Innovation and productivity

3.10 Copyright is an essential aspect of innovation in the digital environment. Productivity is lifted by innovation, which includes ‘creation of new copyright works and innovation in legal access, distribution, storage and consumption of those works’,^[10] as well as ‘new ways of producing or distributing goods and services’ or new ways of managing existing processes to do so.^[11]

3.11 Copyright law is fundamentally concerned with motivating the creation and distribution of new copyright material, by giving rights holders a limited monopoly over the use of their material. It is generally accepted that without this monopoly, there would be fewer new works, and less innovation.

3.12 However, innovation generally thrives where there is competition; therefore, by limiting the copyright monopoly, exceptions can also increase competition and stimulate innovation. Reforming copyright exceptions may therefore be seen as an attempt to find the optimum point at which creation and innovation is maximised. This is an elusive point, but it is important to recognise the conflict and the trade-offs.

3.13 Douglas Lichtman has written that the ‘central challenge facing copyright law over many years to come’ will be ‘the difficulty of balancing copyright’s role in encouraging authors with its possibly unintentional but also unavoidable role in influencing the development of related technologies.’ There is ‘no formula for any of this, and a purely economic approach fails for lack of data,’ he writes. However:

The key to getting the analysis right is to honestly account for the trade‐offs between these two categories of innovation, recognizing three fundamental truths: society wants both, authors provide input that makes many of the relevant technologies more valuable, and technological advancement, in turn, typically makes copyrighted work more valuable too.^[12]

3.14 The Business Council of Australia has stated:

We need to have the right innovation systems and environment in place to ensure that creative people and businesses in Australia are allowed to thrive and create value from new ways of doing things … A successful innovation system is one that is robust, adaptable and capable of evolving over time.^[13]

3.15 In the European context, Professor Ian Hargreaves has written that:

A mechanism put in place to promote creation by ensuring fair rewards to creators is becoming, in important respects, a hindrance to deeper development of Europe’s digital economy, a stain on the online experience of so many consumers and an impediment to promoting the innovation Europe so desperately needs.^[14]

3.16 In further research conducted since the publication of the Hargreaves Review, Professor Ian Hargreaves noted that ‘research has shown that much of the innovation and productivity growth in advanced economies comes from the smaller, technology-rich firms which characterises the new, internet-based service economy’.^[15]

3.17 Australian firms and entrepreneurs face barriers to innovation through the operation of market conditions which adversely affect the price of key digital infrastructure. The House of Representatives Inquiry into IT Pricing coined the phrase ‘Australia tax’ to illustrate the fact that Australians pay a great deal more than citizens in other developed countries for electronic material including books, games and computer software and this includes ‘apparently vastly higher costs to Australian consumers to access digitally downloaded music’.^[16]

3.18 Copyright law is a key element in these market conditions:

Clearly the increased presence of a digital IT environment has created challenges for interpretation of the balance of rights of access by consumers, protections for the artists, and the ability to generate financial benefits. It has also meant that ideas of appropriate competition are contested.^[17]

3.19 A number of stakeholders expressed concern about the effect of technological innovation on traditional business models, and implicit in their submissions is the implication that the ALRC recommendations need to protect existing business models.^[18] The tension is about managing risks associated with shifts in the value chain and necessary transformation of business models brought about by the introduction of new technology and innovation.^[19]

3.20 However, innovation provides emerging and expanding opportunities for creators and owners of copyright material. In a generally vibrant and growing entertainment and media economic outlook, the print consumer and educational book market is expected to decline by 5.2% and 1.5% respectively over 2013–2017, with 19.1% and 19.2% growth in digital/electronic books in those sectors respectively over the same period.^[20]

3.21 All copyright reviews, it seems, face the same arguments from stakeholders on all sides, and the argument that ‘only copyright protection—and not exceptions—can drive innovation’^[21] was strongly claimed by stakeholders in this Inquiry and in the 2013 Irish review of copyright law. The Copyright Review Committee (Ireland) noted that ‘[t]o assert that only one group of copyright stakeholders can drive innovation, to the exclusion of innovation from any other quarter, simply claims too much,’ and concluded ‘exceptions facilitate a great scope for beneficial user innovation’.^[22]

3.22 The recommendations in this Report are intended to facilitate a copyright framework in which innovation and productivity are enhanced as Australians participate in the digital economy and diversify areas of economic development for the future.