Page 1

No. 01-618

In the Supreme Court of the United States

__________

ERIC ELDRED et al.,

Petitioners,

v.

JOHN D. ASHCROFT, ATTORNEY GENERAL,

Respondent.

__________

On Writ of Certiorari

to the United States Court of Appeals

for the District of Columbia Circuit

__________

BRIEF OF GEORGE A. AKERLOF, KENNETH J. ARROW,

TIMOTHY F. BRESNAHAN, JAMES M. BUCHANAN,

RONALD H. COASE, LINDA R. COHEN, MILTON FRIEDMAN,

JERRY R. GREEN, ROBERT W. HAHN,

THOMAS W. HAZLETT, C. SCOTT HEMPHILL,

ROBERT E. LITAN, ROGER G. NOLL, RICHARD

SCHMALENSEE, STEVEN SHAVELL, HAL R. VARIAN, AND

RICHARD J. ZECKHAUSER AS AMICI CURIAE

IN SUPPORT OF PETITIONERS

__________

ROY T. ENGLERT, JR.

Counsel of Record

Robbins, Russell, Englert,

Orseck & Untereiner LLP

1801 K Street, N.W.

Suite 411

Washington, D.C. 20006

(202) 775-4500

May 20, 2002

TABLE OF CONTENTS

Page

INTEREST OF THE AMICI CURIAE . . . . . . . . . . . . . . . . 1

SUMMARY OF ARGUMENT . . . . . . . . . . . . . . . . . . . . . . 1

ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

I. IT IS HIGHLY UNLIKELY THAT THE

ECONOMIC BENEFITS FROM COPYRIGHT

EXTENSION UNDER THE CTEA OUTWEIGH

THE COSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

A. The CTEA Provides At Most A Very Small

Benefit To Innovation . . . . . . . . . . . . . . . . . . . . . . 3

1. Copyright solves a special problem in the

technology of production of creative works . . 3

2. The CTEA’s longer copyright for new

works provides at most a very small

additional incentive . . . . . . . . . . . . . . . . . . . . 5

3. The CTEA’s extension of copyright

in existing works provides no significant

incentive to create new works . . . . . . . . . . . . 8

B. The CTEA Increases The Social Cost Of

Monopoly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

II. THE CTEA REDUCES INNOVATION BY

RESTRICTING THE PRODUCTION OF

NEW CREATIVE WORKS THAT MAKE USE

OF EXISTING MATERIALS . . . . . . . . . . . . . . . . . . 12

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

APPENDIX A: LIST OF SIGNATORIES

TO THE BRIEF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1a

APPENDIX B: PRESENT VALUE OF

ADDITIONAL COMPENSATION . . . . . . . . . . . . . . . 3a

ii

TABLE OF AUTHORITIES

Page(s)

Statute

Copyright Term Extension Act of 1998,

Pub. L. No. 105-298, 112 Stat. 2827 . . . . . . . . . . . . . . 1

Miscellaneous

Kenneth J. Arrow, Economic Welfare and the

Allocation of Resources for Invention, in

THE RATE AND DIRECTION OF ECONOMIC

ACTIVITY: ECONOMIC AND SOCIAL

FACTORS 609 (National Bureau of Econ.

Research ed., 1962) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Stephen G. Breyer, The Uneasy Case for Copyright:

A Study of Copyright in Books, Photocopies, and

Computer Programs, 84 HARV. L. REV. 281 (1970) .. 4

James M. Buchanan & Yong J. Yoon, Symmetric

Tragedies: Commons and Anti-Commons,

43 J.L. & ECON. 1 (2000) . . . . . . . . . . . . . . . . . . . . . . 13

Ronald H. Coase, The Problem of Social Cost, 3

J.L. & ECON. 1 (1960) . . . . . . . . . . . . . . . . . . . . . . . . . 13

Linda R. Cohen & Roger G. Noll, Intellectual Property,

Antitrust and the New Economy, 62 U. PITT.

L. REV. 453 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Paul Goldstein, Infringement of Copyright in Computer

Programs, 47 U. PITT. L. REV. 1119 (1986) . . . . . . . . 14

William M. Landes & Richard A. Posner, An Economic

Analysis of Copyright, 18 J. LEGAL STUD. 325 (1989) . 4

TABLE OF AUTHORITIES—Continued

Page(s)

iii

Edward Rappaport, Copyright Term Extension:

Estimating the Economic Values, Congressional

Research Service Report 98-144E (1998) . . . . . . . . . . 7

Barbara A. Ringer, Renewal of Copyright, in

STUDIES ON COPYRIGHT 503 (Arthur Fisher

Memorial ed. 1963) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

1 The parties have consented to the submission of this brief, and their

letters of consent have been filed with the Clerk of this Court. This

brief was not written in whole or in part by counsel for a party. Amici

and their counsel were not compensated in any way; the Stanford

Institute for Economic Policy Research defrayed printing costs.

2 Copyright Term Extension Act of 1998, Pub. L. No. 105-298, 112

Stat. 2827. In addition, this brief analyzes one ancillary economic

effect of the CTEA, a longer term in Europe for U.S. copyright

holders under Europe’s “rule of the shorter term.”

INTEREST OF THE AMICI CURIAE1

Amici are professors and scholars who teach and write on

economic issues and are concerned about the role of

government in promoting economic progress. They are George

A. Akerlof, Kenneth J. Arrow, Timothy F. Bresnahan, James M.

Buchanan, Ronald H. Coase, Linda R. Cohen, Milton Friedman,

Jerry R. Green, Robert W. Hahn, Thomas W. Hazlett, C. Scott

Hemphill, Robert E. Litan, Roger G. Noll, Richard

Schmalensee, Steven Shavell, Hal R. Varian, and Richard J.

Zeckhauser. Various amici have taught, researched, and

published analyses of the economics of innovation and the

effect of government policy on the incentive to create new

works. A summary of the qualifications and affiliations of the

individual amici is provided at the end of this brief. Amici file

this brief solely as individuals and not on behalf of the

institutions with which they are affiliated. Amici represent

neither party in this action, and offer the following views on this

matter.

SUMMARY OF ARGUMENT

This brief provides an economic analysis of the main

feature of the Copyright Term Extension Act of 1998

(“CTEA”), a twenty-year extension of the copyright term for

existing and future works.2

An economist’s perspective may

be helpful to the Court as it considers Congress’s reasons for

passing the CTEA, particularly with respect to the extension for

existing works.

2

One possibility is that Congress sought a policy that

confers a net economic benefit, after subtracting the expected

costs. The main economic benefit from copyright protection is

to give an author an incentive to create new works. The size of

this economic incentive depends upon the “present value” of

compensation, as anticipated by the author at the time of

creation.

The two components of the CTEA differ markedly in their

economic effect. The longer term for new works provides some

increase in anticipated compensation for an author. Because the

additional compensation occurs many decades in the future, its

present value is small, very likely an improvement of less than

1% compared to the pre-CTEA term. This compensation offers

at most a very small additional incentive for an economically

minded author of a new work. The term extension for existing

works makes no significant contribution to an author’s

economic incentive to create, since in this case the additional

compensation was granted after the relevant investment had

already been made.

The CTEA has two further effects on economic efficiency.

First, the CTEA extends the period during which a copyright

holder determines the quantity produced of a work, and thus

increases the inefficiency from above-cost pricing by lengthen-

ing its duration. With respect to the term extension for new

works, the present value of the additional cost is small, just as

the present value of incremental benefits is small. By contrast,

the cost of term extension in existing works is much larger in

present value, especially for works whose copyrights would

soon or already have expired but for the CTEA.

Second, the CTEA extends the period during which a

copyright holder determines the production of derivative works,

which affects the creation of new works that are built in part out

of materials from existing works. Where building-block

materials are copyrighted, new creators must pay to use those

materials, and may incur additional costs in locating and

negotiating with copyright holders. Such transaction costs are

3

especially large where the copyright holders whose permissions

are required are numerous or difficult to locate. By reducing

the set of building-block materials freely available for new

works, the CTEA raises the cost of producing new works and

reduces the number created.

Taken as a whole, it is highly unlikely that the economic

benefits from copyright extension under the CTEA outweigh

the additional costs. Moreover, in the case of term extension

for existing works, the sizable increase in cost is not balanced

to any significant degree by an improvement in incentives for

creating new works. Considering the criterion of consumer

welfare instead of efficiency leads to the same conclusion, with

the alteration that the CTEA’s large transfer of resources from

consumers to copyright holders is an additional factor that

reduces consumer welfare.

ARGUMENT

I. IT IS HIGHLY UNLIKELY THAT THE ECONOMIC

BENEFITS FROM COPYRIGHT EXTENSION

UNDER THE CTEA OUTWEIGH THE COSTS

A. The CTEA Provides At Most A Very Small Benefit

To Innovation

1. Copyright solves a special problem in the

technology of production of creative works

To the extent that a concern for economic values motivates

copyright policy, it is important to understand its main benefits

and costs. In basic terms, copyright protection grants a

monopoly over the distribution and sale of a work and certain

new works based upon it. The copyright monopoly has several

costs, which are described at pages 10-12 and 12-15 below. In

addition, copyright protection provides a benefit to society by

providing incentives for the production of new creative works.

4

3 For two classic accounts, see William M. Landes & Richard A.

Posner, An Economic Analysis of Copyright, 18 J. LEGAL STUD. 325

(1989); Stephen G. Breyer, The Uneasy Case for Copyright: A Study

of Copyright in Books, Photocopies, and Computer Programs, 84

HARV. L. REV. 281 (1970).

4 The incentives of copyright affect publishers as well as authors, but

the same arguments apply to the initial publisher as to the author.

The main economic rationale for copyright is to supply a

sufficient incentive for creation.3 To produce a new book, film,

or other creative work, an author must make a substantial

up-front investment.4

For the resulting work to be profitable

overall, the author must recoup her initial investment through

sales of the work to consumers. An economically minded

author will recognize this and invest in creation only if the

expected returns, after paying per-unit (or “marginal”) costs, are

larger than the up-front investment; otherwise the author would

lose money overall.

The recovery of up-front costs is a general concern for

many producers, but authors face a special kind of economic

problem, due to the technology of production for creative

works. To understand this, consider the position of a second

competitor, who wishes to make the same product as the first

entrant into a market. For products generally, the second

competitor must incur the same kinds of costs as the original

entrant in order to participate in the market. Books, films, and

other creative works are different: without legal protection, an

author cannot prevent others from appropriating the fruits of the

initial investment. Here, a second competitor can quickly enter

the market by simply copying the work and offering it for sale,

without incurring similar development costs. Without the

ability to exclude, entry may be easy and quick, the resulting

fall in prices to marginal cost can be rapid, and non-recovery of

initial investment by the author is very likely. In this

5

5 See Kenneth J. Arrow, Economic Welfare and the Allocation of

Resources for Invention, in THE RATE AND DIRECTION OF ECONOMIC

ACTIVITY: ECONOMIC AND SOCIAL FACTORS 609 (National Bureau of

Econ. Research ed., 1962).

environment, an author has less of an incentive to produce new

works.5

In economic terms, then, copyright provides incentives for

creation by solving the special problem of non-excludability of

creative works, assuring authors an opportunity to recoup their

initial investment in creation. The economic value of a change

in copyright policy depends upon the extent to which it

increases incentives for creation. The CTEA lengthens the

copyright term by twenty years, for both new works and

existing works. As the economic value differs for the two kinds

of extension, each case is considered in turn.

2. The CTEA’s longer copyright for new works

provides at most a very small additional

incentive

The CTEA lengthens the copyright term for new works

from life-plus-fifty years to life-plus-seventy years for

individual authors, and from seventy-five years to ninety-five

years for works for hire. Thus, the additional compensation

from term extension accrues over a number of years. To

evaluate and compare the magnitude of cash flows that occur in

the future, economists use concepts of “present value” and

“future value.”

For a given amount of money today, future value is the

amount that money would be worth at some point in the future.

For example, if the interest rate is 7%, $1 today has a future

value of $1.07 a year from now. Present value is the reciprocal

of future value; thus $1.07 next year has a present value of $1

today. One dollar, received a year from now, has a present

value of approximately $0.93 ($1/1.07). Similarly, $1.14 two

years from now has a present value of $1, and $1 in two years

6

6 In general, given an interest rate of r, $1 today grows to (1+r)n in n

years. So $1, n years in the future, has a present value of 1/(1+r)n

today.

7 The present value of $1 each year for eighty years is $14.22 (at a 7%

interest rate). The present value of $1 each year from years eighty-

one to one hundred is $0.047, which is 0.33% of $14.22.

8 Analogously, the present value of additional compensation for a new

work for hire is 0.47%.

is equivalent to approximately $0.87 today. The further away

in time it is paid, the less that payment is worth in present

value.6

The twenty years of copyright term added by the CTEA

provide a flow of additional benefits that is very far into the

future, and hence very small in present value. To illustrate,

suppose that an author writes a book and lives for thirty more

years. In this case, under the pre-CTEA copyright regime, the

author or his assignee would receive royalties for eighty years.

If the interest rate is 7%, each dollar of royalties from year

eighty has a present value of $0.0045. Under the CTEA, this

same author will receive royalties for one hundred years. Each

dollar of royalties from year one hundred has a present value of

$0.0012.

In this example, the present value of total additional

revenues under the CTEA can be calculated by adding up the

present values of revenues from year eighty-one through year

one hundred. Suppose that the work produces a constant stream

of revenues, and assume once again that the interest rate is 7%.

In this case, the present value of the total return from years

eighty-one to one hundred is 0.33% of the present value from

years one to eighty.7 Put differently, under these assumptions,

the additional compensation provided by the CTEA amounts to

a 0.33% increase in present-value payments to the author,

compared to compensation without the twenty-year term

extension.8

7

9 Here, 7% is a real interest rate, defined as the rate of return on

capital, net of inflation.

10 A study of renewals prior to the 1976 Act found a renewal rate of

less than 15%. Barbara A. Ringer, Renewal of Copyright, in STUDIES

ON COPYRIGHT 503, 616-20 (Arthur Fisher Memorial ed. 1963).

11 A pre-CTEA Congressional Research Service study examined a

sample of renewed copyrights, finding that 11% of copyrights in

books, 12% in musical works, and 26% in motion pictures had some

commercial value in 1998. Edward Rappaport, Copyright Term

Extension: Estimating the Economic Values, Congressional Research

Service Report 98-144E (1998).

The conclusion above is based on two assumptions: a

constant stream of revenues and a 7% interest rate.9

The

assumption of a constant revenue stream for one hundred years

is very conservative, that is, it tends to overstate the amount of

compensation, because most works lose economic value over

time. As evidence, only a small percentage of copyright

registrants bother to renew their works, although renewal costs

only a few dollars,10 and only a fraction of renewed copyrights

continue to be valuable to copyright holders.11 If depreciation

of value is taken into account, the additional compensation

provided by the CTEA is likely to be much less than 0.33%.

The second assumption is the choice of an interest rate. In

general, much as investors require higher compensation for

riskier investments, a higher interest rate is appropriate for the

purpose of evaluating highly uncertain revenue streams. Seven

percent is meant to be illustrative, but it is a realistic estimate,

perhaps even conservative, given the high degree of uncertainty

about the revenues resulting from the production of a creative

work. Appendix B reports the present value of additional

compensation at different rates; the magnitude remains very

small over a range of plausible rates.

8

12 At a 7% interest rate, the present value of $1 annually for one

hundred years is $14.27, and the present value of $1 annually in

perpetuity is $14.29, an increase of 0.12%. For a fuller discussion,

see Linda R. Cohen & Roger G. Noll, Intellectual Property, Antitrust

and the New Economy, 62 U. PITT. L. REV. 453, 471 (2001).

13 Indeed, if the extension for existing works creates an expectation

that the future term could be adjusted downward as well as upward,

this could have a negative effect on incentives.

3. The CTEA’s extension of copyright in existing

works provides no significant incentive to

create new works

The analysis so far has suggested that, under a range of

plausible assumptions, the CTEA’s term extension for new

works provides only a very small economic incentive to create

new works, namely much less than one percent. The CTEA’s

extension of copyright in existing works by twenty years

provides essentially no incentive to create new works. By the

time of the CTEA’s passage, pre-CTEA authors had already

made initial investments in creation. Once a work is created,

additional compensation to the producer is simply a windfall.

The CTEA’s extension for existing works could in theory

have an effect on creators of new works, by creating an expecta-

tion that, in the future, Congress would extend copyright even

more, and that this extension would apply retroactively to

existing works. The maximum impact on incentives from this

effect, however, is trivial because the current copyright term

already has nearly the same present value as an infinite

copyright term. Granting a perpetual copyright would increase

compensation by at most 0.12% (at a 7% interest rate),12 or less

once declining revenues are taken into account. The actual

effect on incentives would be even smaller, if further extensions

are not a certainty.13

One might argue that the windfall to authors of existing

copyrights has a positive consequence, by providing them with

9

14

The analysis in the text applies to media companies and other

producers with substantial resources or access to U.S. capital markets.

For a starving artist who lacked resources or access, more resources

might permit the artist to fund a larger set of projects. But, for an

extension in existing term to help with this, the artist would have to

already own an existing copyright about to expire under the

pre-CTEA term, which is unlikely.

more resources for additional creative projects. However, this

argument ignores the profit maximization decision of a

producer, which takes into account the producer’s cost of

capital for a given investment. In general, a profit-maximizing

producer should fund the set of projects that have an expected

return equal to or greater than their cost of capital. If a

producer lacks the cash on hand to fund a profitable project, the

producer can secure additional funding from financial

institutions or investors. If the producer has resources

remaining, after funding all the projects whose expected returns

are higher than the cost of capital, this remainder should be

invested elsewhere, not in sub-par projects that happen to be

available to the firm. If a producer pursues the same set of

projects in any event, then its incentives will not be improved

from the mere fact of a windfall from consumers.14

Aside from its effect on the creation of new works, it is also

possible as a logical matter that a term extension could affect a

copyright holder’s incentive to make investments in existing

works. Such cases would occur in at most a small subset of

copyrights, since extension has an incremental effect only after

many years of copyright, and (as suggested above) most works

lose their economic value to the initial copyright owner after a

very few years. The same will tend to be true of improvements.

For those remaining works where post-creation investments

might be thought a significant factor, a twenty-year copyright

extension will tend to have little or no incremental effect. For

investments such as branding, other legal instruments such as

trademark and rights of publicity already protect the investment.

For other improvements, such as translations, a separate

10

copyright in the improvement is available. Overall, a

twenty-year extension seems unlikely to have a significant

effect on post-creation incentives.

B. The CTEA Increases The Social Cost Of Monopoly

A full economic analysis of the CTEA’s incremental

effects requires an evaluation of its benefits and costs,

compared to the effects of the pre-CTEA term. As discussed

above, the benefits, in the form of additional incentives to

create new works, are at most very small in the case of extended

copyright for new works, and insignificant with respect to

existing works. For the CTEA to make economic sense as an

efficiency-enhancing measure, the costs should be similarly

small. The remainder of the brief considers two sources of cost

that are affected by the CTEA: misallocations due to inefficient

pricing and the effective tax that copyright extension imposes

upon the creation of new works.

The economic story of inefficient pricing under monopoly

is a familiar one. In a competitive market, sellers undercut one

another, with the consequence that price tends to fall to

marginal cost. A price equal to marginal cost ensures an

efficient allocation of resources, since all consumers who value

the good at more than its marginal cost will purchase the good

at that price. By contrast, a monopolist can set price above

marginal cost for a sustained period of time. At this higher

price, some consumers will be unwilling to purchase the good,

although they would have purchased it at a price equal to

marginal cost.

These missed opportunities for selling give rise to an

inefficient allocation, since some consumers value the good

more than its marginal cost of production, but less than the

higher price charged by the monopolist. The consequences for

allocation are important in the case of creative works because

marginal costs are very low. Production and distribution of an

additional unit are relatively cheap, once the work is created.

If copyright gives a producer substantial market power, the

11

price may be well above marginal cost, in which case a large

number of consumers may be excluded.

Since the CTEA lengthens the term of copyright by twenty

years, it permits above-cost pricing for a longer period of time,

and thus it imposes an incremental burden on society. But it is

important to note when these higher costs are incurred. As

discussed in the previous section, the increase in incentives to

create is very small in present-value terms, because it is so far

in the future. By contrast, the additional burden of the CTEA

is composed of the effect from extension in existing works, as

well as an effect in the future from works not yet created.

The extension for existing works accounts for the bulk of

the economic cost. (For works not yet created, the additional

cost of term extension is small in present value, just as the

additional compensation for creating new works is small in

present value.) Again, a present-value analysis helps to

underscore this point. The closer to copyright expiration a work

was under the pre-CTEA regime, the larger the present value of

the additional cost imposed by the CTEA. For works whose

copyrights were near expiration when the CTEA was passed,

this effect is especially large: a deadweight loss experienced

today is 224 times as large in present value as a deadweight loss

eighty years from now (at a 7% interest rate).

Given the economic benefits and costs described so far, it

is difficult to understand copyright term extension as an

efficiency-enhancing measure. Moreover, it is especially

difficult to understand the CTEA’s extension for existing works

by reference to efficiency. For existing works, particularly

those whose pre-CTEA copyrights were about to expire, the

social cost of monopoly pricing is at a maximum, and here the

extension provides no counter-balancing increase in the

incentive to produce new works.

The analysis so far has focused upon efficiency. The

CTEA can also be understood in terms of its impact upon con-

sumer welfare. A consumer-welfare-based analysis of monop-

12

15 The twenty-year increase in European protection of U.S. copyrights

will have an additional effect, a transfer of resources from European

consumers to the owners of U.S. copyrights. This windfall to U.S.

copyright holders is in addition to the transfer from U.S. consumers,

and in general will not lower the profit-maximizing price charged to

U.S. consumers, or lessen the inefficiency (and transfers from U.S.

consumers) resulting from a producer’s exercise of market power.

oly takes notice of an additional consequence of the copyright

holder’s monopoly, namely the substantial transfer of resources

from consumers to producers that results from prolonging the

period of monopoly pricing. Given the redistribution from

consumers to producers, the consequences for consumer welfare

are more negative than the consequences for efficiency.15

II. THE CTEA REDUCES INNOVATION BY RE-

STRICTING THE PRODUCTION OF NEW CRE-

ATIVE WORKS THAT MAKE USE OF EXISTING

MATERIALS

A copyright holder has two kinds of monopoly power, each

of which is a potential source of producer profit and social cost.

First, as discussed above, copyright imparts control over the

quantity produced of a work, permitting the holder to maintain

a price higher than marginal cost. Second, copyright provides

control over the production of derivative works based in part on

copyrighted material. In certain circumstances described

below, this control results in higher costs and lower production

of new creative works.

Many new creative works are built in part out of materials

from existing works. For example, new fiction re-tells old

stories, new documentaries re-use historical footage, and new

music re-mixes and transforms old songs. Improvements in the

technology of search and recombination continue to expand the

economic importance of new creation based upon old materials.

If building-block materials are copyrighted, there are two

sources of inefficiency to consider. If the later innovator must

13

16 See James M. Buchanan & Yong J. Yoon, Symmetric Tragedies:

Commons and Anti-Commons, 43 J.L. & ECON. 1 (2000).

17 See Ronald H. Coase, The Problem of Social Cost, 3 J.L. & ECON.

1 (1960).

pay for use of the earlier work, this will raise the innovator’s

cost of making new works, reducing the set of new works

produced. In addition, if the process of bargaining and

contracting is itself costly, a copyright holder’s control over

derivative works imposes an additional tax on innovation.

In many cases efficient exchange is hampered by the

presence of several kinds of transaction costs. First, a new

creator may have difficulty locating an earlier copyright holder,

particularly in the case of very old works that have been under

copyright for a long time. Uncertainties about the identity of

the original author or subsequent assignee of the copyright

deepen the difficulty. When copyright holders are difficult to

locate, it is costly to track them down, and, if it is even more

difficult to locate copyright holders of older works, then

transaction costs will increase disproportionately for these

works.

Second, for documentaries and many other works, a new

creator must negotiate with a large number of previous

copyright holders, often for minimal uses of their works. When

copyright holders are numerous, it is costly to negotiate and

reach agreements with all of them. One result is a “tragedy of

the anti-commons”: when too many parties have actual or

potential vetoes on the creation of an economically valuable

object, that object will tend to be under-produced.16

The

resulting costs to society take two forms: the expenditure of

resources to organize and complete these agreements, and a

reduction in works created due to the higher costs of producing

them.

As Ronald Coase and many others have pointed out,17 eco-

nomic efficiency is best promoted by legal arrangements that

14

18

See Paul Goldstein, Infringement of Copyright in Computer

Programs, 47 U. PITT. L. REV. 1119, 1123 (1986).

minimize transaction costs. Here, a limit on the duration of

control rights over derivative works tends to reduce transaction

costs. To the extent that the duration of derivative rights is

expanded instead, there will tend to be an increase in wasteful

expenditures to locate and bargain with copyright holders, as

well as a reduction in the creation of new works based upon

earlier copyrighted works. Here, the CTEA increases

transaction costs by lengthening the rights over derivative

works by twenty years, thus shrinking the pool of public

domain materials available for recombination into new works.

This conclusion is subject to the condition that the owner

of the original copyright is not somehow the most efficient

creator of the subsequent work. Although sometimes applied

to patent, this argument has little application to copyright. In

copyright, diverse, “abundant” expression is the source of

value, not successive refinements with respect to an

agreed-upon metric of quality,18 and a large number of disparate

innovators may be better at producing abundance. Moreover,

in the two situations described above, existing copyright holders

are certainly not at an advantage. If the copyright holder is

unaware of the copyright (for example, a descendant of the

original author) or its value for creating derivative works, he is

unlikely to explore possible derivative works in a vigorous way.

And, when many existing works have to be pooled and

recombined to create a new work, the owner of a single existing

work is at no practical advantage in creating the new work, as

she still must negotiate with all the other owners. In the case of

this single owner, too, transaction costs are minimized when the

later innovator has a right to use earlier materials.

In short, a lengthened copyright term under the CTEA

keeps additional materials out of new creators’ hands. Would-

be new creators face increased transaction costs: the necessity

to engage in costly locating (especially for very old works, the

15

very ones that would be in the public domain but for the CTEA)

and bargaining with multiple parties. These higher costs give

new creators less incentive to produce. As a result, the CTEA

imposes two kinds of burden on society, fewer new works

produced and higher transaction costs in the creation of some

works.

CONCLUSION

Comparing the main economic benefits and costs of the

CTEA, it is difficult to understand term extension for both

existing and new works as an efficiency-enhancing measure.

Term extension in existing works provides no additional incen-

tive to create new works and imposes several kinds of

additional costs. Term extension for new works induces new

costs and benefits that are too small in present-value terms to

have much economic effect. As a policy to promote consumer

welfare, the CTEA fares even worse, given the large transfer of

resources from consumers to copyright holders.

Respectfully submitted.

ROY T. ENGLERT, JR.

Counsel of Record

Robbins, Russell, Englert,

Orseck & Untereiner LLP

1801 K Street, N.W.

Suite 411

Washington, D.C. 20006

(202) 775-4500

Counsel for Amici Curiae

May 20,2002

APPENDIX

1a

APPENDIX A

LIST OF SIGNATORIES TO THE BRIEF

George A. Akerlof

Goldman Professor of Economics, University of California,

Berkeley

Nobel Memorial Prize in Economic Sciences, 2001

Kenneth J. Arrow

Joan Kenney Professor of Economics (emeritus),

Stanford University

Nobel Memorial Prize in Economic Sciences, 1972

Timothy F. Bresnahan

Professor of Economics, Stanford University

Co-Director, Center for Research on Employment and

Economic Growth, Stanford University

James M. Buchanan

Advisory General Director, Center for Study of Public Choice,

George Mason University

Nobel Memorial Prize in Economic Sciences, 1986

Ronald H. Coase

Clifton R. Musser Professor of Economics (emeritus),

University of Chicago Law School

Nobel Memorial Prize in Economic Sciences, 1991

Linda R. Cohen

Professor of Economics, University of California, Irvine

Professor of Social Science and Law, University of Southern

California Law School

Milton Friedman

Senior Research Fellow, Hoover Institution

Nobel Memorial Prize in Economic Sciences, 1976

2a

Jerry R. Green

John Leverett Professor in the University and David A. Wells

Professor of Political Economy, Harvard University

Robert W. Hahn

Director, AEI-Brookings Joint Center for Regulatory Studies

Thomas W. Hazlett

Senior Fellow, Manhattan Institute for Policy Research

C. Scott Hemphill

Kapnick Fellow in Economics, Stanford University

Robert E. Litan

Vice President and Director of Economic Studies, Brookings

Institution

Co-Director, AEI-Brookings Joint Center for Regulatory

Studies

Roger G. Noll

Morris M. Doyle Centennial Professor of Public Policy,

Stanford University

Richard Schmalensee

John C. Head III Dean, Sloan School of Management,

Massachusetts Institute of Technology

Steven Shavell

Professor of Law and Economics, Harvard Law School

Director, John M. Olin Center for Law, Economics, and

Business, Harvard Law School

Hal R. Varian

Dean, School of Information Management and Systems,

University of California, Berkeley

Class of 1944 Professorship, Department of Economics,

University of California, Berkeley

Richard J. Zeckhauser

Frank P. Ramsey Professor of Political Economy, John

F. Kennedy School of Government, Harvard University

3a

APPENDIX B

PRESENT VALUE OF ADDITIONAL

COMPENSATION

For an individual author:*

Interest Rate

Compensation,

Years 1-80

Additional

Compensation,

Years 81-100

Percent

Increase

5%

$19.60

$0.25

1.28%

7%

$14.22

$0.05

0.33%

10%

$10.00

$0.00

0.04%

For a work for hire:

Interest Rate

Compensation,

Years 1-75

Additional

Compensation,

Years 76-95

Percent

Increase

5%

$19.48

$0.32

1.65%

7%

$14.20

$0.07

0.47%

10%

$9.99

$0.01

0.07%

* Individual author calculations assume authorship thirty years prior

to death, which implies eighty years of copyright without the CTEA,

one hundred years of protection with the CTEA.

Calculations assume a constant annual revenue stream. For ease of

exposition, annual payments are assumed to be $1, but the percentage

increases are unchanged for larger or smaller constant annual streams.