The Economic Argument For Why Court's Viacom Ruling Makes Sense… And Why Viacom Hates It

Economics

from the money-money-money dept

Larry Downes has a different, but important, analysis of the Viacom/YouTube decision, where he looks at it from an economic perspective. Specifically, he looks at it from “the principle of least cost avoidance.” The idea is that which solution costs the least from a social perspective: Google trying to prevent infringing videos from appearing on YouTube or Viacom doing the same? And he makes the convincing case that the ruling here makes the most economic sense by a long shot. He compares it to the recent Tiffany/eBay ruling which hits on the same basic principles (noting that eBay is not responsible for others selling counterfeit Tiffany goods). Downes first points out that these platforms, like YouTube and eBay have certainly opened up amazing new markets that have great social benefit — even if they’ve also opened up opportunities for infringement. There’s no doubt that there’s value in both platforms, but the question is does that value outweigh the downsides, and if so, what’s the most economically beneficial way to “police” any such infringement:

Given the fact that activities harmful to rights holders are certain to occur, in other words, the least cost avoider principles says that a judge should rule in a way that puts the burden of minimizing the damage on the party who can most efficiently avoid it. In this case, the choice would be between YouTube (preview all content before posting and ensure legal rights have been cleared), Viacom (monitor sites carefully and quickly demand takedown of infringing content) or the users themselves (don’t post unauthorized content without expecting to pay damages or possible criminal sanctions).

Here, the right answer economically is Viacom, the rights holder who is directly harmed by the infringing behavior.

That may seem unfair from a moral standpoint. For, after all, Viacom is the direct victim of the users’ clearly unlawful behavior and the failure of YouTube, the enabler of the users, to stop it. Why should the victim be held responsible for making sure they are not caused further damage in the future?

But there’s a certain economic logic to that decision, though one difficult to quantify (Judge Stanton made no effort to do so; indeed he did not invoke the least cost avoider principle explicitly.) The grant of a copyright or a trademark is the grant of a monopoly on a certain class of information, a grant that itself comes with inherent economic inefficiencies in the service of encouraging overall social value–encouraging investment in creative works.

Part of the cost of having such a valuable monopoly is the cost of policing it, even in new media and new services that the rights holder may not have any particular interest in using itself.

This is, to some extent, just a different way of making the point that having the platform provider monitor all content is so difficult as to make it prohibitively costly from a social standpoint. Viacom is upset because the ruling does, in fact, increase its own cost. But the other choice puts a much greater economic burden on society as a whole, because it would almost certainly make services like YouTube a lot less useful. So if you were to judge this purely on the basis of an economic/social solution that makes society better off, the judge clearly ruled in the best manner.

Filed Under: copyright, economics, least cost avoidance, liability
Companies: google, viacom, youtube