Copyright is a form of intellectual property that grants exclusive rights to a creator’s original expression. The underlying ideas expressed in a work, however, are not protected. Protection applies to a wide variety of creative work, ranging from books and music to film and computer programs. Copyright prohibits not only simple copying but also the development and distribution of nonidentical works that incorporate protected expression.
Copyright law is in some tension with competition law - antitrust law, as it is known in the United States. It permits certain conduct that might ordinarily raise antitrust concerns. For example, the assertion of a valid, infringed copyright against a rival is legal, even if the resulting exclusion raises prices and reduces output. However, most individual copyrights fail to confer market power. Just as with real property, the legal power to exclude does not necessarily imply the ability to exclude rivals in any economically meaningful sense. Moreover, as discussed below, the exclusionary force of a copyright is limited by various doctrines internal to copyright law. In any event, copyright does not grant a broad privilege to act anticompetitively, any more than ownership of a hammer confers a right to break storefront windows.
When multiple copyrighted works are licensed in tandem, concerns about anticompetitive collusion or exclusion may arise. These concerns are illustrated by antitrust enforcement in the music and film industries. In the United States, licensing in both industries historically has been constrained by court-administered consent decrees.
Collusion. Antitrust concerns about collusion can arise when separately owned copyrights are consolidated and licensed as a bundle. For example, songwriters have the exclusive right to authorize public performances of their work by radio stations and other downstream music users. The writers typically grant licenses to a performing rights organization (PRO), such as the American Society of Composers, Authors and Publishers. The PRO packages the rights into a blanket license that is offered to downstream users at a price set by the PRO. The arrangement reduces price competition among the writers while also producing a valuable benefit: an administrable mechanism for compensating writers and making available a wide repertoire to users.
In assessing antitrust liability, one relevant question is whether PRO licensing might be accomplished in a manner that preserves the benefits of centralized administration while avoiding the suppression of competition. This inquiry is often framed as an assessment of less restrictive alternatives. For example, instead of offering only a blanket license, the PRO might offer a per-use license. Technological advances have made such licenses easier to administer. In this respect, innovation in distribution has intensified antitrust scrutiny over time.
Exclusion. Concerns about exclusion may arise when a licensor conditions access to one copyrighted work on the acceptance of a license to additional works. For example, historically, movie studios licensed their films to theatres as a package. Such “block booking” has been criticized on the ground that, by forcing the theatres to accept unwanted films alongside the preferred ones, the distribution of independent films would be foreclosed. Defenders have argued that the practice reduces transaction costs and results in significant economies of scale.
The film example illustrates how innovation in distribution sometimes lessens antitrust concerns over time. For more than 70 years, block booking was prohibited in the United States under a consent decree. The rise of Internet-based streaming eased concerns about foreclosure, as did the increased prevalence of multiplex theatres equipped to show movies from different distributors on different screens. In light of industry evolution, the prohibition was retired in 2022.
Mergers. When a single movie studio or music label controls a large set of important copyrights, it may become a “must-have” content provider for downstream distributors. For example, if consumers expect a music streaming service to offer a comprehensive catalogue, the must-have label might be in a position to bargain for higher prices. If a merger of two labels confers must-have status and thereby increases the bargaining power of the merged firm, an antitrust enforcer might be moved to challenge the combination.
Matters might be different if both labels are already must-have. In that instance, access to one label’s music makes access to the other more valuable. The labels, though rivals, are offering complementary products from the standpoint of the distributor. When complements are separately owned, each firm charges a higher price, failing to fully take into account the price charged by the other firm. The result is higher prices and inefficiency. Thus, a merger of must-have labels might be viewed as beneficial. The argument is a variation on the elimination of double marginalization as a procompetitive justification. An argument of this kind supported a U.S. enforcer’s decision in not to challenge a four-to-three merger of major labels.
The role of copyright doctrine. The discussion thus far has explored how antitrust law protects competition in the licensing of copyrighted works. In addition, copyright doctrine itself shapes competition by placing limits on the exclusionary force of a copyright. One such limit is fair use, which permits innovators to incorporate existing works as building blocks, without permission from or payment to the earlier creator. Fair use employs a multifactor analysis - aptly described by the U.S. Supreme Court (“Court”) as an “equitable rule of reason” - that weighs (among other things) the innovative and competitive features of the new use. A transformative purpose counts in favour of fair use, while close competition with the earlier work counts against it.
As an illustration, consider Google v. Oracle. In designing the Android operating system for smartphones, Google incorporated thousands of lines of so-called declaring code from the Java programming platform. The copied code enabled programmers to redeploy their existing knowledge of Java commands in developing applications for Android. In holding that Google’s copying was a fair use, the Court emphasized that the creation of a new software platform was a transformative purpose. The Court also noted, in an echo of the antitrust inquiry into less restrictive alternatives, that Google took no more than necessary to ensure the portability of programmers’ investment in learning Java.
As for competition with the earlier work, the Court concluded that there was none, as Java was not a viable platform for smartphones. The Court did not consider the applicability of another limitation on the reach of copyright, which is to deny protection to user interfaces under a statutory exclusion for so-called “methods of operation.” The method of operation approach, like fair use, protects the portability of third-party investments in learning a system, and potentially facilitates entry even when the innovator is a close competitor of the incumbent.
