De Minimis is obsolete
One source of missing de minimis payments is small scale “infringement”. Some infringements, like distributing a chapter from a book for classroom usage, are allowed under fair use. Additionally, as a practical matter, copyright holders will not choose to pursue de minimis infringement, even if it is illegal---“the recovery might be de minimis, so that no one have any incentive to sue.”[1] Even if a user is willing to pursue a license, there is not enough money for the licensing agent to manage such requests.[2] Technology has made collection of such de minimis payments cheaper. Consider the case of YouTube, where Content ID automatically detects matching between User Generated Content (“UGC”) and copyrighted material, insignificant the copying might be. In the past, copyright holders will never discover small infringements, or even when they do discover, they would not go after such small infringements; now technology has allowed them to monetize, or block such de minimis infringement. (The fact that YouTube is able to take a large share of monetized value is a separate issue: it concerns Google’s unfair monopolistic behavior.)Another source of missing de minimis payments is the limited commercial life of copyrighted material. Most books, for example, have a very limited commercial life. Though they are still in copyright 60 years after publication, it is most likely that they are out of print. Though there are still sporadic demands for such books, authors were never able to reap such benefits due to the high fixed cost of printing---it is economically infeasible to print a book for a small number of copies. Now consider the settlement of Author’s Guild vs. Google. Books that has reached its end of commercial life, are now infused with a new commercial life: readers can purchase digital access to out-of-print books; institutions can buy access to Databases containing out-of-print books; and advertisers can pay to place ads on Google Book Search. All these payments will be split between Google, publishers, and authors, with the majority (70% of net profit) goes to publishers and authors. In summary, technology has enabled publishers and authors to monetize in ways that were not possible in the past.
Why Fight a War over De Minimis
It is revealing to note how much effort publishers and Authors’ Guild (AG) put into collecting such de minimis payments, every penny of it. First, the whole negotiation took two and a half years. Second, the ultimate settlement went into great lengths to insure that publishers and AG get every penny out of it: From the determination of optimal prices, to running “Google Tests” to choose the best preview modes. The goal is simply to maximize “sales and revenues”. They did leave some consumer surplus on the table, but this is not inconsistent with monopolistic profit maximizing behavior (except in the case of first degree price discrimination, which is only a theoretical curiosity, profit maximizing monopolies will not be able to extract all consumer surplus).It is misleading to call such payments de minimis. It is not de minimis for big publishers and AG, who will benefit from a huge collection of books: though payment on each individual books is small, it adds up. However, it is de minimis for individual authors. How many digital access can an author of an out-of-print book realistically sell each year? When the advertising fee, after publishers and AG take a cut, is divided among so many copyrighted material, how many cents can an author realistically expect? This potential income is de minimis in another sense: from an ex ante point of view (before the author writes the book), such incomes, arriving so many years later, will be heavily discounted. Assuming a 5% discount rate, payment after 28 years (original term of copyright) will be discounted by 76.3% (one dollar is valued at 0.23). Thus, strengthening copyright protection to enable such de minimis payments to be extracted serves little to ex ante incentivize authors.
This mismatch between the insignificant ex ante incentivization and the whopping eagerness to extract the payments is not unprecedented. It was present when Congress extended the term of the copyright. Time inconsistency played a key role: Revenue from copyrighted material 70 years later might be a negligible 0.01% of the present value of a copyrighted material ex ante; from the perspective of 70 years later, it is a gigantic 100%. Owners of expiring copyrighted material have every incentive to extend their monopoly. Here in Google Book Search case, there is an additional problem. The key players shaping the policy, publishers and AG, not only fail to discount the revenue due to time inconsistency, but also benefit from aggregating de minimis payments. It is wealth from a thousand cuts.
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