Fair Use in the Digital Age

Copyright provides broad protection for artists and creators, but these rights are not without limit. In the United states, for instance, the U.S. Copyright Act permits the “fair use” of copyrighted works without infringing under certain circumstances. Other nations overwhelmingly employ the comparable concept of “fair dealing.” Drawing the line between fair use and infringement has proven tricky for the courts, and technology hasn't made their task any easier. In an effort to help guide both reviews of copyright law abroad and the judicial consideration of fair use disputes, we construct an economic model to derive an optimal level of fair use (or fair dealing). This model is rooted in the purpose of copyright and informed by judicial precedent. Among other things, we find that optimal fair use should be stricter when: (1) the cost of the original work is high; (2) the size of the market for the original work is small; (3) piracy and other forms of leakages, which simply reduce the market potential for the original work, are large; (4) the cost of distributing secondary works is lower; (5) small amounts of transformation matter a lot to consumers; and (6) the fixed cost of producing secondary works are smaller. These findings suggest legislatures and courts should adopt a stricter interpretation of fair use in the Digital Age