Intellectual Property Arrangements: Australian Productivity Commission Inquiry Report – key points and copyright

Intellectual property (IP) arrangements offer opportunities to creators of new and valuable knowledge to secure sufficient returns to motivate their initial endeavour or investment. In this respect, they are akin to the property rights that apply to ownership of physical goods. But ideas are not like physical goods in other key respects. Ideas also provide economic and social value as others draw on them and extend the frontiers of knowledge. For these reasons, property rights over ideas and their expression are not granted in perpetuity and limitations are placed on their application.

Because IP rights give their holders the ability to prevent others from using that IP, there is a risk parties will unduly exercise market power. When innovation is cumulative, IP rights can reduce the flow of benefits from new ideas and processes. This is particularly harmful for Australian firms, who tend to ‘adopt and adapt’ innovations, building on the knowledge of others.

Poorly designed IP rights impose costs irrespective of whether countries are net importers or exporters of IP. However, Australia is overwhelmingly a net importer of IP, and the gap between IP imports and exports is growing rapidly. This means that the costs to consumers and follow-on innovators from higher prices and restricted availability are not offset by increases in Australian producer profits.

Copyright protection in Australia suffers from a number of shortcomings. It is overly broad, applying equally to: commercial and non-commercial works; works with very low levels of creative input; works that are no longer being supplied to the market; and works where ownership can no longer be identified. Further, copyright does not target those works where ‘freeriding’ by users would undermine incentives to create new works. As such, Australia’s copyright arrangements are skewed too far in favour of copyright owners to the detriment of consumers and intermediate users.

Evidence (and logic) suggests copyright protection lasts far longer than is needed. Few, if any, creators are motivated by the promise of financial returns long after death, particularly when the commercial life of most copyright material is less than 5 years. Studies have found that a term of around 25 years enables rights holders to generate revenue comparable to what they would receive in perpetuity (in present value terms). Of course, some very successful works have commercial lives well beyond a few years, but it remains the case that these are exceptions to the norm.

Many works become commercially unavailable during their period of copyright protection. Overly long copyright term perversely increases the likelihood and duration for which works are unavailable. Demand for works that have been created, but are not being supplied while under copyright protection, reduces community welfare and returns to original rights holders and potential new providers. Nothing better exemplifies the costs of excessive copyright term than the fact that once copyright expires and works enter the public domain, many become commercially available again.

Long periods of copyright protection, coupled with automatic application and no registration requirements, also result in ‘orphan works’ — works protected by copyright but unusable by consumers, libraries, and archives because the rights holder cannot be identified. The existence of orphan works has become a greater issue as libraries and archives have sought to make their collections available online.