Oren Amram


Professor Perritt asked me to summarize my opinion as to why the majority student sentiment in favor of peer-to-peer FREE music downloading is bad policy:


 In general terms, property refers to a resource over which an individual or business holds legal interest.  In contemporary societies, money serves as a medium of exchange to acquire property ownership.  Accordingly, the property you own is protected by legal rights over both its use and monetary value derived from its use.  With this in mind, most fortune five-hundred companies make capital expenditure decisions primarily based on the potential to yield returns above a predetermined hurdle rate: the minimum amount of return required before decision makers will give the green light to make an investment in property.  This minimum required return is usually determined by the cost of raising capital plus a desired premium for an anticipated level of risk.  One thing is for sure – an investment will not be made unless it returns at least the cost put into it.


         If we stop and think about this process, most of us (at least informally) engage in the same analysis when making capital decisions in our own lives. For example, if the expected compensation for lawyers was the minimum wage, then not many students would spend over $100,000 and 3 years on a legal education.  Moreover, financial services companies would hesitate to make such loans given the obvious risk of default.  Further, the opportunity cost of investing in a legal education will become very high; in other words, the next-highest-valued alternative use of that resource (time and money) would be much more profitable than investing it on a legal education.  Thus, forces of capitalism will cause resources to shift out of the legal field and into a more economically attractive venture.  Inevitably, the legal industry as we know it would suffer severe human-capital losses causing significant impairments to the industry as a whole.


         One can argue, however, that we also spend money to obtain property rights in highly-depreciable goods such as cars and in consumable goods such as food.  Yes, here we can say that our buying behavior is driven by something other than a “hurdle rate.”  But, even these purchases are made in light of our current wealth and present value of expected future incomes; in the long run, we must invest resources to make a certain rate of return required to maintain a certain standard of living.  Otherwise, it is only a matter of time until our pool of resources will dry up and leave us unable to acquire any new property at all.


         Like the law student in the example above, there is always an “individual” composer at the start of the value chain who depends in major part on royalties to earn a living.  Why would it be okay to bite into his fair share of royalty revenue? Sales of music recordings make up a fundamental component of the art of music.  If we deprive the musician of these royalties we thereby limit the stock of resources available to create music for public distribution.  If everything else remains equal, the musician’s standard of living will decrease, the opportunity cost of making music will increase, financial services companies will hesitate to lend a hand, and resources will naturally shift out of the music recording industry.  Of course, numerous recording and distribution related jobs will be lost and government- collected taxes will decrease.  Naturally, record companies and CD labels will suffer the same consequences. 


Accordingly, “[t]he immediate effect of our copyright law is to secure a fair return for an author’s creative labor.”  Sony Corp. of Am. v. Universal City Studios, 464 U.S. 417, 431 (1984).  “But the ultimate aim is, by this incentive, to stimulate artistic creativity for the general public good.”  Id.  The creation of music recordings is such a fundamental component of the art of music that we must secure a fair return for their authors.  The question of what constitutes a fair return should be determined by an analysis similar to the hurdle-rate.  Because the Internet has drastically lowered the cost of doing business, musicians can team up with “distributors” and file-sharing websites to make music files available for a low, yet economically profitable, price.  Otherwise, if we do not give musicians any share at all, the creativity of authors will be constrained both in terms of available resources and opportunity costs.


Advocates of free music downloading are in effect advocating a socialist music regime based on collective free ownership of the artists’ work.   They argue that the widespread listening of music will increase the band’s popularity.  This in turn will filter out the “bad” music and increase the demand for live performances.  Accordingly, “real” musicians would still be able make “enough” money (or even more than previously) from live shows.  Even if this is true, why should we not extend this logic to other professions?  For example, what makes musicians so much different from attorneys?  In both professions we can find “good” and “bad” workers, passionate and detached workers, and creative and uncreative workers.  Why then not advocate that attorneys should only charge for hours spent inside the courtroom and not for hours spent outside of it.  Thereby, the demand for legal work will rise, lawyer popularity will increase, “bad” lawyers will be filtered out, and the economics of the entire industry will improve.  Similar to the distinction between live performances and music recordings, a substantial amount of legal work takes place outside the “live performance” settings in the courtroom.  Why not reason that lawyers can make “enough” money by charging only for “in-court” time while forfeiting all property rights to “out-of-court” time?  This would inevitably cause the legal industry’s economics to mark significant change: either resources will naturally shift out of the industry or some structural change (in terms of pricing or product offering) take place in order to meet an acceptable hurdle rate for the efficient use of those resources.


A further consideration is that, if out-of-court time is made freely available to the public, then (at least until capacity constraints kick in) lawyers would be unable to exclude others from using their services.  Just as an attorney may not want to be associated with a particular client, so too might a musician desire the same privilege.  For example, the band Leonard Skynard probably would not want its newest album Red, White, & Blue made available on BMW’s website as part of a marketing campaign.  Accordingly, as a matter of principle, some bands may refuse to make their works available to the public without a secured right to exclude others from free use.


Another common argument in favor of music piracy is that people were creating music long before any intellectual property rights were even recognized.  Thus, even without any copyrights, artists will continue to create.  This argument fails for very basic reasons: back then, technology was not an available vehicle with which property rights could be violated.  Moreover, even if an ice-ages analysis would be relevant, a certain secured monetary return had always been integral to the composer’s continued creativity and ability to reach the general public.  Mozart, for example, performed in concerts for money, sold his works to publishers, played in salons of the nobles and wealthy personages of Vienna.  From the start of his career, Mozart did very well, making the equivalent of at least $150,000 per year in today’s dollars.  There is no reason to believe that Mozart should have given up any one of these revenue streams in order to make his music freely available to others. 


In sum, legally acceptable peer-to-peer free music downloading would violate traditional notions of property rights at unprecedented levels. There is no logical reason to draw a distinction between property rights in music files and rights in other traditional or modern properties.  In the long run, if all else is equal and music piracy becomes the legally acceptable norm, resources in the music industry will be diminished and output will decline both in terms of quality and quantity.