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Cut in Tiny Pieces

Cut in Tiny Pieces

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11/06/2013

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Electronic copy available at: http://ssrn.com/abstract=2175779
 
 VANDERBILT JOURNAL OFENTERTAINMENT AND TECHNOLOGY LAW 
 V 
OLUME
14 F
 ALL
2011 N
UMBER
1
1
 
Cut in Tiny Pieces: Ensuring ThatFragmented Ownership Does NotChill Creativity
Henry H. Perritt, Jr.
 
 A 
BSTRACT
 
The market for video entertainment is growing and becoming more diverse as technology reduces barriers to entry for small,independent moviemakers and distributors and increases consumers’ ability to access the media of their choice. The growing complexity of the market, however, increases transaction costs for new entrants whomust obtain licenses to copyrighted music, characters, storylines, orscenes that they incorporate into their movies. The entertainmentbonanza offered by new technologies may not be realized in practicebecause of market failure. The purposes of the Copyright and PatentsClause are frustrated because creators of new works wishing to use newtechnologies to build on prior creative effort confront a legal regimeintertwined with older technologies and industry structures.
*
© 2011
Henry H. Perritt, Jr.
The author is a Professor of Law at and former Dean of the Chicago-Kent College of Law. He is a member of the bar in Virginia (inactive), Pennsylvania(inactive), the District of Columbia, Maryland, and Illinois, and is a member of the bar of theSupreme Court of the United States. Professor Perritt has written approximately a dozen booksand ninety law review articles on labor and employment law, technology and law, internationalrelations and law, and entertainment law. He is a songwriter, playwright, and screenplayauthor. He has recorded and released two albums of music, written and produced a musicaltitled “You Took Away My Flag,” which had a short production run in Chicago in 2009 and aneight-week run in Chicago in 2010, is shooting a movie based on the underlying story of themusical, and has written two new plays, “Airline Miles” and Giving Ground,” both of which arecurrently in development. The author appreciates outstanding editing suggestions from hisresearch assistant, J. Ryan Lawlis, and excellent work on the Coasian sections by his researchassistant, Michael Mason. The author adapted the Article’s title from the title of a song theauthor wrote about federal and state pleading rules for his class in Civil Procedure (for which heowns the copyright).
 
Electronic copy available at: http://ssrn.com/abstract=2175779
2
VANDERBILT J. OF ENT. AND TECH. LAW 
[Vol. 14:1:1
This Article argues that the market needs new public and private law mechanisms to make it function more efficiently, bymaking it easier for creators of new works to (1) find the owners of  preexisting content and (2) overcome other barriers to obtaining licenses, such as strategic behavior, irrational protection of entrenchedbureaucracies, and obsolete, embedded capital. This Article begins witha hypothetical story of an independent moviemaker. It explains the problems that he confronts in making his movie, explores therelationship between the structure of the market for entertainmentworks and the circumstances that have traditionally justified legalintervention in a market economy, analyzes various models for suchintervention, and proposes legislative, common law, and equitablesolutions to mitigate the problems. The proposals afford a privilege fora new creator to use preexisting works when he cannot identify theholders of rights in the preexisting work, when he is unsuccessful incommunicating with those rights holders, or when he proposes areasonable royalty and is rebuffed.The purpose of copyright law is to encourage and rewardcreative effort. Current conditions frustrate achievement of that goal bymaking it easy for copyright owners to hide and then ambush creatorsof new works that build upon existing works. Amendment of theCopyright Act or application of the interpretive principles proposed inthis article would further the law’s purpose.
T
 ABLE OF
C
ONTENTS
 
I. B
LAKE
S PROBLEM
.................................................................... 4
II. T
HE
 V
IDEO
E
NTERTAINMENT
I
NDUSTRY 
I
S
B
ESET WITH
H
IGH
T
RANSACTION
C
OSTS FOR
C
OPYRIGHT
L
ICENSING
......... 9
 A. Copyright Blocks Unlicensed Use of Much MaterialUsed as a Foundation for New Works
.............................. 10
1. Basics ........................................................................... 11
2. Derivative Works ......................................................... 12
3. Copyrighted Characters and Plots ............................... 13
 B. Search Costs Are Well Known, Especially for “OrphanWorks” 
.............................................................................. 18
C. Extensive Fragmentation of Copyright Aligns Poorlywith the Realities of New Technologies
............................ 20
 D. Existing Clearance Services Are Insufficient
................... 24
E. The Result Is Market Failure
........................................... 25
III. T
HE
P
ROBLEMS
C
ONFRONTING
 V
IDEO
E
NTERTAINMENT
 A 
RE
W
ELL
NOWN IN
P
ROPERTY 
M
 ARKETS
G
ENERALLY 
....... 26
 
Electronic copy available at: http://ssrn.com/abstract=2175779
2011]
FIXING FRAGMENTED COPYRIGHT OWNERSHIP 
3
 A. Coase on Market Failure, Externalities, andTransaction Costs
............................................................. 26
 B. Holdout and Free-riding Problems
................................... 28
C. Collective Action Costs
...................................................... 29
IV. M
ODELS FOR
S
OLVING
B
LAKE
S
P
ROBLEM
............................. 31
 A. Using Without Paying 
...................................................... 31
1. Narrowing the Protection of Certain Elements ........... 32
2. Privileges Under Special Circumstances ..................... 32
3. Adapt the Fair Use Privilege ....................................... 33
a. Purpose and Character of Blake’s Use:Transformative
......................................................... 35
b. Nature of the Copyrighted Work: Part of theCulture
...................................................................... 37
c. Amount of Copyrighted Work Taken
......................... 39
d. Market-impact Element Provides UsefulFlexibility
.................................................................. 40
4. Copyright Misuse ......................................................... 42
5. Nuisance ....................................................................... 43
 B. Finding Someone to Receive Payment
.............................. 44
1. Traditional Recording Systems .................................... 44
2. Copyright Recording System ....................................... 45
3. Quiet Title Actions ....................................................... 46
C. Determining a Fair Payment
............................................ 48
1. Eminent Domain .......................................................... 49
a. Public Use Requirement
........................................... 49
b. Private Condemnation
.............................................. 50
c. Application to Entertainment and Intellectual Property
.................................................................... 51
2. Other Mechanisms for Reducing Holdout Costs:Statutory Compulsory License Mechanisms ............... 52
3. Flexibility Under Existing Law ................................... 57
a. Conditioning Injunctive Relief on Equity
................ 57
b. Damages Discretion
.................................................. 58
 D. Institutionalizing Collective Action
.................................. 60
1. Copyright Collectives ................................................... 61
2. Limitations of Collective Action Models ...................... 64
 V. C
RAFTING A 
S
OLUTION FOR
C
OPYRIGHT
F
RAGMENTATIONIN
E
NTERTAINMENT
W
ORKS
:
 
C
ONCEPTUAL
P
RINCIPLES
........ 67
 VI.
 
P
ROPOSAL
........................................................................... 71
 A. Statutory Amendments
..................................................... 72
1. Orphan Report Recommendation................................. 72

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