Foreseeability and copyright incentives

Harvard Law Review

Volumn 122, Issue 6, 2009, Pages 1571-1633

  Balganesh, Shyamkrishna ^a  

^a UNIVERSITY OF CHICAGO   (United States)

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EID: 66049145259     PISSN: 0017811X     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Conference Paper

References (448)

1. See U.S. CONST, art. I, § 8, cl. 8 (authorizing Congress "To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries");
2. Neil Weinstock Netanel, Copyright and a Democratic Civil Society, 106 YALE L.J. 283, 285 (1996) ("To encourage authors to create and disseminate original expression, copyright law accords them a bundle of proprietary rights in their works.").
3. For a discussion of new uses in the context of new technologies, see Jane C. Ginsburg, Copyright and Control over New Technologies of Dissemination, 101 COLUM. L. REV. 1613 (2001).
4. See, e.g., BENJAMIN KAPLAN, AN UNHURRIED VIEW OF COPYRIGHT 101-25 (1967) (discussing the evolution of copyright in light of contemporary and future technologies);
5. MARK ROSE, AUTHORS AND OWNERS: THE INVENTION OF COPYRIGHT 3-5 (1993) (discussing the emergence of copyright in the era of the printing press). Many prominent cases have faced the question of markets for new uses.
6. See, e.g., Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417 (1984) (dealing with the video recorder);
7. Fortnightly Corp. v. United Artists Television, Inc., 392 U.S. 390 (1968) (dealing with cable retransmissions);
8. White-Smith Music Publ'g Co. v. Apollo Co., 209 U.S. 1 (1908) (dealing with the market for piano rolls);
9. Kelly v. Arriba Soft Corp., 336 F.3d 811 (9th Cir. 2003) (dealing with the market for thumbnails of copyrighted photographs);
10. Ty, Inc. v. Publ'ns Int'l Ltd., 292 F.3d 512 (7th Cir. 2002) (dealing with the photographic cataloging of plush toys);
11. UMG Recordings, Inc. v. MP3.com, Inc., 92 F. Supp. 2d 349 (S.D.N.Y. 2000) (dealing with the market for digital music). Perhaps the best known cases in the recent past include those filed against Google.
12. See Complaint, McGraw-Hill Co. v. Google Inc., No. 05 CV 8881 (S.D.N.Y. Oct. 19, 2005);
13. Complaint, Author's Guild v. Google Inc., No. 05 CV 8136 (S.D.N.Y. Sept. 20, 2005). These two cases have been combined for the purposes of a provisional settlement agreement. Settlement Agreement, Author's Guild, No. 05 CV 8136-JES (Oct. 28, 2008), http://www.googlebooksettlement.com/Settlement- Agreement.pdf.
14. See 17 U.S.C. § 101 (2006) (defining a "derivative work").
15. See Teleprompter Corp. v. Columbia Broad. Sys., Inc., 415 U.S. 394 (1974);
16. Fortnightly Corp., 392 U.S. 390;
17. RIAA v. Diamond Multimedia Sys. Inc., 180 F.3d 1072 (9th Cir. 1999).
18. See Ginsburg, supra note 2, at 1619-26 (noting courts' inconsistency in articulating a basis for these decisions).
19. See infra section II.A, pp. 1577-81.
20. The most prominent use of foreseeability has of course been in tort law. See KENNETH S. ABRAHAM, THE FORMS AND FUNCTIONS OF TORT LAW 125 (3d ed. 2007);
21. 3 FOWLER V. HARPER ET AL., THE LAW OF TORTS § 16.9, at 467 (2d ed. 1986);
22. Leon Green, Foreseeability in Negligence Law, 61 COLUM. L. REV. 1401 (1961). For an analysis of its use in other contexts, see infra sections III.A.2-5, pp. 1597-1600.
23. See Frank H. Easterbrook, The Supreme Court, 1083 Term - Foreword: The Court and the Economic System, 98 HARV. L. REV. 4, 10 (1984) (describing these as the "ex post" and "ex ante" perspectives, respectively).
24. See A. MITCHELL POLINSKY, AN INTRODUCTION TO LAW AND ECONOMICS 130 (2d ed. 1989) (referring to this as the "incentive question" underlying a rule).
25. It remains common consensus among copyright scholars that the fair use doctrine - as it is structured and applied today - remains deeply flawed. See, e.g., Paul Goldstein, Fair Use in a Changing World, 50 J. COPYRIGHT SOC'Y U.S.A. 133, 133-34 (2003);
26. Wendy J. Gordon, Keynote: Fair Use: Threat or Threatened?, 55 CASE W. RES. L. REV. 903 (2005);
27. Lydia Pallas Loren, Redefining the Market Failure Approach to Fair Use in an Era of Copyright Permission Systems, 5 J. INTELL. PROP. L. 1 (1997);
28. Glynn S. Lunney, Jr., Fair Use and Market Failure: Sony Revisited, 82 B.U. L. REV. 975 (2002);
29. David Nimmer, "Fairest of Them All" and Other Fairy Tales of Fair Use, LAW & CONTEMP. PROBS., Winter/Spring 2003, at 263;
30. Sara K. Stadler, Copyright As Trade Regulation, 155 U. PA. L. REV. 899 (2007).
31. See LEON E. SELTZER, EXEMPTIONS AND FAIR USE IN COPYRIGHT 24-25, 37-38 (1978) (identifying certain kinds of uses as "intrinsic");
32. infra section II.B.2, pp. 1584-89.
33. For an overview of the copyright-property linkage, see JAMES BOYLE, SHAMANS, SOFTWARE, AND SPLEENS: LAW AND THE CONSTRUCTION OF THE INFORMATION SOCIETY (1996);
34. and Justin Hughes, Copyright and Incomplete Historiographies: Of Piracy, Propertization, and Thomas Jefferson, 79 S. CAL. L. REV. 993, 1046-69 (2006).
35. See Wendy J. Gordon, An Inquiry into the Merits of Copyright: The Challenges of Consistency, Consent, and Encouragement Theory, 41 STAN. L. REV. 1343, 1365-77 (1989). Some of these doctrines include: the idea-expression dichotomy, the originality requirement, the rule of fixation, and the temporally limited nature of the grant.
36. See 17 U.S.C. §§ 101, 102, 302-05 (2006).
37. See, e.g., Justin Hughes, The Philosophy of Intellectual Property, 77 GEO. L.J. 287 (1988);
38. Linda J. Lacey, Of Bread and Roses and Copyrights, 1989 DUKE L.J. 1532;
39. Alfred C. Yen, Restoring the Natural Law: Copyright As Labor and Possession, 51 OHIO ST. L.J. 517 (1990);
40. Barbara Friedman, Note, From Deontology to Dialogue: The Cultural Consequences of Copyright, 13 CARDOZO ARTS & ENT. L.J. 157 (1994).
41. Indeed, this instrumental mandate derives from copyright's constitutional origins. See U.S. CONST, art. I, § 8, cl. 8.
42. Brunswick Corp. v. Pueblo Bowl-O-Mat Inc., 429 U.S. 477, 489 (1977);
43. see Roger D. Blair & Jeffrey L. Harrison, Rethinking Antitrust Injury, 42 VAND. L. REV. 1539 (1989).
44. See, e.g., Justin Hughes, Fair Use Across Time, 50 UCLA L. REV. 775, 797 (2003);
45. Joseph P. Liu, Copyright and Time: A Proposal, 101 MICH. L. REV. 409, 428 (2002).
46. See generally Stewart E. Sterk, Rhetoric and Reality in Copyright Law, 94 MICH. L. REV. 1197, 1198-1204 (1996) (describing the use of incentives rhetoric to justify copyright since its inception).
47. WILLIAM M. LANDES & RICHARD A. POSNER, THE ECONOMIC STRUCTURE OF INTELLECTUAL PROPERTY LAW 13 (2003).
48. Id. at 19.
49. For a concise discussion of these effects, see YOCHAI BENKLER, THE WEALTH OF NETWORKS: HOW SOCIAL PRODUCTION TRANSFORMS MARKETS AND FREEDOM 35-37 (2006).
50. See Niva Elkin-Koren, Copyright Policy and the Limits of Freedom of Contract, 12 BERKELEY TECH. L.J. 93, 99-100 (1997);
51. William W. Fisher III, Reconstructing the Fair Use Doctrine, 101 HARV. L. REV. 1659, 1702 (1988).
52. See BENKLER, supra note 22, at 36-37.
53. LANDES & POSNER, supra note 20, at 20-21.
54. See Kenneth J. Arrow, Economic Welfare and the Allocation of Resources for Invention, in NAT'L BUREAU OF ECON. RESEARCH, THE RATE AND DIRECTION OF INVENTIVE ACTIVITY 609 (1962).
55. Scholarly work in the copyright area has often focused on the tradeoff and attempted to determine the optimal amount of protection (principally through the idea of price discrimination) as a consequence of the tradeoff. See Fisher, supra note 23, at 1700-05 ("[T]o avoid underproduction of original works, it is necessary to empower the creators of such works to charge fees for the privilege of using them, but granting the creators that right causes monopoly losses, which vary between types of copyrighted works."
56. Id. at 1703.);
57. see also Yochai Benkler, An Unhurried View of Private Ordering in Information Transactions, 53 VAND. L. REV. 2063 (2000);
58. James Boyle, Cruel, Mean, or Lavish? Economic Analysis, Price Discrimination and Digital Intellectual Property, 53 VAND. L. REV. 2007 (2000);
59. Julie E. Cohen, Copyright and the Perfect Curve, 53 VAND. L. REV. 1799 (2000);
60. Glynn S. Lunney, Jr., Reexamining Copyright's Incentives-Access Paradigm, 49 VAND. L. REV. 483 (1996);
61. Michael J. Meurer, Copyright Law and Price Discrimination, 23 CARDOZO L. REV. 55 (2001);
62. Michael J. Meurer, Price Discrimination, Personal Use and Piracy: Copyright Protection of Digital Works, 45 BUFF. L. REV. 845, 869-76 (1997);
63. cf. Louis Kaplow, The Patent-Antitrust Intersection: A Reappraisal, 97 HARV. L. REV. 1813 (1984) (discussing the tradeoff in the patent law context).
64. For a clear statement of the endogenous version of the tradeoff that identifies incentives and access as the twin, progress-driven goals of the copyright system, see Cohen, supra note 27, at 1801. Not surprisingly, those who accept the tradeoff in exogenous terms remain less convinced of its centrality.
65. See Jane C. Ginsburg, Authors and Users in Copyright, 45 J. COPYRIGHT SOC'Y U.S.A. 1 (1997).
66. For a sample of some economic literature debating this question, see WILLIAM D. NORDHAUS, INVENTION, GROWTH, AND WELFARE (1969), which argues that temporal limits best capture an incentives analysis.
67. See also Robert P. Merges & Richard R. Nelson, On the Complex Economics of Patent Scope, 90 COLUM. L. REV. 839 (1990) (arguing that incentives analysis necessitates limits on a patent's scope).
68. This phenomenon is often referred to as copyright's "one-way ratchet." See Jessica Litman, War Stories, 20 CARDOZO ARTS & ENT. L.J. 337, 344 (2002);
69. Sara K. Stadler, Incentive and Expectation in Copyright, 58 HASTINGS L.J. 433, 435 (2007);
70. Rebecca Tushnet, Copy This Essay: How Fair Use Doctrine Harms Free Speech and How Copying Serves It, 114 YALE L.J. 535, 543 (2004);
71. Diane Leenheer Zimmerman, Adrift in the Digital Millennium Copyright Act: The Sequel, 26 U. DAYTON L. REV. 279, 290 (2001).
72. Litman, supra note 30, at 344.
73. Id.
74. Netanel, supra note i, at 306-07. More recently, others have referred to this as the "Dem-setzian" turn in copyright law, a reference to the seminal work by Professor Harold Demsetz describing the evolution of ownership and property rights as mechanisms to minimize transaction costs and internalize both positive and negative externalities associated with certain actions.
75. See Brett M. Frischmann, Evaluating the Demsetzian Trend in Copyright Law, 3 REV. L. & ECON. 649 (2007). For a response by Professor Demsetz, see Harold Demsetz, Frischmann's View of "Toward a Theory of Property Rights," 4 REV. L. & ECON. 127 (2008).
76. 471 U.S. 539 (1985). In the twenty-four years since the decision, in excess of fifty federal courts have relied on Harper & Row's fair use analysis in one way or another. As Professor Fisher predicted a few years after the decision in relation to the Court's reliance on the theory of incentives, "[t]he imprimatur of the majority opinion in Harper & Row will undoubtedly contribute to the currency and influence of the theory." Fisher, supra note 23, at 1689 (citation omitted).
77. Harper & Row, 471 U.S. at 542-45.
78. Id. at 557-59.
79. The Court has, since then, used copyright's incentive structure purely as a rhetorical device on more than one instance. See, e.g., Eldred v. Ashcroft, 537 U.S. 186, 212 n. 18 (2003) ("[C]opyright law serves public ends by providing individuals with an incentive to pursue private ones.");
80. Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 593 (1994) ("[Substantial harm to [the market for derivatives] would weigh against a finding of fair use, because the licensing of derivatives is an important economic incentive to the creation of originals." (citation omitted)). To be sure, courts do occasionally treat the incentives-access tradeoff as a meaningful basis by which to-understand copyright's incentive structure, but these decisions are rare. A few notable examples include Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417 (1984);
81. and Suntrust Bank v. Houghton Mifflin Co., 268 F.3d 1257 (nth Cir. 2001).
82. See, e.g., Ringgold v. Black Entm't Television, Inc., 126 F.3d 70, 73 (2d Cir. 1997) ("In the absence of defenses, these exclusive rights normally give a copyright owner the right to seek royalties from others who wish to use the copyrighted work.");
83. Am. Geophysical Union v. Texaco Inc., 60 F.3d 913, 929 (2d Cir. 1995) ("It is indisputable that, as a general matter, a copyright holder is entitled to demand a royalty for licensing others to use its copyrighted work ⋯.");
84. D.C. Comics Inc. v. Reel Fantasy, Inc., 696 F.2d 24, 28 (2d Cir. 1982) ("[O]ne of the benefits of ownership of copyrighted material is the right to license its use for a fee ⋯.").
85. See, e.g., Campbell, 510 U.S. at 598 (Kennedy, J., concurring);
86. Harper & Row, 471 U.S. at 557.
87. By "correlative" here, I mean that the inquiry is done relationally, by reference to the plaintiff and the defendant. The idea of correlativity is generally used to describe tort law's entitlement structure, where liability is an attempt to connect the defendant's actions to the plaintiff's harm through the law's underlying normative goals. Professor Ernest Weinrib's account of correlativity is perhaps the most widely accepted exposition of the idea. See ERNEST J. WEINRIB, THE IDEA OF PRIVATE LAW (1995);
88. Ernest J. Weinrib, Punishment and Disgorgement As Contract Remedies, 78 CHI.-KENT L. REV. 55 (2003).
89. See Sterk, supra note 19, at 1210-13 (1996).
90. Perris v. Hexamer, 99 U.S. 674, 675-76 (1879);
91. 4 MELVILLE B. NIMMER & DAVID NIMMER, NIMMER ON COPYRIGHT § 13.01[B] (2007).
92. 2 NIMMER & NIMMER, supra note 42, § 8.01[A], at 8-15 ("[A]bsent copying, there can be no infringement of copyright, regardless of the extent of similarity." (footnotes omitted)).
93. 4 id. § 13.01[B], at 13-8 (noting that "few courts or commentators have historically differentiated" between the factual and normative dimensions of copying (footnote omitted)).
94. See id. at 13-9.
95. ROBERT C. OSTERBERG & ERIC C. OSTERBERG, SUBSTANTIAL SIMILARITY IN COPYRIGHT LAW § 1:1, at 1-1 to -4 (2008).
96. Country Kids 'N City Slicks, Inc. v. Sheen, 77 F.3d 1280, 1288 (10th Cir. 1996) (quoting Atari, Inc. v. N. Am. Philips Consumer Elecs. Corp., 672 F.2d 607, 614 (7th Cir. 1982)).
97. See OSTERBERG & OSTERBERG, supra note 46, § 1:1, at 1-2 ("Substantial similarity is an elusive concept.");
98. see also Peter Pan Fabrics, Inc. v. Martin Weiner Corp., 274 F.2d 487, 489 (2d Cir. 1960) (L. Hand, J.) (noting that the determination must "inevitably be ad hoc").
99. See 4 NIMMER & NIMMER, supra note 42, § 13.03[A][1], at 13-36.
100. Id. § 13.03[A][2].
101. Id. at 13-54. He notes that, as a consequence, the line between the two requirements often gets blurred.
102. But see Nelson v. PRN Prods., Inc., 873 F.2d 1141, 1143 (8th Cir. 1989) (rejecting an attempt to conflate the two and alter the burden of proof).
103. See OSTERBERG & OSTERBERG, supra note 46, § 2:1, at 2-1 (observing that substantial similarity always entails a "comparison of the works").
104. The substantial similarity requirement is applied even to derivative works, which by their very nature involve a different purpose, pointing to the general irrelevance of the purpose and use to which the work is put.
105. See id. § 15:1, at 15-1, 15-2 n. 2.
106. See 17 U.S.C. § 107 (2006). In general terms the four factors are: (1) the purpose and character of the defendant's use; (2) the nature of the protected work; (3) the amount and substantiality of the portion of the work used; and (4) the impact of the defendant's actions on the actual and potential market for the protected work.
107. Id.
108. 3 NIMMER & NIMMER, supra note 42, § 12.11[F].
109. Thus, if the defendant were not to raise the defense, courts would operate on the assumption that the plaintiff is entitled to control the market in which the defendant is operating. For a recent example, see Twentieth Century Fox Film Corp. v. Cablevision Systems Corp., 478 F. Supp. 2d 607 (S.D.N.Y. 2007). There, the defendant agreed not to raise the defense of fair use,
110. id. at 616, with the consequence that the court merely had to conclude that the defendants had copied or performed the plaintiff's work.
111. See id. at 616, 622.
112. Interestingly, fair use originated as a common law doctrine, see Folsom v. Marsh, 9 F. Cas. 342 (1841), and was codified in the 1976 Copyright Act, 17 U.S.C. § 107 (2006).
113. Dellar v. Samuel Goldwyn, Inc., 104 F.2d 661, 662 (2d Cir. 1939);
114. see also Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 475 (Blackmun, J., dissenting).
115. Princeton Univ. Press v. Mich. Document Servs., Inc., 99 F.3d 1381, 1392 (6th Cir. 1996) (quoting Time Inc. v. Bernard Geis Assocs., 293 F. Supp. 130, 144 (S.D.N.Y. 1968)) (internal quotation mark omitted).
116. 17 U.S.C. § 107(1).
117. Pierre N. Leval, Toward a Fair Use Standard, 103 HARV. L. REV. 1105, 1111 (1990).
118. Id. The Supreme Court endorsed Judge Leval's test in Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569 (1994), drawing a distinction between superseding and transformative uses of a work based on market substitution.
119. See generally Christopher S. Yoo, Copyright and Public Good Economics: A Misunderstood Relation, 155 U. PA. L. REV. 635, 711-12 (2007).
120. The Second Circuit's decision in Castle Rock Entertainment v. Carol Publishing Group, Inc., 150 F.3d 132 (2d Cir. 1998), is aptly illustrative of this trend. In concluding that the defendant's use of the protected work, which involved creating an aptitude test centering around a well-known television series, was not a form of transformative use, the court concluded that the defendant had failed to discharge its burden of showing that its use involved a significant "transformative purpose."
121. Id. at 143. Without specifying what a legitimate transformative purpose entailed, the court concluded that since the defendant's work was substantially similar to the plaintiff's and had only "minimally alterfed]" it, there was no legitimate transformative purpose.
122. Id. The purpose, in other words, was to be examined via the content.
123. See Matt Williams, Recent Second Circuit Opinions Indicate that Google's Library Project Is Not Transformative, 25 CARDOZO ARTS & ENT. L.J. 303, 318 (2007) (arguing that the Supreme Court's decision in Campbell is necessarily restricted to such an examination).
124. This conclusion derives from the Court's emphasis in Campbell on the fact that the test is whether the defendant creates a "new work [that] is 'transformative,'" by "altering the first with new expression, meaning, or message." Campbell, 510 U.S. at 579 (quoting Leval, supra note 61, at 111);
125. see also Stadler, supra note n, at 906-07 (noting how the Campbell Court intended the standard to apply only when a defendant "takes expression from a copyrighted work and adds expression of her own");
126. Williams, supra note 63, at 319-30. Additionally, cases that have found the standard to have been satisfied seem to emphasize this fact.
127. See Blanch v. Koons, 467 F.3d 244 (2d Cir. 2006);
128. Bill Graham Archives v. Dorling Kindersley Ltd., 448 F.3d 60s (2d Cir. 2006). Two recent decisions of the Ninth Circuit, however, seem to have glossed over this requirement altogether. It is not clear that they apply the test as formulated in Campbell. See Perfect 10, Inc. v. Amazon.com, Inc., 487 F.3d 701 (9th Cir. 2007);
129. Kelly v. Arriba Soft Corp., 336 F.3d 811 (9th Cir. 2003);
130. see also 4 WILLIAM F. PATRY, PATRY ON COPYRIGHT § 10:21, at 10-79 n-33 (2008) (characterizing the Kelly holding as "novel" and its reliance on public benefit as part of the transformative use test as "perplexing");
131. Justin Hughes, Size Matters (or Should) in Copyright Law, 74 FORDHAM L. REV. 575-619 n. 254 (2005) (noting that the Kelly decision "sits uneasily" with the Supreme Court's interpretation of "transformative");
132. Williams, supra note 63, at 317-19 (characterizing the Kelly case as a "misapplication").
133. Thus, translations of a work from one language to another have been held insufficient to meet the standard. See, e.g., Nihon Keizai Shimbun, Inc. v. Comline Bus. Data, Inc., 166 F.3d 65, 72 (2d Cir. 1999). Converting a work from one media format to another is considered equally nontransformative.
134. See, e.g., Infinity Broadcast Corp. v. Kirkwood, 150 F.3d 104, 108 (2d Cir. 1998);
135. see also Hughes, supra note 64, at 619 n. 254 ("[I]t is the work, not the distribution mechanism, that needs to be transformative.").
136. See generally Jonathan Band, The Google Library Project: Both Sides of the Story, 1 PLAGIARY 1, 3-7 (2007) (describing Google's fair use argument in the actual litigation).
137. See Williams, supra note 63, at 330-32.
138. See Wendy J. Gordon, Fair Use As Market Failure: A Structural and Economic Analysis of the Betamax Case and Its Predecessors, 82 Colum. L. REV. 1600 (1982) [hereinafter Gordon, Fair Use]. The dissenting opinion in Sony Corp. (arguing that the defendant's use was not fair use) relies on Gordon's article.
139. See Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 478 (1984) (Blackmun, J., dissenting). More recently, Gordon has clarified her position.
140. See Wendy J. Gordon, Market Failure and Intellectual Property: A Response to Professor Lunney, 82 B.U. L. REV. 1031 (2002).
141. Gordon, Fair Use, supra note 68, at 1614-15;
142. Robin A. Moore, Note, Fair Use and Innovation Policy, 82 N.Y.U. L. REV. 944, 950 (2007).
143. Gordon, Fair Use, supra note 68, at 1614.
144. The following is perhaps illustrative: New technologies will make certain copyrighted works more valuable ⋯. If copyright protection is denied because of an otherwise curable market failure, then the additional revenues that would have flowed from the new technological use will not appear. If the authors' revenues fail to reflect the additional value that new technology gives to such works, then insufficient resources may be drawn into their creation.
145. Id. at 1621.
146. See Hughes, supra note 18, at 778. A somewhat more elaborate version of the proposal was made around the same time by Professor Joseph Liu.
147. See Liu, supra note 18. Yet, unlike Hughes, Liu bases his proposal not on the need to bring copyright doctrine closer to its theory of incentives, but rather on the problems associated with the extension of copyright's term of protection.
148. Id. at 411-12 & n. 10 (noting this difference).
149. Hughes, supra note 18, at 782-83.
150. Id. at 778.
151. Id. at 782.
152. See 17 U.S.C. § 107(4) (2006) (listing as a factor for fair use "the effect of the use upon the potential market for or value of the copyrighted work").
153. See, e.g., Ringgold v. Black Entm't Television, Inc., 126 F.3d 70, 81 (2d Cir. 1997);
154. Princeton Univ. Press v. Mich. Document Servs., Inc., 99 F.3d 1381, 1388 (6th Cir. 1996);
155. Am. Geophysical Union v. Texaco Inc., 60 F.3d 913, 929-30 (2d Cir. 1994).
156. For more on this circularity problem, see 4 NIMMER & NIMMER, supra note 42, § 13.05[A][4], at 13-196 to -198;
157. Matthew Africa, The Misuse of Licensing Evidence in Fair Use Analysis: New Technologies, New Markets, and the Courts, 88 CAL. L. REV. 1145, 1160 (2000);
158. Fisher, supra note 23, at 1671;
159. Mark Lemley, Should a Licensing Market Require Licensing?, LAW & CONTEMP. PROBS., Spring 2007, at 185, 190;
160. Loren, supra note 11, at 38-41;
161. Lunney, supra note 11, at 1021;
162. and Stadler, supra note 11, at 903-04.
163. Am. Geophysical Union, 60 F.3d at 930;
164. see also Harper & Row, Publishers, Inc. v. Nation Enters., 471 U.S. 539, 568 (1985) (using a similar "normal market" criterion).
165. As a historical matter, interestingly, the common law standard seems to have required relating fair use to the time of publication. See Harper & Row, 471 U.S. at 550 ("[The] fair use doctrine was predicated on the author's implied consent to 'reasonable and customary' use when he released his work for public consumption." (emphasis added)).
166. See Eric Kades, Windfalls, 108 YALE L.J. 1489, 1491 (1999) (defining windfalls as "economic gains independent of work, planning, or other productive activities that society wishes to reward" (emphasis omitted)).
167. See Gideon Parchomovsky, Peter Siegelman & Steve Thel, Of Equal Wrongs and Half Rights, 82 N.Y.U. L. REV. 738, 756 (2007) (describing windfalls in terms of the perceivable costs and benefits of undertaking an action to bring about or avoid an event). Professors Parchomovsky, Siegelman, and Thel connect their description to tort law's well-known formulation of incentives to take care (that is, the Learned Hand formula).
168. ex ante > G.P. The expected benefits are therefore insufficient ex ante to independently generate an incentive to bring about the event causally.
169. Indeed, in Mills Music, Inc. v. Snyder, 469 U.S. 153 (1985), a dissenting minority of four justices made the exact same argument.
170. Id. at 187-88 (White, J., dissenting). The Court there was concerned with the allocation of royalties between an author and a publisher following the partial termination of a license. The work had been created and licensed well in advance of the Copyright Act of 1976, which extended the term of protection by an additional period.
171. Id. Consequently, the parties could not have acted in "reliance" on the additional benefits since they were not anticipated, and the gains thus represented a "windfall" that needed to be allocated.
172. Id. at 188.
173. See Wendy J. Gordon & Robert G. Bone, Copyright, in 2 ENCYCLOPEDIA OF LAW AND ECONOMICS 189, 194-96 (Boudewijn Bouckaert & Gerrit De Geest eds., 2000);
174. Mark A. Lemley, Property, Intellectual Property, and Free Riding, 83 TEX. L. REV. 1031, 1058-59 (2005) (elaborating on these costs).
175. See William W. Fisher III, Property and Contract on the Internet, 73 CHI.-KENT L. REV. 1203, 1249 (1998).
176. See Kades, supra note 81, at 1521.
177. See, e.g., Teleprompter Corp. v. Columbia Broad. Sys., Inc., 415 U.S. 394 (1974);
178. Fortnightly Corp. v. United Artists Television, Inc., 392 U.S. 390 (1968);
179. see also Tim Wu, Copyright's Communications Policy, 103 MICH. L. REV. 278, 279 (2004).
180. See, e.g., Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417 (1984).
181. BLACK'S LAW DICTIONARY 660 (7th ed. 1999).
182. Some scholars refer to this process as the "social engineering" function of the common law. See Howard A. Latin, Problem-Solving Behavior and Theories of Tort Liability, 73 CAL. L. REV. 677, 677 n. 2 (1985). Others refer to it as an issue of incentives.
183. See POLINSKY, supra note 10, at 130;
184. Marcel Kahan, Causation and Incentives To Take Care Under the Negligence Rule, 18 J. LEGAL STUD. 427 (1989).
185. See Latin, supra note 90, at 677 (laying out the basic postulates of the idea of behavioral modification).
186. Professor Herbert Simon is credited with developing the idea of bounded rationality, beginning in the 1950s. See Herbert A. Simon, A Behavioral Model of Rational Choice, 69 Q.J. ECON. 99 (1955);
187. Herbert A. Simon, Human Nature in Politics: The Dialogue of Psychology with Political Science, 79 AM. POL. SCI. REV. 293 (1985);
188. Herbert A. Simon, On the Behavioral and Rational Foundations of Economic Dynamics, 5 J. ECON. BEHAV. & ORG. 35 (1984);
189. Herbert A. Simon, Rationality in Psychology and Economics, 59 J. BUS. S209 (1986).
190. See Amos Tversky & Daniel Kahneman, Judgment Under Uncertainty: Heuristics and Biases, 185 SCIENCE 1124 (1974). For work extending these ideas to the analysis of law, see Christine Jolls, Cass R. Sunstein & Richard Thaler, A Behavioral Approach to Law and Economics, 50 STAN. L. REV. 1471 (1998);
191. Russell B. Korobkin & Thomas S. Ulen, Law and Behavioral Science: Removing the Rationality Assumption from Law and Economics, 88 CAL. L. REV. 1051 (2000);
192. and Thomas S. Ulen, The Growing Pains of Behavioral Law and Economics, 51 VAND. L. REV. 1747 (1998).
193. See also RICHARD H. THALER & CASS R. SUNSTEIN, NUDGE: IMPROVING DECISIONS ABOUT HEALTH, WEALTH, AND HAPPINESS (2008).
194. See OLIVER WILLIAMSON, ANTITRUST ECONOMICS: MERGERS, CONTRACTING, AND STRATEGIC BEHAVIOR 74-78 (1987);
195. OLIVER E. WILLIAMSON, MARKETS AND HIERARCHIES: ANALYSIS AND ANTITRUST IMPLICATIONS 21-26 (1975);
196. Oliver E. Williamson, The New Institutional Economics: Taking Stock, Looking Ahead, 38 J. ECON. LITERATURE 595, 600 (2000) ("There is close to unanimity within the [new institutional economics] on the idea of limited cognitive competence - often referred to as bounded rationality.").
197. For uses of this term in different contexts deriving from bounded rationality, see RICHARD R. NELSON & SIDNEY G. WINTER, AN EVOLUTIONARY THEORY OF ECONOMIC CHANGE 88 (1982);
198. Adam B. Badawi, Interpretive Preferences and the Limits of the New Formalism, 6 BERKELEY BUS. L.J. (forthcoming 2009) (manuscript at 9, on file with the Harvard Law School Library);
199. and Tomas Hellström & Merle Jacob, Uncertainty and Values: The Case of Environmental Impact Assessment, 9 KNOWLEDGE & POL'Y 70, 76 (1996).
200. Indeed, its use in this context has spawned a secondary body of literature attempting to understand the role it plays in the overall analysis. See, e.g., John Conlisk, Why Bounded Rationality?, 34 J. ECON. LITERATURE 669 (1996);
201. Nicolai J. Foss, Bounded Rationality in the Economics of Organization: Present Use and (Some) Future Possibilities, 5 J. MGMT. & GOVERNANCE 401 (2001);
202. Oliver Hart, Is "Bounded Rationality" an Important Element of a Theory of Institutions?, 146 J. INSTITUTIONAL & THEORETICAL ECON. 696 (1990). Some scholars additionally attempt to distinguish between bounded rationality and "indeterminacy, " the situation where multiple solutions to a single problem exist.
203. See, e.g., Roy Radner, Bounded Rationality, Indeterminacy, and the Theory of the Firm, 106 ECON. J. 1360 (1996).
204. See, e.g., Oliver Hart & John Moore, Foundations of Incomplete Contracts, 66 REV. ECON. STUD. 115 (1999);
205. Eric Maskin & Jean Tirole, Unforeseen Contingencies and Incomplete Contracts, 66 REV. ECON. STUD. 83 (1999).
206. See Maskin & Tirole, supra note 97, at 83-84.
207. See OLIVER E. WILLIAMSON, THE ECONOMIC INSTITUTIONS OF CAPITALISM 46 (1985).
208. Indeed, Williamson notes that the use of bounded rationality in the organizational context actually "enlarges ⋯ the scope for rationality analysis" in the traditional economic account. Oliver E. Williamson, Assessing Contract, 1 J.L. ECON. & ORG. 177, 180 (1985). Some refer to this as the "thin" conception of bounded rationality, as opposed to its use as a "thick" conception in the world of behavioral economics. See Nicolai J. Foss, Bounded Rationality in the Economics of Organization: "Much Cited and Little Used," 24 J. ECON. PSYCH. 245, 246 (2003);
209. Foss, supra note 96, at 402. Indeed, some believe that since it does little independent work in the analysis, its use is somewhat unnecessary.
210. See Hart, supra note 96, at 700-01. Yet, as its advocates continue to emphasize, it provides rhetorical support to an otherwise intuitive part of the basic model. Foss, supra note 96, at 406. It is in principally te same vein that I attempt to connect it to the idea of foreseeability. Additionally, scholars in the tradition of organizational economics attempting to model bounded rationality in legal terms have long made this connection in the literature.
211. See Paul L. Joskow, Commercial Impossibility, the Uranium Market and the Westinghouse Case, 6 J. LEGAL STUD. 119, 157 (1977) ("The foreseeability requirement may only make sense if we introduce the concept of 'bounded rationality.'").
212. See W. Jonathan Cardi, Purging Foreseeability, 58 VAND. L. REV. 739, 747-50, 755-67 (2005).
213. See, e.g., Palsgraf v. Long Island R.R. Co., 162 N.E. 99 (N.Y. 1928).
214. See DAN B. DOBBS, THE LAW OF TORTS § 180, at 443 (2001);
215. W. PAGE KEETON ET AL., PROSSER AND KEETON ON THE LAW OF TORTS § 41, at 264 (5th ed. 1984) ("'Proximate Cause' - in itself an unfortunate term - is merely the limitation which the courts have placed upon the actor's responsibility for the consequences of the actor's conduct⋯. Some boundary must be set to liability for the consequences of any act, upon the basis of some social idea of justice or policy").
216. See, e.g., Ballard v. Uribe, 715 P.2d 624, 628 n. 6 (Cal. 1986) (en bane);
217. Neering v. 111. Cent. R.R. Co., 50 N.E.2d 497, 503 (111. 1943);
218. Osborne v. Atl. Ice & Coal Co., 177 S.E. 796, 796 (N.C. 1935);
219. Mudrich v. Standard Oil Co., 90 N.E.2d 859, 863 (Ohio 1950);
220. Read v. Scott Fetzer Co., 990 S.W.2d 732, 737 (Tex. 1998);
221. Doe v. Boys Clubs of Greater Dallas, Inc., 907 S.W.2d 472, 478 (Tex. 1995).
222. Saul Levmore, The Wagon Mound Cases: Foreseeability, Causation, and Mrs. Palsgraf, in TORTS STORIES 129, 132 (Robert L. Rabin & Stephen D. Sugarman eds., 2003).
223. See KEETON ET AL., supra note 103, § 41, at 264 (noting that "the consequences of an act go forward to eternity, and the causes of an event go back to the dawn of human events, and beyond," so that the lack of a limiting rule "would result in infinite liability for all wrongful acts").
224. See id. § 4, at 25-26.
225. For an elaboration of this idea, see Mark F. Grady, Proximate Cause and the Law of Negligence, 69 IOWA L. REV. 363, 385-91 (1984);
226. and Benjamin C. Zipursky, Rights, Wrongs, and Recourse in the Law of Torts, 51 VAND. L. REV. 1, 46-47 (1998).
227. See WILLIAM M. LANDES & RICHARD A. POSNER, THE ECONOMIC STRUCTURE OF TORT LAW 246-47 (1987);
228. Grady, supra note 108, at 388;
229. Steven Shavell, Liability and the Incentive To Obtain Information About Risk, 21 J. LEGAL STUD. 259 (1992).
230. See LANDES & POSNER, supra note 109, at 247.
231. Grady, supra note 108, at 388-89.
232. See Melvin Aron Eisenberg, The Principle of Hadley v. Baxendale, 80 CAL. L. REV. 563, 565 (1992).
233. Hadley v. Baxendale, 9 Ex. 341, 156 Eng. Rep. 145, 151 (1854).
234. See Jeffrey M. Perloff, Breach of Contract and the Foreseeability Doctrine of Hadley v. Baxendale, 10 J. LEGAL STUD. 39 (1981).
235. For more on the doctrine and its development, see William Herbert Page, The Development of the Doctrine of Impossibility of Performance, 18 MICH. L. REV. 589 (1920);
236. Michelle J. White, Contract Breach and Contract Discharge Due to Impossibility: A Unified Theory, 17 J. LEGAL STUD. 353 (1988);
237. John D. Wladis, Common Law and Uncommon Events: The Development of the Doctrine of Impossibility of Performance in English Contract Law, 75 GEO. L.J. 1575 (1987);
238. and John D. Wladis, Impracticability As Risk Allocation: The Effect of Changed Circumstances upon Contract Obligations for the Sale of Goods, 22 GA. L. REV. 503 (1988).
239. See, e.g., Waldinger Corp. v. CRS Group Eng'rs, Inc., 775 F.2d 781 (7th Cir. 1985);
240. Lloyd v. Murphy, 153 P.2d 47 (Cal. 1944);
241. Farm Credit Bank of St. Louis v. Dorr, 620 N.E.2d 549, 555-56 (Ill. App. Ct. 1993);
242. City of Starkville v. 4-County Elec. Power Ass'n, 819 So.2d 1216, 1223 (Miss. 2002);
243. Alamance County Bd. of Educ. v. Bobby Murray Chevrolet, Inc., 465 S.E.2d 306, 311 (N.C. Ct. App. 1996);
244. Grady v. Grady, 504 A.2d 444, 447 (R.I. 1986);
245. see also E. Allan Farnsworth, Disputes Over Omission in Contracts, 68 COLUM. L. REV. 860 (1968);
246. Mary Sue Bloomfield, Comment, The Role of Foreseeability in Allocation of Risk Under U.C.C. 2-615, Excuse by Failure of Presupposed Conditions, 21 S. TEX. L.J. 441 (1981);
247. Charles G. Brown, Note, The Doctrine of Impossibility of Performance and the Foreseeability Test, 6 LOY. U. CHI. L.J. 575 (1975). This test came to be codified in the Uniform Commercial Code.
248. See U.C.C. § 2-15 (2003).
249. John Elofson, The Dilemma of Changed Circumstances in Contract Law: An Economic Analysis of the Foreseeability and Superior Risk Bearer Tests, 30 COLUM. J.L. & SOC. PROBS. 1, 4 (1996).
250. Id.
251. See Joskow, supra note 100, at 157 ("The foreseeability requirement may only make sense if we introduce the concept of 'bounded rationality.'");
252. see also Shirley R. Brener, Comment, Outgrowing Impossibility: Examining the Impossibility Doctrine in the Wake of Hurricane Katrina, 56 EMORY L.J. 461, 469, 477-80 (2006);
253. Aaron J. Wright, Note, Rendered Impracticable: Behavioral Economics and the Impracticability Doctrine, 26 CARDOZO L. REV. 2183, 2200 (2005).
254. See Joskow, supra note 100, at 157.
255. See generally UNIF. PREMARITAL AGREEMENT ACT § 1(1), 9C U.L.A. 39 (1983);
256. 2 ALEXANDER LINDEY & LOUIS I. PARLEY, LINDEY AND PARLEY ON SEPARATION AGREEMENTS AND ANTENUPTIAL CONTRACTS § 110.70(2)(d) (2d ed. 2002).
257. See Allison A. Marston, Note, Planning for Love: The Politics of Prenuptial Agreements, 49 STAN. L. REV. 887, 897-901 (1997).
258. See Karen Servidea, Note, Reviewing Premarital Agreements To Protect the State's Interest in Marriage, 91 VA. L. REV. 535, 545 (2005).
259. See, e.g., McKee-Johnson v. Johnson, 444 N.W.2d 259, 267 (Minn. 1989);
260. Gant v. Gant, 329 S.E.2d 106, 115 (W. Va. 1985);
261. Button v. Button, 388 N.W.2d 546, 552 (Wis. 1986).
262. See Servidea, supra note 123, at 547, 549 (referring to this approach as the "bounded-rationality" approach).
263. For more on the doctrine, see Roy E. Cordato, Time Passage and the Economics of Coming to the Nuisance: Reassessing the Coasean Perspective, 20 CAMPBELL L. REV. 273 (1998);
264. Rohan Pitchford & Christopher M. Snyder, Coming to the Nuisance: An Economic Analysis from an Incomplete Contracts Perspective, 19 J.L. ECON. & ORG. 491 (2003);
265. and Donald Wittman, First Come, First Served: An Economic Analysis of "Coming to the Nuisance," 9 J. LEGAL STUD. 557 (1980).
266. See RESTATEMENT (SECOND) of TORTS § 840D (1979) (noting that the preexistence of the nuisance is but one of several factors to be considered, and not by itself a bar to relief).
267. See Wittman, supra note 126, at 565. The case of East St. John's Shingle Co. v. City of Portland, 246 P.2d 554 (Or. 1952), is illustrative. There, the plaintiff acquired a parcel of land adjoining a slough that was being polluted by the city's sewage system. After moving onto the land, the plaintiff complained that an increase in sewage levels in the slough was interfering with its business and causing a special nuisance to it. The court concluded that since the pollution, its continuance, and its increase were all "reasonably foreseen" by the plaintiff, the claim was barred.
268. Id. at 563-64.
269. See Bove v. Donner-Hanna Coke Corp., 258 N.Y.S. 229, 233 (App. Div. 1932);
270. Gau v. Ley, 38 Ohio Ct. App. 235, 239 (1916);
271. Wittman, supra note 126, at 565 n. 20.
272. Graver Tank & Mfg. Co. v. Linde Air Prods. Co., 339 U.S. 605, 607 (1950).
273. See id. at 607-08.
274. See Warner-Jenkinson Co. v. Hilton Davis Chem. Co., 520 U.S. 17, 30-31 (1997).
275. Douglas Lichtman, Rethinking Prosecution History Estoppel, 71 U. CHI. L. REV. 151, 153 (2004).
276. For early analyses of this trend, see Matthew J. Conigliaro et al., Foreseeability in Patent Law, 16 BERKELEY TECH. L.J. 1045 (2001);
277. and Andrew C. Greenberg & Jeffrey R. Kuester, The "Palsgraffing" of Patent Law: Foreseeability and the Doctrine of Equivalents, INTELL. PROP. TODAY, June 1998, at 17.
278. See also Sage Prods., Inc. v. Devon Indus., Inc., 126 F.3d 1420 (Fed. Cir. 1997);
279. Michael J. Meurer & Craig Allen Nard, Invention, Refinement and Patent Claim Scope: A New Perspective on the Doctrine of Equivalents, 93 GEO. L.J. 1947, 1970 (2005). The test was adopted by the Supreme Court in Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., 535 U.S. 722 (2002).
280. See Festo, 535 U.S. at 738;
281. Lichtman, supra note 133, at 154;
282. Richard Warburg et al., What Territory Is Surrendered?, 21 BIOTECH. L. REP. 551, 552 (2002).
283. Outcome responsibility argues that liability does no more than attribute legal responsibility for specific outcomes to identifiable individuals, as a reflection of the law's basic commitment to human agency and moral authorship of individual actions. See John Gardner, Obligations and Outcomes in the Law of Torts, in RELATING TO RESPONSIBILITY: ESSAYS FOR TONY HONORE ON HIS EIGHTIETH BIRTHDAY 111 (Peter Cane & John Gardner eds., 2001);
284. Tony Honore, Responsibility and Luck, 104 LAW Q. REV. 530 (1988).
285. Professor Stephen Perry, a well-known proponent of outcome responsibility, connects this to the idea of "avoidability" - that liability should be limited to events and outcomes that might in a sense be considered avoidable ex ante. Avoidability, for Perry, involves an agent having the "ability and opportunity to take steps" to avoid the harm "on the basis of what could have been foreseen." Stephen R. Perry, Responsibility for Outcomes, Risk, and the Law of Torts, in PHILOSOPHY AND THE LAW OF TORTS 72, 91 (Gerald J. Postema ed., 2001). Foreseeability thus plays a major role here, based on the notion of "epistemic probability" - or the idea that individuals base their decisions not on objective assessments of probability, but rather on intersubjective standards of inductive reasoning.
286. Id. at 97-98. To impose liability for (that is, to have people internalize the costs or benefits of) events that were not objectively avoidable then becomes a matter of chance, or a windfall, since it bears no connection to the actor's actual behavior.
287. Wendy J. Gordon, On Owning Information: Intellectual Property and the Restitutionary Impulse, 78 VA. L. REV. 149, 238 & n. 337 (1992) [hereinafter Gordon, On Owning Information]. Gordon does not specify what foreseeability might indeed come to mean in the copyright context (specifically given its use elsewhere) and seems to equate foreseeability with the idea of "expected markets," thereby converting it into a subjective test, specific to individual creators. Gordon, supra note 14, at 1385 (internal quotation marks omitted);
288. see also id. at 1385 nn. 192-93;
289. Gordon, On Owning Information, supra, at 238 n. 337. She does note, however, that the idea is "perhaps desirable in the abstract" since new markets might be irrelevant to creative incentives.
290. Id. at 238. Interestingly, Gordon recognizes in her later work that the idea of foreseeability as used in tort law does represent an outer limit to incentives. However, she argues that copyright's limited term gives effect to this limit independently, seemingly obviating the need for its independent incorporation into copyright doctrine. See Wendy J. Gordon, Copyright As Tort Law's Mirror Image: "Harms," "Benefits, " and the Uses and Limits of Analogy, 34 MCGEORGE L, REV. 533, 538-39 (2003). In a similar vein, Landes and Posner note that eliminating "unforeseen" markets from the copyright entitlement is likely to dampen creator incentives since an incentive ordinarily extends to a "class of markets." William M. Landes & Richard A. Posner, Indefinitely Renewable Copyright, 70 U. CHI. L. REV. 471, 476 n. 14 (2003). It would appear that an objective (as opposed to subjective) foreseeability test would function precisely in this manner, allowing a creator to capture not just present markets, but also those cognately related to them.
291. See Shyamkrishna Balganesh, Rethinking Copyright: Property Through the Lenses of Unjust Enrichment and Unfair C mpetition, 156 U. PA. L. REV. PENNUMBRA 345, 349-50 & n. 23 (2008), http://www.pennumbra. com/responses/01-2008/Balganesh.pdf;
292. see also Christina Bohannan, Copyright Harm, Foreseeability, and Fair Use, 85 WASH. U. L. REV. 969, 973-74 (2007) (using the idea indirectly in arguing that the fair use analysis should focus on the occurrence or absence of "copyright harm" to the plaintiff).
293. See 17 U.S.C. § 101 (2006).
294. Id. §§ 106, 501.
295. See 4 NIMMER & NIMMER, supra note 42, § 13.01, at 13-4 to -5.
296. See id. § 13.01[A], at 13-6 to -7.
297. 17 U.S.C. §§ 410(c), 411.
298. 4 NIMMER & NIMMER, supra note 42, § 13.01[B], at 13-8 to -9.
299. Hindsight bias is a phenomenon that many scholars argue influences the infringement question in all of intellectual property law. See infra section V.D., pp. 1630-32.
300. See Benn v. Thomas, 512 N.W.2d 537 (Iowa 1994);
301. Vosberg v. Putney, 47 N.W. 99 (Wis. 1890).
302. See, e.g., Bohannan, supra note 138, at 1003 (attempting to understand copyright harm as "foreseeable harm"). Professor Christina Bohannan seems to implicitly connect the idea to inferences of market substitutability. As a consequence, foreseeability ceases to function as an independent behavioral limit, since unforeseeable uses in her model could still form part of the entitlement upon an independent showing of substitution.
303. See id. at 989.
304. For a useful discussion of some of these ideas as applied to copyright, see Wendy J. Gordon, Of Harms and Benefits: Torts, Restitution, and Intellectual Property, 21 J. LEGAL STUD. 449 (1992).
305. See Band, supra note 66, at 6.
306. 3 NIMMER & NIMMER, supra note 42, § 12.11[F].
307. See generally Robert G. Harris & Thomas M. Jorde, Antitrust Market Definition: An Integrated Approach, 72 CAL. L. REV. 1 (1984);
308. William M. Landes & Richard A. Posner, Market Power in Antitrust Cases, 94 HARV. L. REV. 937 (1981).
309. See Harris & Jorde, supra note 151, at 18-19.
310. This might be graphically represented by the following table: Table Presented It is also perhaps worth mentioning that situations in Scenario 4 typically are also the subject of the transformative use defense under current fair use law. See supra pp. 1585-86. The foreseeable copying test would not replace transformative use, but would posit a preliminary question: whether the creator's entitlement extends to the market for the transformation to begin with (in simple terms, a question of whether the specific market for that transformation was foreseeable). Only if the question is answered in the affirmative would the foreseeable copying test allow the transformative use defense to proceed to a social welfare analysis to decide whether to find the existence of infringement or exempt the action as independently creative. Thanks to Adam Badawi and Arden Rowell for discussions that resulted in this table.
311. Harm from market substitution derives largely (if not entirely) from demand diversion, making this distinction very relevant. See Christopher S. Yoo, Copyright and Product Differentiation, 79 N.Y.U. L. REV. 212, 272 (2004) (noting the connection between the two).
312. Id. at 260.
313. See Sidney A. Rosenzweig, Comment, Don't Put My Article Online!: Extending Copyright's New-Use Doctrine to the Electronic Publishing Media and Beyond, 143 U. PA. L. REV. 899, 915 (1995) ("In determining whether the new technology falls within the scope of the explicitly granted or preexisting technology, courts examine the foreseeability of the new medium.").
314. 391 F.2d 150 (2d Cir. 1968). For a more recent application of the doctrine, see Boosey & Hawkes Music Publishers, Ltd. v. Walt Disney Co., 145 F.3d 481, 486 (2d Cir. 1998).
315. Bartsch, 391 F.2d at 154 (finding that the law "will not charge a grantor with the duty of expressly saving [some] rights when he could not know of the invention's existence" and finding "no case holding that an experienced businessman" is "not bound by the natural implications of the language he accepted when he had reason to know of the new medium's potential").
316. Bartsch v. Metro-Goldwyn-Mayer, Inc., 270 F. Supp. 896, 900 (S.D.N.Y. 1967).
317. Id. at 900-01.
318. Bartsch, 391 F.2d at 154.
319. for different approaches to this corollary, see, for example, Rey v. Lafferty, 990 F.2d 1379, 1388 (Ist Cir. 1993);
320. Cohen v. Paramount Pictures Corp., 845 F.2d 851, 854 (9th Cir. 1988);
321. ABKCO Music, Inc. v. Westminster Music, Ltd., 838 F. Supp. 153, 156 (S.D.N.Y. 1993);
322. Platinum Record Co. v. Lucasfilm, Ltd., 566 F. Supp. 226, 227 (D.N.J. 1983);
323. and Kirke La Shelle Co. v. Paul Armstrong Co., 188 N.E. 163, 165-66 (N.Y. 1933).
324. Rey, 990 F.2d at 1388 (citing Cohen, 845 F.2d at 854;
325. Kirke La Shelle Co., 188 N.E. at 163).
326. See Melvin Aron Eisenberg, The Bargain Principle and Its Limits, 95 HARV. L. REV. 741 (1982);
327. cf. Rosenzweig, supra note 156, at 917 (noting that the open-ended nature of the analysis allows courts to "manipulate" the determination).
328. Cohen, 845 F.2d at 854 (quoting Neil R. Nagano, Comment, Past Copyright Licenses and the New Video Software Medium, 29 UCLA L. REV. 1160, 1184 (1982)) (internal quotation mark omitted).
329. Indeed, much of contract law has concerned itself with the move from a model of subjective intention to one of objective intention, which some view as in itself problematic and detracting from contract law's avowed emphasis on the ideas of consent and party autonomy. For more on objective intention in construing contractual terms, see LARRY A. DIMATTEO, CONTRACT THEORY: THE EVOLUTION OF CONTRACTUAL INTENT (1998);
330. LON L. FULLER & MELVIN ARON EISENBERG, BASIC CONTRACT LAW 743-46 (7th ed. 2001);
331. Larry A. DiMatteo, The Counterpoise of Contracts: The Reasonable Person Standard and the Subjectivity of Judgment, 48 S.C. L. REV. 293 (1997);
332. and Nancy Kim, Mistakes, Changed Circumstances and Intent, 56 U. KAN. L. REV. 473 (2008).
333. 35 U.S.C. § 103(a) (2006). For more on the PHOSITA standard, see Rebecca S. Eisenberg, Obvious to Whom? Evaluating Inventions from the Perspective of PHOSITA, 19 BERKELEY TECH. L.J. 885 (2004).
334. See In re Kotzab, 217 F.3d 1365, 1369 (Fed. Cir. 2000) (noting the importance of relying on "then-accepted wisdom in the field" in making the determination);
335. In re Dembiczak, 175 F.3d 994, 999 (Fed. Cir. 1999) (noting the importance of "casting the mind back to the time of invention");
336. Kloster Speedsteel AB v. Crucible Inc., 793 F.2d 1565, 1574 (Fed. Cir. 1986) (emphasizing the importance of focusing the decisionmaker's mind on what would have been obvious "when the invention was made").
337. The hypothetical here tracks the facts of a well-known licensing dispute, in which the question was whether the grant of television rights covered the right to distribute the content on vid-eocassettes. The court, using a foreseeability standard, answered the question in the negative. Cohen, 845 F.2d at 851.
338. See id. at 854.
339. A secondary, yet important, question relates to the defendant's - that is, N's - own creativity and the way in which the copyright system needs to evaluate that as part of the process. Once foreseeable copying works to delineate a creator's incentive-driven markets, the analysis of whether the social utility from N's creation is enough reason to generate an exception, in light of the costs and benefits of giving a creator control over it, is best accomplished by the traditional fair use analysis.
340. Indeed, the Supreme Court seems to have adopted precisely such an argument in its validation of the Sonny Bono Copyright Term Extension Act. See Eldred v. Ashcroft, 537 U.S. 186, 215 (2003). The Court there recognized the possibility of future term extensions forming a part of copyright's incentive structure. In addition, the Court referred to Congress's "consistent historical practice" of extending copyright's term and applying the extension retroactively.
341. Id. at 204.
342. To the extent that it is indeed grounded in an awareness of the industry in question and technological developments therein, it is likely to be characterized as foreseeable under the standard and test described earlier. The discussion here, therefore, is restricted to predictions and expectations that are not grounded in such an awareness.
343. Stadler, supra note 30, at 454-56. For a slightly different argument on how expectations influence risk aversion, thereby feeding back into the scope of the rights granted, see James Gibson, Risk Aversion and Rights Accretion in Intellectual Property Law, 116 YALE L.J. 882 (2007).
344. Stadler, supra note 30, at 440.
345. For an overview of the rule-standard distinction, see Ronald Dworkin, The Model of Rules, 35 U. CHI. L. REV. 14, 22-29 (1967);
346. Louis Kaplow, Rules Versus Standards: An Economic Analysis, 42 DUKE L.J. 557 (1992);
347. Duncan Kennedy, Form and Substance in Private Law Adjudication, 89 HARV. L. REV. 1685, 1687-1701 (1976);
348. Kathleen M. Sullivan, The Supreme Court, 1991 Term - Foreword: The Justices of Rules and Standards, 106 HARV. L. REV. 22 (1992);
349. and Cass R. Sunstein, Problems with Rules, 83 CAL. L. REV. 953 (1995).
350. See Kaplow, supra note 176, at 560.
351. Id.
352. Gideon Parchomovsky & Kevin A. Goldman, Fair Use Harbors, 93 VA. L. REV. 1483, 1503 (2007).
353. This distinction between rules and standards translates most directly into the difference between the strategies of "exclusion" and "governance" that property law uses to allocate and enforce its grant of rights. See Henry E. Smith, Exclusion Versus Governance: Two Strategies for Delineating Property Rights, 31 J. LEGAL STUD. S453 (2002). Exclusion strategies such as trespass, much like rules, entail high upfront delineation costs and low ex post enforcement costs, while governance strategies such as nuisance do just the opposite.
354. See Henry E. Smith, Exclusion and Property Rules in the Law of Nuisance, 90 VA. L. REV. 965 (2004). Governance strategies enable courts to carry out balancing exercises as circumstances demand and thereby contextualize the entitlement to an exogenously defined purpose.
355. Michael Carroll identifies this as the problem of "uniformity cost" in intellectual property law and notes that context-specific standards serve to minimize these costs. See Michael W. Carroll, One For All: The Problem of Uniformity Cost in Intellectual Property Law, 55 AM. U. L. REV. 845, 856-61, 890-92 (2006).
356. This is seen most prominently in the absence of an independent invention defense and a fair use limitation in patent law. For more on this, see Maureen A. O'Rourke, Toward a Doctrine of Fair Use in Patent Law, 100 COLUM. L. REV. 1177, 1184-87 (2000).
357. On the probabilistic nature of property and intellectual property rights, see Mark A. Lemley & Carl Shapiro, Probabilistic Patents, 19 J. ECON. PERSP. 75 (2005);
358. and Keith Leffler & Cristo-fer Leffler, The Probabilistic Nature of Patent Rights: In Response to Kevin McDonald, ANTITRUST, Summer 2003, at 77.
359. See Ian Ayres & Paul Klemperer, Limiting Patentees' Market Power Without Reducing Innovation Incentives: The Perverse Benefits of Uncertainty and Non-Injunctive Remedies, 97 MICH. L. REV. 985 (1999).
360. Id. at 1025.
361. Id. at 1025-26.
362. Id. at 1001.
363. Id. at 1026-27. Ramsey pricing involves pricing goods inversely to the elasticity of demand for the firm's products but without a profit constraint. See LANDES & POSNER, supra note 20, at 40 n. 6. Translated to the intellectual property context, this concept implies that if a monopolist's profits are held constant, "consumers would be better off living under oligopolistic pricing for a longer period than monopoly pricing for a shorter period." Ayres & Klemperer, supra note 184, at 991. The deadweight losses, then, get spread over a long duration, but their severity at any given point in time is reduced.
364. Ayres & Klemperer, supra note 184, at 1026-28.
365. See id. at 989-90. This is the intuition that small deviations from a monopolist's profit-maximizing price or quantity will have less of an effect on a monopolist's overall benefits, but wili have a larger effect on minimizing deadweight losses, thereby producing a net welfare gain.
366. Robert Merges, Intellectual Property Rights and Bargaining Breakdown: The Case of Blocking Patents, 62 TENN. L. REV. 75, 101-03 (1994).
367. See Michael J. Meurer & Craig Allen Nard, Invention, Refinement and Patent Claim Scope: A New Perspective on the Doctrine of Equivalents, 93 GEO. L.J. 1947, 1996-97 (2005);
368. see also Julie E. Cohen & Mark A. Lemley, Patent Scope and Innovation in the Software Industry, 89 CAL. L. REV. 1, 50 (2001).
369. Meurer & Nard, supra note 192, at 1997.
370. Id. at 1998.
371. See 17 U.S.C. § 107 (2006).
372. See Douglas Lichtman, Property Rights in Emerging Platform Technologies, 29 J. LEGAL STUD. 615, 637-38 (2000) (observing that fair use excuses infringement whenever "public policy favors that result,"
373. id. at 637, and that it is an "all-inclusive, equitable inquiry,"
374. id. at 638).
375. To the contrary, the dominant view appears to be that the fair use doctrine stifles innovation by not allowing defendants sufficient leeway to use protected works. See, e.g., Kevin M. Lemley, The Innovative Medium Defense: A Doctrine To Promote the Multiple Goals of Copyright in the Wake of Advancing Digital Technologies, 110 PENN. ST. L. REV. III, 128-29 (2005);
376. Adrienne J. Marsh, Fair Use and New Technology: The Appropriate Standards To Apply, 5 CARDOZO L. REV. 635, 643-44 (1984).
377. See Parchomovsky & Goldman, supra note 179, at 1498 (noting that "the vagueness of the fair use standard" causes actors to "err on the side of safety and either overcomply (by minimizing the use of protected works) or overinvest in precautions").
378. See Ayres & Klemperer, supra note 184, at 1024 (noting how underinclusive standards are preferable to rules and overinclusive standards). Quite apart from interfering with creator incentives, replacing the current standards-based approach with a rule-based one would also likely alter a copyright owner's willingness to bargain with a potential user, as a consequence of the uncertainty being eliminated altogether.
379. See Dan L. Burk, Muddy Rules for Cyberspace, 21 CARDOZO L. REV. 121, 140 (1999);
380. cf. Jason Scott Johnston, Bargaining Under Rules Versus Standards, II J.L. ECON. & ORG. 256, 258 (199s). But cf. Parchomovsky & Goldman, supra note 179, at 1502 (advocating the introduction of specific contextual fair use rules into copyright doctrine).
381. The prospect theory is attributed to the work of Professor Edmund Kitch. See Edmund W. Kitch, The Nature and Function of the Patent System, 20 J.L. & ECON. 265 (1977);
382. see also John F. Duffy, Rethinking the Prospect Theory of Patents, 71 U. CHI. L. REV. 439 (2004). This theory bears no connection to the prospect theory in behavioral economics.
383. See Daniel Kahneman & Amos Tversky, Prospect Theory: An Analysis of Decision Under Risk, 47 ECONOMETRICA 263 (1979).
384. Kitch, supra note 200, at 266.
385. See Mark A. Lemley, The Economics of Improvement in Intellectual Property Law, 75 TEX. L. REV. 989, 1047 (1997) ("While Kitch makes his argument in the patent context, it is copyright rather than patent law that seems to have taken his theory to heart."). Professor Michael Abramowicz argues that the dominant theme in the prospect theory is the idea of avoiding wasteful rent dissipation, and attempts to use it to explain copyright law's protection for derivative works.
386. See Michael Abramowicz, A Theory of Copyright's Derivative Right and Related Doctrines, 90 MINN. L. REV. 317, 351, 355-56 (2005).
387. See Mark A. Lemley, Ex Ante Versus Ex Post Justifications for Intellectual Property, 71 U. CHI. L. REV. 129, 132-35 (2004) (describing the use of this theory to justify copyright's retrospective term extension under the CTEA).
388. Id. at 132.
389. Id. at 135-36. As Professor Mark Lemley rightly notes, this logic flies in the face of the fundamental idea that competition - and deconcentration in markets - is preferable for simple efficiency reasons. Indeed, this principle dominates antitrust law's prohibition on tying and other forms of exclusive dealing arrangements.
390. For a few academic articles discussing tying, see Ward S. Bowman, Jr., Tying Arrangements and the Leverage Problem, 67 YALE L.J. 19 (1957);
391. Jay Pil Choi, Tying and Innovation: A Dynamic Analysis of Tying Arrangements, 114 ECON. J. 83 (2004);
392. and Keith N. Hylton & Michael Salinger, Tying Law and Policy: A Decision-Theoretic Approach, 69 ANTITRUST L.J. 469 (2001).
393. See Lemley, supra note 203, at 137 & n. 29. He notes: "Creators are often terrible managers. They frequently misunderstand the significance of their own invention and the uses to which it can be put."
394. Id. at 137.
395. See cases cited supra note 3.
396. Indeed, a new set of rights referred to as "neighboring rights" or "related rights" attempts to do precisely this by giving distributors exclusionary control over their investments. See Shyam-krishna Balganesh, The Social Costs of Property Rights in Broadcast (and Cable) Signals, 22 BERKELEY TECH. L.J. 1303, 1305-06 (2008). The most well-known neighboring rights are performers' rights, phonogram producers' rights, and broadcasters' rights.
397. See id. passim;
398. George H.C. Bodenhausen, Protection of "Neighboring Rights," LAW & CONTEMP. PROBS., Winter 1954, at 156.
399. See Abramowicz, supra note 202, at 352 ("In the absence of patent protection ⋯ [m]ore inventors may pursue a particular line of research than is socially optimal.").
400. See Mark F. Grady & Jay I. Alexander, Patent Law and Rent Dissipation, 78 VA. L. REV. 305, 318-20 (1992).
401. For an overview of the doctrine and an economic explanation for it in terms of information cost theory, see Clarisa Long, Information Costs in Patent and Copyright, 90 VA. L. REV. 465, 528-29 (2004);
402. and Henry E. Smith, Intellectual Property As Property: Delineating Entitlements in Information, 116 YALE L.J. 1742, 1810-11 (2007).
403. For an attempt to extend the idea to patent law, see Samson Vermont, Independent Invention As a Defense to Patent Infringement, 105 MICH. L. REV. 475 (2006).
404. See Abramowicz, supra note 202, at 355 (referring to the idea-expression dichotomy in copyright).
405. Of course, the system would not want inventors to disclose information such that other systems of intellectual property (that is, patents and trade secrets) might later deny them protection. An alternative might thus be a mechanism for creators to make these disclosures to an administrative agency under conditions of secrecy; here, however, the social benefits of the disclosure are unlikely to be realized.
406. See Zipursky, supra note 108, at 47 (noting how the acquisition of such information is "socially inefficient").
407. See Lucian Ayre Bebchuk & Steven Shavell, Information and the Scope of Liability for Breach of Contract: The Rule of Hadley v. Baxendale, 7 J.L. ECON. & ORG. 284, 286 (1991) (observing that when one party's communication of information to the other is "socially desirable," the foreseeability requirement in Hadley provides an incentive for it).
408. 17 U.S.C. § 302 (2006). For anonymous works, the term of protection is 95 years from the year of first publication, or 120 years from the year of its first creation, whichever expires earlier.
409. Id. § 302(c). The most recent extension, the Sonny Bono Copyright Term Extension Act (CTEA), was the subject matter of a well-known Supreme Court decision. See Eldred v. Ashcroft, 537 U.S. 186 (2003).
410. See Smith, supra note 211, at 1806-14 (discussing these differences);
411. see also William M. Landes & Richard Posner, An Economic Analysis of Copyright Law, in ECONOMIC ANALYSIS OF THE LAW 83, 94-96 (Donald A. Wittman ed., 2003).
412. See Smith, supra note 211, at 1812.
413. See Carroll, supra note 181, at 852-56;
414. see also Glynn S. Lunney, Jr., Patent Law, the Federal Circuit, and the Supreme Court: A Quiet Revolution, 11 SUP. CT. ECON. REV. 1, 5 (2004).
415. See Carroll, supra note 181, at 856-57 (distinguishing between Type I and Type II errors associated with uniformity).
416. See Perry, supra note 137, at 99-101;
417. see also Richard A. Epstein, Beyond Foreseeability: Consequential Damages in the Law of Contract, 18 J. LEGAL STUD. 105, 124 (1989) (noting how foreseeability "utterly lacks the descriptive content that allows it to be the principled basis for decision").
418. See Michael S. Moore, Foreseeing Harm Opaquely, in ACTION AND VALUE IN CRIMINAL LAW 125, 126 (Stephen Shute et al. eds., 1993);
419. see also Clarence Morris, Duty, Negligence and Causation, 101 U. PA. L. REV. 189, 198 (1952).
420. See CLARENCE MORRIS, MORRIS ON TORTS 174-77 (1953).
421. H.L.A. HART & TONY HONORE, CAUSATION IN THE LAW 258 (2d ed. 1985).
422. J.L. AUSTIN, SENSE AND SENSIBILIA 7-8 (G.J. Warnock ed., 1962) (internal quotation marks omitted).
423. See 4 NIMMER & NIMMER, supra note 42, § 13.03[B], at 13-67 to -73;
424. OSTERBERG & OSTERBERG, supra note 46, § 2:6, at 2-32 to -34;
425. see also Segrets, Inc. v. Gillman Knitwear Co., 207 F.3d 56, 65 (Ist Cir. 2000) (finding an alteration in color to be a trivial and insubstantial modification).
426. See KEETON ET AL., supra note 103, § 96, at 685. This position is often referred to as the "state-of-the-art defense" to products liability. It should be noted that courts and scholars have disagreed on whether this approach ought to be abandoned in favor of one dependent entirely on hindsight, given tort law's concern with fairness and compensation. For an analysis of this trend, see James A. Henderson, Jr., Coping with the Time Dimension in Products Liability, 69 CAL. L. REV. 919 (1981).
427. See also W. Page Keeton, Products Liability - Inadequacy of Information, 48 TEX. L. REV. 398 (1970) (advocating a move away from negligence to strict liability for fairness reasons).
428. KEETON ET AL., supra note 103, § 96, at 685 ("[I]t is the state of the art in the sense of the scientific knowledge and technological information regarding danger that was available to a seller at the time such seller surrendered possession that is relevant and admissible as regards what he should have known.").
429. See Omri Ben-Shahar, Should Products Liability Be Based on Hindsight?, 14 J.L. ECON. & ORG. 325 (1998) (observing how the use of ex post information often distorts the ex ante incentive to take care, but that it often results in a new ex post incentive after the sale and distribution of the product).
430. For opinions emphasizing the importance of relating the inquiry back in time to the point of invention, see In re Kotzab, 217 F.3d 1365, 1369 (Fed. Cir. 2000);
431. and In re Dembiczak, 175 F.3d 994, 999 (Fed. Cir. 1999).
432. See Richard A. Posner, Misappropriation: A Dirge, 40 HOUS. L. REV. 621, 622-26 (2003) (rejecting misappropriation as a unifying principle).
433. For a general overview of the hindsight bias and its influence on judicial decisionmaking, see Jeffrey J. Rachlinski, A Positive Psychological Theory of Judging in Hindsight, 65 U. CHI. L. REV. 571 (1998).
434. See also Jay J.J. Christensen-Szalanski & Cynthia Fobian Willham, The Hindsight Bias: A Meta-Analysis, 48 ORGANIZATIONAL BEHAV. & HUM. DECISION PROCESSES 147 (1991).
435. Baruch Fischhoff, Hindsight ≠ Foresight: The Effect of Outcome Knowledge on Judgment Under Uncertainty, I J. EXP. PSYCH. 288, 288 (197s). Professor Baruch Fischhoff's work is credited with identifying the bias.
436. See also Baruch Fischhoff, For Those Condemned To Study the Past: Heuristics and Biases in Hindsight, in JUDGMENT UNDER UNCERTAINTY: HEURISTICS AND BIASES 335 (Daniel Kahneman et al. eds., 1982).
437. For studies verifying the existence of hindsight bias, see Erin M. Harley, Hindsight Bias in Legal Decision Making, 25 SOC. COGNITION 48 (2007);
438. Kim A. Kamin & Jeffrey J. Rachlinski, Ex Post ≠ Ex Ante: Determining Liability in Hindsight, 19 LAW & HUM. BEHAV. 89 (1995);
439. Mark Kelman et al., Decomposing Hindsight Bias, 16 J. RISK & UNCERTAINTY 251 (1998);
440. and Susan J. LaBine & Gary LaBine, Determinations of Negligence and the Hindsight Bias, 20 LAW & HUM. BEHAV. 501 (1996).
441. See 35 U.S.C. § 103(a) (2006) (denying patent protection to inventions that "would have been obvious at the time the invention was made").
442. See Gregory N. Mandel, Patently Non-Obvious: Empirical Demonstration that the Hindsight Bias Renders Patent Decisions Irrational, 67 OHIO ST. L.J. 1391, 1391 (2006).
443. Univ. of London Press, Ltd. v. Univ. Tutorial Press, Ltd., (1916) 2 Ch. 601, 610. While U.S. copyright law has since moved away from this model, it is in many ways representative of the general ex post structural framework on which copyright is premised.
444. See Rachlinski, supra note 232, at 571.
445. See id. at 573, 586-88.
446. See id. at 587, 607-24.
447. Id. at 607-24.
448. Id. at 624.