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Preview: Ariel Katz

Ariel Katz

Recent works by Ariel Katz

Last Build Date: Sat, 01 Oct 2016 00:00:00 +0000

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Digital Exhaustion: North American Observations

Sat, 01 Oct 2016 00:00:00 +0000

Rumor has it that the first-sale doctrine is dying. According to the rumor, the doctrine, forged in the era of the physical copy, will lose its prominence in the brave new world where works in digital formats are no longer distributed and enjoyed as particular identifiable objects but exist merely as data flows. Some (e.g., librarians, consumer advocates) mourn the loss of their beloved doctrine with trepidation, while others (e.g., publishers) rejoice at its anticipated demise. Both camps assume that the doctrine is confined to the transfer of tangible copies and that it limits only copyright owners’ distribution right, not any other exclusive rights.
The death prognosis further relies on the proliferation of contractual and licensing conditions that purport to prohibit one buyer from transferring what he or she purchased to another, even if the transfer was otherwise technically possible and legally permissible.
This chapter argues that the rumor of the doctrine’s death is premature. The death prognosis regards the first-sale doctrine merely as a statutory exception, and one that limits only the copyright owner’s distribution right, but not other rights. The doctrine, thus, protects defendants who can show that their acts fall within the bounds of the statutory exception, but any mismatch would be fatal.
The chapter offers a different understanding of the first-sale doctrine. As a “first sale” doctrine it may limit the distribution right, but its statutory presence merely affirms a broader principle of exhaustion—one of several copyright law principles that limit the copyright owners’ powers, and a species of a larger genus of rules that restrict the exercise of private power more generally. Since the doctrine isn’t a creature of statute, its codification does not limit courts in applying the broader principle of exhaustion that it reflects. The death prognosis rests on the first and narrow view, which also implies that only legislative reform can expand exhaustion beyond that limited statutory scope. Under the second view, however, the first-sale doctrine may not only be alive but might well be kicking.
The chapter shows that the second view is both plausible and sound.

Intellectual Property, Antitrust, and the Rule of Law: Between Private Power and State Power

Wed, 27 Jul 2016 00:00:00 +0000

This Article explores the rule of law aspects of the intersection between intellectual property and antitrust law. Contemporary discussions and debates on intellectual property (IP), antitrust, and the intersection between them are typically framed in economically oriented terms. This Article, however, shows that there is more law in law than just economics. It demonstrates how the rule of law has influenced the development of several IP doctrines, and the interface between IP and antitrust, in important, albeit not always acknowledged, ways. In particular, it argues that some limitations on IP rights, such as exhaustion and limitations on tying arrangements, are grounded in rule of law principles restricting the arbitrary exercise of legal power, rather than solely in considerations of economic efficiency.
The historical development of IP law has reflected several tensions, both economic and political, that lie at the heart of the constitutional order of the modern state: the tension between the benefits of free competition and the recognition that some restraints on competition may be beneficial and justified; the concern that power, even when conferred in the public interest, can often be abused and arbitrarily applied to advance private interests; and the tension between freedom of contract and property and freedom of trade.  This Article explores how rule of law considerations have allowed courts to mediate these tensions, both in their familiar public law aspects but also in their less conspicuous private law dimensions, and how, in particular, they have shaped the development of IP doctrine and its intersection with antitrust law and the common law.

Evaluating the Benefits of Fair Use: A Response to the PWC Report on the Costs and Benefits of 'Fair Use'

Fri, 15 Apr 2016 00:00:00 +0000

This submission to the Australia Productivity Commission responds to a recently published PricewaterhouseCoopers report on Understanding the Costs and Benefits of Introducing a ‘Fair Use’ Exception, prepared for APRA, AMCOS, PPCA, Copyright Agency | Viscopy, Foxtel, News Corp Australia and Screenrights (“PWC Report”). The PWC Report does not provide a sound evidence base to evaluate the true total costs and benefits that the introduction of a fair use rights would have in Australia. Part I points out how the PWC Report fails to adequately define the nature of the real change being proposed in Australia – which is effectively to subject its existing fair dealing clause to an open list of potentially lawful purposes. Part II provides a survey of a range of benefits that the opening of Australia’s fair dealing clause to resemble the U.S. fair use doctrine may have, drawing from published research on the topic which is not canvassed by the PWC Report. Part III analyses the PWC Report’s evaluation of the costs of adopting fair use, criticizing the Report’s basis for concluding that adopting fair use will lead to massive shifts from licensed to unlicensed use of works, a litigation explosion and the destruction of all collective management organizations in Australia. The diffuse and forward-looking benefits of open exceptions like fair use may be hard to measure, but they are no less real. The PWC’s evaluation of the costs and benefits of fair use are not real. It is full of imagined horror stories that are unlikely to take place in fact and should be disregarded in their entirety.

The Interaction of Exhaustion and the General Law: A Reply to Duffy and Hynes

Thu, 07 Apr 2016 00:00:00 +0000

In Statutory Domain and the Commercial Law of Intellectual Property, John Duffy and Richard Hynes argue that IP exhaustion — the doctrine that limits a patentee’s or copyright holder’s control over goods in the stream of commerce — was created and functions exclusively to confine IP law within its own domain and prevent it from displacing other laws.

In this essay, we explain why we are not persuaded. A central theme in Duffy and Haynes work is the argument that the common law did not play a role in the emergence and development of exhaustion. However, we show that the evidence they offer is inconclusive, incomplete, and at times inaccurate. Close examination of early exhaustion cases paints a more complex picture that cannot be squared with the idea that exhaustion was created independently of common law principles. Next, we explain how the approach Duffy and Hynes advocate would strip exhaustion of any normative content. While we agree that exhaustion draws a line between the domain of IP law and other laws and thus prevents the former from displacing the latter, the placement of that line is far from arbitrary, and has always reflected policy considerations. Finally, we note that Duffy and Hynes’ theory oversimplifies the relationship between IP law and state law, partly because it does not fully consider federal preemption.

Copyright, Exhaustion, and the Role of Libraries in the Ecosystem of Knowledge

Fri, 01 Jan 2016 00:00:00 +0000

In this Article, written for a symposium on the future of libraries in the digital age, I present and challenge two common views about the scope of the first-sale doctrine, or exhaustion: namely, that the doctrine applies only to the transfer of tangible copies of works but not to the transfer of digital files, and that copyright owners can circumvent exhaustion by characterizing transactions as “licenses” rather than “sales”, or by contracting out of it. 

The law on digital exhaustion is anything but settled. As codified, the “first sale” doctrine it may limit only the distribution right, but its statutory presence might merely affirm a broader principle of exhaustion—one of the several principles in copyright law that limit the copyright owner’s powers. The principle of exhaustion can apply, and at times has been applied, beyond the distribution right.

Likewise, the notion that copyright owners can circumvention exhaustion by characterizing transactions as “licenses” rather than “sales”, or by using contracts to exercise downstream control is hardly a foregone conclusion. Established precedent and sound legal principle indicate that while the law recognizes some scope for contracting around exhaustion, courts will not necessarily uphold any private reordering of the respective legal entitlements of copyright owners and users.

While these observations and conclusions apply to exhaustion generally, they apply most demonstrably in the case of libraries. Libraries occupy a privileged space in the copyright system. Historically, libraries predate copyright, and the institutional role of libraries and institutions of higher learning in the “promotion of science” and the “encouragement of learning” was acknowledged before legislators decided to grant authors exclusive rights in their writings. The historical precedence of libraries and the legal recognition of their public function cannot determine every contemporary copyright question, but this historical fact is not devoid of legal consequence. History is part of the legislative history of statutes, and it constitutes part of the context that informs the interpretation of current statutes.

Therefore, if not false, then the view that the current legislation does not allow digital exhaustion is at least questionable.

The Economic Rationale of Exhaustion: Distribution and Post-Sale Restraints

Fri, 01 Jan 2016 00:00:00 +0000

Despite over a hundred years of adjudication, courts have never been able to draw the exact contours of the first sale doctrine or fully articulate its rationale. In recent years, insights borrowed from modern antitrust law and economics have been applied to suggest that just as that just as antitrust law has recognized the efficiency of post-sale restraints and relaxed its hostility toward them, so should IP law permit their imposition and provide remedies for their breach. 

This Chapter challenges this position. It shows that the main benefits of post-sale restraints involve situations of imperfect vertical integration between coproducing or collaborating firms, which occur during the production and distribution phases or shortly thereafter. In such situations, contracting out of the first sale doctrine should be permitted. Beyond such limited circumstances, however, the first sale doctrine promotes important social and economic goals: it promotes efficient use of goods embodying IP, guarantees their preservation, and facilitates user innovation, while minimizing transaction costs that otherwise might impede those goals. Therefore, rather then undermining it, the economics of post-sale restraints confirm the validity of the first sale doctrine and support its continued vitality.

Interveners Factum of Centre for Intellectual Property Policy and Ariel Katz in CBC v SODRAC (Supreme Court of Canada)

Sun, 01 Mar 2015 00:00:00 +0000

Interveners factum filed by the Centre for Intellectual Property Policy at McGill University and Professor Ariel Katz in the CBC v SODRAC case before the Supreme Court of Canada. The Court granted us leave to intervene with respect to the question of whether tariffs that the Copyright Board approved can be imposed on users.

In the decision below, the Federal Court of Appeal (“FCA”) held that a collective management organization (“CMO”) can ask the Board to approve a licensing scheme and then impose it on users. If correct, such users then have no choice other than to deal with the CMO, and must, as a matter of law, pay the entire specified royalties if they make even a single unauthorized use of a single work from the CMO’s repertoire. By so ruling, we argue, the FCA has upended the legislative scheme.

This factum explains why the holding of the FCA (which we call the “mandatory tariff” theory) lacks basis in law: standard principles of statutory interpretation contradict it; the case law debunks it; and the legislative history discredits it. In addition to absurd results that contradict fundamental tenets of the rule of law, the “mandatory tariff” theory threatens to upset the balance in Canadian copyright law. It would overly compensate owners, contrary to this Court’s holding in Théberge, and it could gut fair dealing and others users’ rights, contrary to what this Court cautioned against in CCH.

Spoiler alert: The Supreme Court agreed with us. See Canadian Broadcasting Corp. v. SODRAC 2003 Inc., [2015] 3 SCR 615, 2015 SCC 57 (CanLII), <>, paras 101-113.

Pharmaceutical Lemons: Innovation and Regulation in the Drug Industry

Mon, 01 Jan 2007 00:00:00 +0000

Before a new drug can be marketed the Food and Drug Administration must be satisfied that it is safe and effective. According to conventional wisdom, the cost and delay involved in this process diminish the incentives to invest in the development of new drugs. Accordingly, several reforms aimed at restoring such incentives have been implemented and others have been advocated. This paper challenges the central argument in the debate on the topic, namely that drug regulation and drug innovation are necessarily at odds with each other. Although intuitively appealing, the argument that drug regulation negatively affects the incentives to innovate does not fully capture the role that regulation plays in this industry. This paper shows that the regulatory framework is not solely a burden imposed on the industry; it also provides a valuable service to the industry. Specifically, drug regulation provides certification of drug quality. Such certification, which may not be easily achieved by private market-based mechanisms, prevents the market from becoming a market for “lemons”. Therefore, rather than decreasing the expected returns to innovation, this aspect of regulation contributes to the value of new drugs and may actually encourage innovation. This point has largely been absent from most cost-benefit analyses of drug regulation, yet without it any discussion of the merits of regulation is incomplete.

The Potential Demise of another Natural Monopoly: New Technologies and the Administration of Performing Rights

Mon, 01 May 2006 00:00:00 +0000

This is a second in a series of two articles in which I challenge the collective administration of performing rights. In the first article, published in a recent issue of this journal, I questioned the natural monopoly paradigm that dominates the analysis of collective administration of performing rights. In this article I demonstrate how, by lowering many of the transaction costs which previously purported to justify the practice, new digital technologies further undermine the justification for collective administration. I also discuss whether market forces alone would transform the market into a competitive one, consider possible continuing roles for existing performing rights organizations, and compare the Canadian and the U.S. regulatory approaches to determine how conducive they are to such change.

Monopoly and Competition in the Collective Administration of Public Performance Rights (in Hebrew)

Sun, 01 Jan 2006 00:00:00 +0000

In most countries the right to perform music in public is not administered individually by the copyright holders but collectively by Performing Rights Organizations (PROs). The common explanation for the proliferation of collective administration is that some aspects of copyright administrations are natural monopolies. It is often argued that individual administration is impracticable or at least uneconomical. Collective administration is therefore promoted as the most efficient method for licensing, monitoring and enforcing those rights. In addition, since the market is a natural monopoly, regulation, rather than an attempt to foster competition, is thought to be the optimal regulatory response. This article critically analyzes the various justifications for collective administration. It argues that the case for PROs is not as straightforward as it is assumed to be, and shows that many of the underlying cost efficiencies that are attributed to PROs are usually simply assumed, and in many cases could be equally achieved under less restrictive arrangements. The article also shows that the existence of new technologies – the Internet, Digital Rights Management Technologies, and advanced monitoring technologies – undermines the case for collective administration even further. Also examined are two models for the regulation of PROs that have been recently proposed in Israel, an antitrust model and a specific legislation model. The models are examined from the aspects of their ability to restrain PROs’ market power and to facilitate transition from monopoly to competition.