analyzes several copyright models that have been proposed to ensure an artist receives compensation for works distributed via peer-to-peer filesharing. Many of them involve a direct role for the federal government. In his paper, Ross draws parallels between the mismanagement of the Indian Trust Fund by the Department of Interior and a compulsory licensing system for digital goods. "Both systems involve the federal government attempting to monitor the marketplace, and extract rent from one party to fund another." Ross continues, "This is an extremely difficult thing to do, but a relatively simple thing for a market to perform. Both are systems that, once in place, are difficult to dismantle, because parties in the system become dependent on them."

The paper sternly warns against putting the federal government in the role of collecting and distributing compulsory licensing fees in the form of taxes. Such a system would raise serious questions regarding jurisdiction, as filesharing is a global activity that cannot be restricted for purely domestic use. In addition, the federal government, as clearly illustrated by the Indian Trust Fund, does not have the infrastructure, organization or accountability to manage such a task. Ross explains, "Put simply, the government lacks the incentives to protect, improve, maintain and earn rewards from property; an owner does." The piece also warns against creating an agency or non-profit to manage the transfer of fees or taxes from user to creator. "A government trust fund agency, or a non-profit chartered by Congress to manage such funds, would not be accountable to the market, and thus would not be accountable to consumers."

Although peer-to-peer filesharing has made it much easier to violate intellectual property rights, it doesn't logically follow that the copyright laws should be altered to forgive such violations. He concludes that more government involvement would hurt, not help, the creators of digital content. "A property-based model operating in a free market would have its flaws, but there would be remedies for those flaws with law enforcement and the court system. As the Native Americans suing the Department of Interior are finding, there is little recourse when the government system is failing, even if that failure has been occurring for nearly 120 years. If we wish artists to be compensated at a level approaching their popularity in the market, we must let them participate in that market."

The Progress & Freedom Foundation is a market-oriented think tank that studies the digital revolution and its implications for public policy. It is a 501(c)(3) research & educational organization.



The Progress & Freedom Foundation