Fair Use for Free, or Permitted-but-Paid?
Fair use is an on/off switch: Either the challenged use is an infringement of copyright, or it is a fair use, which Section 107 declares "is not an infringement of copyright." As a result, either the copyright owner can stop the use, or the user not only is dispensed from obtaining permission, but also owes no compensation for the use. The unpaid nature of fair use introduces pressures that may distort analysis, particularly of the "transformative" character of the use, and of potential market harm. Faced with a use, particularly in the context of new technologies, that a court perceives to be socially beneficial, a court may overemphasize its "transformativeness," and correspondingly underestimate the market consequences, in order to prevent the copyright owner from frustrating the social benefit. Distortions can appear in the other direction as well: A court sensitive to the economic consequences of the unpaid use may feel obliged to downplay the public interest fostered by the use. Statutory licenses or privately negotiated accords within a statutory framework can alleviate the tension, by ensuring that uses that the legislator perceives to be in the public interest proceed free of the copyright owner’s veto, but with compensation – in other words, "Permitted but Paid."
The United States is an outlier in the broader international landscape of copyright exceptions. The copyright laws of EU member states, Canada, Australia, and New Zealand do not include an all-purpose fair use defense (though one has been proposed in Australia), but all these states have enacted a panoply of copyright exceptions, many of which require remuneration. Thus, while our fair use doctrine confronts courts with an all-or-nothing choice, other countries have charted middle courses between barring the use and permitting its unremunerated pursuit.
In contending that some uses previously ruled "fair" should not remain unpaid, I argue that the copyright law should distinguish new distributions from new works, and should confine (free) "fair use" to the latter. I propose that many redistributive uses be "Permitted but Paid," and be subject to a statutory framework for license negotiations, with compulsory licensing as a backstop. "Permitted but Paid" uses may be divided into two classes: Subsidy (socially worthy redistributions); and Market Failure (transactions costs are too high to warrant a licensing solution; or a new mode of dissemination – infant industry – is threatened by copyright owner recalcitrance). Because the inclusion of a use within the Market Failure class turns largely on facts that may evolve, these uses’ classification as "Permitted but Paid" should be subject to a phase-out, for example, a renewable sunset following a five-year review by the Copyright Office.
Where the use confers a public benefit and the choice is all-or-nothing, a fair use outcome is assured. But were "Permitted but Paid" an option, we would not be lured by a dichotomy falsely pitting authors against a perceived social good: The licensing mechanism would allow both broader dissemination and provide payment to authors. One might rejoin that there is no need to license if the use is fair. But if the use is "fair" because it supposedly cannot reasonably be licensed, then "Permitted but Paid" should replace fair use for free.