The 2015 Intellectual Property and Economic Growth Index (1)

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The 2015 Intellectual Propertyand Economic Growth Index

Measuring the Impactof Exceptions and Limitations

in Copyright on Growth,Jobs and Prosperity

By Benjamin Gibert


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2 The 2015 Intellectual Property and Economic Growth Index


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1The 2015 Intellectual Property and Economic Growth Index

Benjamin Gibert is a non-resident fellow at the Lisbon Council. He graduated from the Universityof Oxford in 2010 with an MSc in global governance and diplomacy. He is the co-author (with RoyaGhafele) of several papers on intellectual property, including a study on the economic impact ofSingapore’s decision to switch to a fair-use copyright doctrine. He also serves as managing director andco-founder of e-commerce company Vinyl Revolution.

The opinions expressed in this policy brief are those of the author alone, and do not necessarily reflectthe views of the Lisbon Council or any of its associates.

Innovation Economics is a multidisciplinary centre, managed by the Lisbon Council. It is committedto shedding light on – and providing scientific evidence of – the profound impact of the Internet anddigital technologies. It combines a unique mixture of scientific rigour, original research, world-classtalent and exacting thought leadership in a format that is broad in outreach, innovative in approach andinterdisciplinary in design. Its website is www.innovationeconomics.net.

Lisbon Council Policy Brief

The 2015 Intellectual Property and Economic Growth Index:Measuring the Impact of Exceptions and Limitations inCopyright on Growth, Jobs and Prosperity

By Benjamin Gibert

http://www.innovationeconomics.net/http://www.innovationeconomics.net/


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The rise of digital technologies hasirrevocably transformed the global economyby revolutionising modes of production,distribution and innovation.1 We live in anera where successful companies can acquire amillion new customers a day without investinga single eurocent in marketing. It’s a world

where one company with 9,100 employees and1.2 billion users will pay $19 billion [or €13.9billion] for another company with 55 employees

and 450 million customers – an employee-to-customer ratio of one to eight million and anaverage value of $345 mill ion [€254.2 million]per employee.2 The price Facebook paid for

WhatsApp, a mobile messaging platform, in2014 is a stark reminder that some emergingbusiness models are no longer subject to theeconomic realities of the industrial era.

These days, disruptive innovations are creativelydestroying older business models at anincreasing rate with little concern for national

borders.3 A growing body of research showsthat intangible assets have become the principaldriver of growth and productivity in advanced,knowledge-based economies.4 There is an urgentneed to reflect on current understandings ofhow innovation delivers economic value in thisnew context.

The so-called “creative industries” are well positioned to grow in markets whereinvestment in knowledge is a priority, whereinformation and communications technologyinfrastructure enables new types of value anddelivery networks, and where e-commerce is

widely adopted by consumers.5 Yet, intellectualproperty – and copyright in particular – isincreasingly seen as restricting innovationin other key areas such as content delivery,

collaborative research and decentralisedcreative processes.6 These restrictions areimportant factors in spurring the emergence ofa fundamentally new type of innovation systemthat sees multinational corporations, fledglingstart-ups, telecommunications providers, contentcreators and consumers form increasinglycomplex value chains that defy and sometimescontradict the economic logic of the industrialera. Ensuring that copyright law stimulatescreativity in this new innovation environmentis not an esoteric policy concern. Copyright,

whether we like it or not, is now at the very heartof economic policy in general and innovationstrategy in particular. Today’s policy decisions

will determine whether we shackle our innovationsystem, or equip it with the tools it needs to thrivein the unpredictable digital future.

‘The rise of digital technologies has irrevocablytransformed the global economy by revolutionizingmodes of production, distribution and innovation.’

1 This paper is the product of a year-long research effort undertaken on behalf of the Lisbon Council, where the author

has the honour of serving as research fellow. The author would particularly like to thank Paul Hofheinz, presidentof the Lisbon Council, who served as project manager, as well as the anonymous readers from academia and theinternational institutions, who offered vital feedback and peer review at key points in the research process. Anyremaining errors of fact or judgment are the author’s sole responsibility. The author would also like to thank DeniseXifara for her contribution to the statistical modelling and methodology.

2 Kristin Burnham, “Facebook’s WhatsApp Buy: Ten Staggering Stats,” Information Week , 21 February 2014. Theexchange rate is from February 2014

3 Clayton Christensen, The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail (Boston: HarvardBusiness Review Press, 2013); Stuart L. Halt and Mark B. Milstein, “Global Sustainability and the Creative Destructionof Industries,” Sloan Management Review, 41 (1999); Robert Levine, Free Ride (London: Random House, 2011); JosephSchumpeter, Capitalism, Socialism and Democracy (New York: Harper, 1942).

4 Baruch Lev and Jürgen Daum, “The Dominance of Intangible Assets: Consequences for Enterprise Management andCorporate Reporting,” Measuring Business Excellence, 8 (2004).

5 John Howkins, The Creative Economy: How People Make Money from Ideas (London: Penguin, 2013); See alsoEuropean Patent Office (EPO) and Office for Harmonisation in the Internal Market (OHIM), Intellectual Property RightsIntensive Industries: Contribution to Economic Performance and Employment in the European Union: Industry-Level

Analysis Report (Alicante: OHIM, 2013).6 Seth Ericsson, “Recorded Music Industry and the Emergence of Online Music Distribution: Innovation in the Absence

of Copyright (Reform),” George Washington Law Review , 79 (2010); Anders Henten and Alexander Oest, “Copyright:Rights-Holders, Users and Innovators,” Telematics and Informatics, 22 (2005).


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The 2015 Intellectual Property andEconomic Growth Index Unfortunately, much of this debate takes place

within an evidence vacuum. This is due to boththe inherent problems in measuring the impactof copyright policy as well as the considerableinfluence that sectional interests exert on thelegislative process.7 A copyright, unlike a patentor a trademark, does not require centralisedregistration in order to be enforceable. The

resulting lack of easily accessible and readilyanalysable data on copyright makes calculatingthe impact it has on an increasingly wide range ofindustries problematic. Despite the obvious need tobetter understand the role of intellectual propertyin incentivising innovation and contributingpositively to the economy – and the strongemotions on both sides of the intellectual propertydebate – the evidence base is relatively weak. Weset out to address this imbalance, looking to builda system for measuring the impact of exceptionsto copyright on economic growth. Do the rulesas they exist in specific countries add to or detractfrom economic growth? Does the system resultin broader economic gains for the many, or hasit become a bastion for rent seeking by the few?Obviously, intellectual property is an importantpillar of the modern economy, incentivisingcreators, inventors and distributors in important

ways. But many countries and economic areashave found different ways of interpreting andenforcing those rights – including the pivotalarea of exceptions. Which country has the most

advantageous balance? What are the implicationsfor future prosperity? And, most importantly,

what does the evidence tell us about the best wayto structure the intellectual property regime toensure the most innovation, economic growth, jobcreation and social wellbeing?

Finding answers to these questions is anespecially diff icult challenge, given theintangible nature of the assets in question andthe difficulty of establishing specific causality

within the complex economic reality ofsuccessfully growing countries. Nonetheless, byexamining the relationship between economicgrowth and intellectual property regimes insome of the world’s most innovative economies,

we were able to establish some interesting

correlations. Specifically, we found that

1. Countries that employ a broadly “flexible”regime of exceptions in copyright also sawhigher rates of growth in value-added outputthroughout their economy.8

2. Somewhat more surprisingly, economiesthat employ a broadly “flexible” regimeof exceptions to copyright also saw highergrowth rates in the publishing, audiovisualand broadcasting industries – a preliminary

finding with deep potential implicationsgiven the strong opposition to copyrightreform from many incumbent economicinterests in these sectors.

3. Economies that employ a broadly “flexible”regime of exceptions in copyright alsotypically saw faster growth in the widerinformation technology and services sectors.

4. Countries with broader flexibility in their

copyright regimes also saw higher levelsof compensation in the overall economy,and specifically in information andcommunication technology goods andservices and information technology sectors.

‘Few regions are in a stronger position to leverage thedigital, knowledge-based economy as a driver of growththan Europe.’

7 See Appendix I on page 15 for a deeper discussion of these issues.

8 We define exceptions to exclusive rights using two components: 1) scope – the types of use of a copyrighted work that areprotected from infringement claims by statute; and 2) flexibility – the language adopted in the statute, which defines howbroadly the type of use can be interpreted. For further details, see the Scope and Flexibility of Exceptions to Exclusive RightsIndex Methodology section in Appendix I on page 15.


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5. Greater scope and flexibility of exceptions tocopyright have valuable positive externalities,specifically in the promotion of education,independent research, free-speech, user-generated content and text and data mining.

6. Policymakers often perceive the positiveexternalities and innovations associated withexceptions to copyright as a trade off with theeconomic growth driven by strong intellectualproperty protection. Instead, the evidencesuggests that broad and flexible exceptionsto copyright embedded within a strongintellectual property framework may be thebest way to achieve both simultaneously.

‘Copyright law, more than ever before, is integral to thecreation, dissemination and exchange of informationgoods and cultural works.’

Key findings

Main findings from the econometric analysis:

1) The growth rate of value-added output ispositively correlated with greater flexibilityof exceptions to copyright law for thefollowing industries in the country sample:a) The entire market economy as well as

the information and communicationstechnology (ICT) goods and services

industry groupb) More specifically, the publishing,

audiovisual and broadcasting industriesas well as the information-technologyand other information-services industries

2) Greater scope and flexibility of exceptions toexclusive rights is also positively correlated

with labour compensation for the followingindustries in the country sample:a) The entire market economy as well as the

ICT goods and services industry group

b) More specifically, the IT and otherinformation services industries

3) More evidence-based research is needed toestablish the balance between protectionof information goods and access to themthat will help foster growth of the creativeindustries in digital economies.

The implications for copyright policy:

1) Digital technologies have fundamentallychanged the way we experience, engage withand extract value from information goods.

2) Copyright reform must be informed bydetailed policy analysis – not steered bysectional interests – in order to achieve itsfunction in the digital age.

3) Greater scope and flexibility of exceptions tocopyright have valuable positive externalitiesincluding the promotion of education,independent research, free-speech, user-generated content and text and data mining.

4) Policymakers often perceive the positiveexternalities associated with exceptionsto copyright as a trade off against theeconomic growth stimulated by strongintellectual property protection. Instead,

the evidence suggests broad and flexibleexceptions to copyright embedded within astrong intellectual property framework mayachieve both simultaneously.


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The Scope and Flexibility ofExceptions to Exclusive Rights IndexThe findings presented here are the result ofan analysis of industry-level economic dataover a period of 20 years in which we set out toexamine the relationship between exceptions andlimitations to exclusive rights in copyright lawand economic growth in leading, intellectual-property producing countries. Early on, wesaw the need to establish a two-step approach:

First, we evaluated the intellectual propertyregimes of eight leading intellectual-propertyproducing (and consuming) countries.9 Eachcountry was given a score from one to 10 basedon the scope and flexibility of exceptions toexclusive rights that exist within them, allowingus to plot the counties on a spectrum frommost to least lenient in the field of intellectual

property rights exceptions. The measurementincluded such standard features of exceptions toexclusive rights as the reporting of current events,criticism, personal copying, library and archiveuse. These scores were then aggregated into the

Scope and Flexibility of Exceptions to ExclusiveRights Index, or SFEER Index. The results aresummarised in Table 1 below.10 The higherthe score, the greater the scope and flexibilityof exceptions to copyright within the nationalcopyright system. This approach permittedempirically-verifiable comparison to be madebetween the different approaches to exceptionsand limitations to copyright that exist in France,Germany, the Netherlands, Spain, Sweden, the

United Kingdom and the United States.11

Later, we used the SFEER Index to formthe basis for examining the relationship – ifany – between the scope and flexibility ofexceptions to copyright and economic growthin the selected countries. To arrive at thiscalculation, we deployed widely used statisticalmethods to explore the underlying relationships,disaggregate the role of intellectual propertyin the economic development of the countriesin question and control for exogenous, non-

intellectual property-related factors.

ResultsThe statistical analysis showed significantborderline correlation between the success inthe SFEER Index and higher economic outputvariables in a number of industries. These results

were subjected to further robustness checks, which are outlined in Appendix I on page 15.The limited set of combinations that wereshown to be correlated with the SFEER Index

for France, Germany, the Netherlands, the UK,the US, Sweden and Spain can be seen in Table2 on page 6.

‘Copyright today is a complicated lattice of territorial,exclusive and atomized rights among stakeholders withheterogeneous interests.’

Rank Country SFEER SCORE

1 US 8.13

2 UK 7.81

3 Germany 7.50

4 Sweden 7.19

5 Spain 6.88

6 Japan 6.25

7 France 6.258 Netherlands 5.94

Table 1. The Scope and Flexibility of Exceptions toExclusive Rights Country Ranking

9 Due to time constraints and data limitations, analysis was restricted to eight countries: France, Germany, Japan, theNetherlands, Spain, Sweden, the United Kingdom and the United States. These countries were chosen because of theirprominence in the global economy, their performance in major innovation indicators, as well as the fact that they allboast extensive – and different – intellectual property regimes, which permits country comparisons on a host of keypoints. See Appendix I on page 15 for a more detailed description of why these countries were chosen.

10 See Appendix I on page 15 for an overview of the SFEER Index methodology, a comprehensive breakdown of thetabulation of scores and the legislation underpinning the scores as well as a detailed discussion of its assumptions and

limitations.11 Although Japan was included in the original analysis, it was omitted from the final results on the basis of

methodological issues. See Appendix I for an overview of how the countries were selected and Appendix II on page 29for the results including Japan.


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The correlation values suggest that exceptions tocopyright are related to increases in value-addedgrowth and labour compensation in severalindustries.13 Of all the industries included in theinitial test, the ICT goods and services industry

group was perhaps not surprisingly shown tobe the most closely correlated with high levelsof copyright exception in existing law. Theseare industries that are directly related to theproduction of information goods, audiovisualcontent and complementary products. As such,they are industries that one would naturallyhypothesise to be influenced by the scope andflexibility of exceptions to exclusive rights.

But we also found that relatively broad and

flexible exceptions to copyright were correlated with higher value-added growth and labourcompensation in the market economy as a

whole. This is not surprising for two reasons: 1)the market economy is a higher-order industrygroup that includes the ICT goods and servicesindustry group as a subset; and 2) informationgoods are widely diffused in the developed

economies included in the study and it is likelythat more flexible exceptions to copyrighthave spillover effects into industries that arenot directly related to the production anddissemination of content.

Significant borderline correlation was also foundbetween the scope and flexibility of copyrightexceptions and higher growth in gross value-added output of several industries. This includes

publishing, audiovisual and broadcastingactivities, IT and other information services,the ICT goods and services industry group,and the broader market economy industrygroup. A high level of exceptions to copyright

was also positively correlated, though to alesser degree, with labour compensation in themarket economy as a whole, the ICT goods andservices sub-set of this group, and the IT andother information services subset of this group.14 For a detailed discussion of the methodologydeployed, see Appendix I on page 15.

DiscussionIn general, the empirical analysis suggeststhere is a more complex relationship betweencopyright protection, economic growth andlabour compensation than one might think. It isimportant to emphasise at this stage that, whilea study of seven countries provides a good basisfor exploring empirical relationships, furtheranalysis on a much broader set of countries isneeded to make conclusive statements regarding

the relationship between the scope of exceptionsto exclusive rights and economic growth.The model relies on several assumptions. Forexample, it assumes that uniform levels ofcopyright enforcement exist across all countriesin the sample. There are also significant limitsto evaluating the relationship between copyrightpolicy and economic output due to the nature

‘The explosion of user-generated content onlineexemplifies the decentralization of creative activity madepossible by plummeting production and distribution costs.’

12 Definition of variables: VA = Gross value added at current basic prices (in millions of US dollars); LAB = Labourcompensation (in millions of US dollars).

13 The correlation ratios are below the 0.8 threshold, which indicates a measure of caution is still appropriate. Analysis on

a larger country sample is recommended in order to validate these preliminary findings.14 Though originally intending to run analysis of variation (ANOVA) and regression analyses on the significant results,

this approach was rejected due to the non-linear nature of the relationship between the SFEER Index and economicoutput.

Metric Industry-Variable COR. SIGN.

G

r o w t h R a t e

Publishing, Audiovisual andBroadcasting Activities-VA

0.71 0.024271

IT and other InformationServices-VA

0.71 0.024271

ICT Goods and Services-VA 0.71 0.024271

Market Economy-VA 0.71 0.024271

Market Economy-LAB 0.71 0.024271

IT and Other InformationServices-LAB

0.62 0.050886

ICT Goods and Services-LAB 0.62 0.050886

Table 2. Significant Correlation Values for SFEERIndex and Economic Output12


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‘A major source of tension in the copyright regimetoday rests on achieving a balance between protectingthe interests of creators and ensuring the effectivedissemination of information for the benefit of society.’

15 Birgitte Andersen, Lucy Montgomery and Benjamin Reid, Digital Copyright Exchange Feasibility Study: Response to theHooper Consultation from the Big Innovation Centre (Brisbane: Queensland University of Technology, 2012).

16 Ibid. See also Don Tapscott and Anthony D. Williams, Wikinomics: How Mass Collaboration Changes Everything(London: Atlantic, 2006).

17 International Federation of the Phonographic Industry, IFPI Digital Music Report 2013: Engine of a Digital World (Zurich:IFPI, 2012).

of copyrighted works, which are not centrallyregistered and influence a broad range of sectorsin myriad ways. On top of all this, the inherentproblems of linking any policy with economicoutcomes persist.

However, with these limitations in mind, theevidence nonetheless calls into question the

widespread assumption that stronger copyrightprotection is the only necessary condition to

stimulate growth. Instead, the results suggestthere may be instances where broader exceptionsto exclusive rights have a positive impact oneconomic growth and employment as shown bythe growth rate in gross value-added volume andlabour compensation. Three stylised facts basedon these results are presented below.

1. The growth rate of gross value-added output ofthe publishing, audiovisual and broadcastingindustries is positively correlated with acopyright regime that has greater scope and

flexibility of exceptions to exclusive rights.

2. Greater scope and flexibility to exclusiverights is positively correlated with thegrowth rate of gross value-added output andlabour compensation in the IT and otherinformation services industries.

3. Greater scope and flexibility to exclusive rightsis positively correlated with gross valued-addedoutput and labour compensation in the ICT

goods and services industries generally and themarket economy as a whole.

The finding that the growth rate of value-added output of the publishing, audiovisual andbroadcasting industries is positively correlated

with a copyright regime that has greater scopeand flexibility of exceptions to exclusive rightsis a particularly interesting one that goes against

stated conventional wisdom within thosebusiness sectors. Actors in this industry grouphave consistently pushed for stronger copyrightlaw on the basis that this enables them to extractmaximum value from their investments inaudiovisual content. This may have been thecase 20 years ago. However, the proliferationof digital technologies and social networks hasdramatically changed the way people engage

with content online. Strong copyright law with

few exceptions may have helped promote thegrowth of these industries in an industrial era where most people were never more than passiveconsumers of content on analogue devices. In adigital era, access to content and the ability tohyperlink, mix, remix, copy – and particularlyto share – is fundamental to the ways in which

we interact with content.

In this digital environment, a copyright system with limited exceptions may actually diminishthe value of audiovisual content to consumers

and simultaneously inhibit their ability topromote it within their social networks.15 Thevery notion of passive consumers of contentis being displaced by notions of co-creation,remix culture and user-generated content inan attention economy where awareness of theproduct is an increasingly important sourceof value.16 The International Federation of thePhonographic Industry (IFPI) – one of thelargest lobby groups for stronger copyrightprotection – has itself recognised that sources

of value in digital music include awareness ofthe artist and interaction with content, whichcreates communities of interest and support.The IFPI’s development of new methods tomeasure digital interactions highlights this shiftfrom a purely consumption-based view of thecreative economy to one in which attention andengagement are key.17


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‘With digitalisation transforming social and cultural life,intellectual property is shifting from the sole prerogativeof professionals and publishers to a fundamental concernof all citizens.’

Figures 1-6. Gross Value-added at Current Basic Prices for the Audiovisual, Publishing and BroadcastingIndustries (in US dollars)

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‘Perhaps most importantly, greater scope and flexibilityto exclusive rights means that the explosion in user-generated content online will continue to develop.’

The ability of copyright law to accommodatethese new forms of engagement will also resultin an enormous increase in data generated fromlegitimate online engagement with audiovisualcontent, which enables real-time market researchand instantaneous assessment of advertisingeffectiveness.18 The time-series plots in Figures1-6 on page 8 for the publishing, audiovisual andbroadcasting industries depict relatively stablegrowth overall for the period surveyed for all

countries. This is particularly interesting whenone considers how industry associations haveportrayed the industry as one in deep crisis as aresult of peer-to-peer file-sharing technologiesand increasingly unlicensed uses of copyrighted

works online. This is not to say that digital piracyhas not affected publishing revenues – it certainlyhas – but it does raise questions. Is strict controlover the use of copyrighted works the onlyfactor driving growth in these industries? Mightadjusted business models within a more flexiblecopyright regime deliver better financial results

for rights owners?

The findings presented here are all themore salient when considering the positiveexternalities associated with a greater scope andflexibility of exceptions to copyright, which arenot included in the model. One key exampleof this is text and data mining, a relatively newresearch tool.19 Already, text and data miningare contributing directly to economic growththrough product and service innovations, as well

as opening up a space for learning from the vastamounts of data our online activities generate.20 The ability to mine text and data relies on

exceptions to copyright in some form, and thefield will remain damagingly underdevelopedin Europe if the legal basis for conductingadvanced research with these new tools remainsuncertain at best.21

Perhaps most importantly, in terms of our everyday experience, greater scope and flexibility ofexceptions to exclusive rights means that theexplosion in user-generated content online can

continue to develop. Though exact figures remainelusive, it is widely acknowledged that manypeople are, either willingly or unknowingly,violating copyright law on a daily basis. Thegrowing divide between what copyright lawpermits and the reality of consumer behaviouronline often spurs resentment towards thecopyright system and stifles new forms of creativeoutput in the digital age.

Regardless, the finding that greater scope andflexibility of exceptions to exclusive rights is

positively correlated with value-added growthand labour compensation in several ICT goodsand services industries is an important one.Policymakers tend to conceptualise the positiveexternalities associated with exceptions tocopyright as a trade off against the economicgrowth associated with strong intellectualproperty protection. Instead, the data presentedhere suggests that broad and flexible exceptionsto copyright embedded within a strongintellectual property protection framework may

promote both simultaneously.

18 Ibid.19 Sergey Filippov, Mapping Text and Data Mining in Academic and Research Communities in Europe (Brussels: The Lisbon

Council, 2014).

20 Ian Hargreaves, Lucie Gibault, Christian Handke, Peggy Valcke and Bertin Martens, Standardisation in the Area ofInnovation and Technological Development, Notably in the Field of Text and Data Mining: Report from the ExpertGroup (Brussels: European Commission, 2014).

21 Ibid.


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A Transatlantic Divide: Coping withthe New and ModernThere is little academic consensus regarding therelationship between intellectual property rights,economic growth and innovation.22 The patentsystem has been subject to repeated scrutiny

because of the rising influence of patent thickets,pools and non-practicing entities on innovation.23 These issues aside, international efforts in thisfield have yielded many outcomes such as theformation of the European Patent Office in 1977,the corresponding move towards a unified patent

system in Europe, and international agreementssuch as the Patent Cooperation Treaty. Incomparison, copyright law in Europe has

witnessed far fewer harmonisation efforts.

Copyright today is a complicated lattice of

territorial, exclusive and atomised rights amongstakeholders with heterogenous interests. Recentcalls for reform in the European Union havebeen driven by the perception that copyright ispoorly equipped to deal with emerging digitalgoods and services in the single market and

‘The European Union is poised to benefit enormouslyfrom the digital revolution.’

22 Lee G. Branstetter, Raymond Fisman and C. Fritz Foley, “Do Stronger Intellectual Property Rights Increase InternationalTechnology Transfer? Empirical Evidence from US Firm-Level Panel Data,” The Quarterly Journal of Economics, 121(2006); Valbona Muzaka, “Intellectual Property Protection and European ‘competitiveness,’” Review of InternationalPolitical Economy, 20 (2013); Carmen Nadia Ciocoiu, “Considerations about Intellectual Property Rights, Innovationand Economic Growth in the Digital Economy,” Economia. Seria Management, 14 (2011); Erik Brynjolfsson, “ICT,Innovation and the E-Economy,” EIB Papers, 16 (2011).

23 Michael Heller and Rebecca Eisenberg, “Can Patents Deter Innovation? The Anticommons in Biomedical Research,”Science, 280 (1998); Robert Merges, “Institutions for Intellectual Property Transactions: The Case of Patent Pools,”University of California at Berkeley Working Paper (1999); Roberto Mazzoleni and Richard Nelson, “The Benefits andCosts of Strong Patent Protection: A Contribution to the Current Debate,” Research Policy, 27 (1998).

Questions awaiting evidence

Disruptive innovators are creating new sourcesof efficiency and profoundly transformingthe economic landscape. Society has littlelong-term economic interest in protectingincumbent business models from innovatorsthat are responding to shifts in consumerbehaviour and establishing new technology atthe core of their value proposition. Copyright

no longer simply governs creativity and itsmany applications. It governs all types ofcopying. As such, it is a critical policy leverfor growth and innovation in the technologysector, which relies on different forms ofcopying in a variety of use cases. A moderncopyright policy that promotes innovation andgrowth in digital economies must be a priorityfor the European Union. However, care mustbe taken when charting this new course.Copyright policy must be based on evidence

and careful analysis rather than being steeredby sectional interests if we are to have anyhope of achieving the desired effects on job

creation and growth. Exploring the impactof the scope and flexibility of exceptions toexclusive copyrights on innovation and growthis thus a prerequisite to making Europe’scopyright policy fit for the digital age.

In this context, it is important to ask two keyquestions about copyright that do not have

straightforward answers. These are by no meansthe only questions to ask of the copyrightsystem in the digital age. However, they area useful starting point for further discussionon the impact of copyright today and what itshould aim to achieve in the future:

1. To what extent has Europe’s copyrightregime been associated with innovationand growth compared to its US and Asiancounterparts?

2. In particular, what is the influence on

economic output of the scope and flexibilityof exceptions to exclusive rights that exist indifferent copyright regimes?


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that it may hamper new business innovationpractices.24 Despite repeated warnings thatthere is no economic rationale for extending theterms of copyright, reform so far has focused onexpanding the scope of rights and lengtheningthe terms of protection in response to digitaltechnologies.25 Analysts have charted the rise ofcopyright discourse wars as a result.26 Some haveeven argued that the delicate balance betweenthe interests of copyright owners and the public

– a crucial element of copyright law – has beenconsistently eroded in favour of rightsholders.27 This is particularly true in digital environments.

None of this should be construed as a wholesalecondemnation of copyright. Far from it. Thecopyright regime has never been more significant.Digital technologies are continuously offering newopportunities for the creation, dissemination andeconomic exploitation of content. The explosionof user-generated content online exemplifies thedecentralisation of creative activity made possible

by plummeting production and distribution costs.The same technologies have enabled widespreadcopyright infringement online, promptingrightsholders to defend their interests throughend-user litigation, high-profile lawsuits, lobbyingat all levels and partnerships with internet serviceproviders.28 Though the relationship between

digital piracy and extracting value from copyrightsis far from straightforward, rightsholders in thefilm and music industries have led the chargeagainst revolutionary distribution technologiessuch as peer-to-peer filesharing.29 Thesedevelopments render the call for evidence on therelationship between copyright, innovation andgrowth all the more salient.

Copyright is a temporary monopoly right granted

by state intervention in order to stimulate thecreation of original works and maximise thepublic’s access to them.30 A major source oftension in the copyright regime today rests onachieving a balance between protecting theinterests of creators and ensuring the effectivedissemination of information for the benefit ofsociety.31 Creative commons and open sourcesoftware licenses such as the GNU Public Licenseare both innovative examples of how the existingcopyright regime can be exploited to achieve thisbalance. However, there is a growing body of

scholarship which suggests that strengthening theexceptions and limitations to copyright owner’sexclusive rights is a key area where the currentimbalances in copyright can be addressed.32 Thisis a particularly valuable avenue for copyrightreform in the EU because it does not requiresubstantial revision to copyright legislation.

‘Many people, either willingly or unknowingly,violate copyright law on a daily basis.’

24 Ruth Towse, “Economics and Copyright Reform: Aspects of the EC Directive,” Telematics and Informatics, 22, 1 (2005).25 Andrew Gowers et. al., Gowers Review of Intellectual Property (Norwich, England: HMSO, 2006); Ruth Towse, “The

Quest for Evidence on the Economic Effects of Copyright Law,” Cambridge Journal of Economics, 37 (2013).26 Peter Yu, “Digital Copyright and Confuzzling Rhetoric,” Vanderbilt Journal of Entertainment and Technology Law,

13 (2011); Lee Edwards, Bethany Klein, David Lee, Giles Moss and Fiona Philip, “Discourse, Justification and Critique:Towards a Legitimate Digital Copyright Regime?,” International Journal of Cultural Policy (2014).27 Robin Gross, “Copyright Zealotry in a Digital World: Can Freedom of Speech Survive?” in Thierer and Crews (eds), Copy

Fights: The Future of Intellectual Property in the Information Age (Washington, DC: CATO Institute, 2002); LawrenceLessig, The Future of Ideas: The Fate of the Commons in a Connected World (New York: Random House, 2001); SivaVaidhyanathan, Copyrights and Copywrongs: The Rise of Intellectual Property and How It Threatens Creativity (NewYork: New York University Press, 2001).

28 Robin Mansell and W. Edward Steinmueller, “Copyright Infringement Online: The Case of the Digital Economy ActJudicial Review in the United Kingdom,” New Media & Society, 15 (2013); Puay Tang, “Digital Copyright and the ‘New’Controversy: Is the Law Moulding Technology and Innovation?,” Research Policy, 34 (2005).

29 Lapo Filistrucchi, Catherine Tucker and Lisa M. George, “The Economics of Digital Media Markets,” InformationEconomics and Policy , 24 (2012); Christian Handke, “Digital Copying and the Supply of Sound Recordings,”Information Economics and Policy, 24 (2012); Johan A. Pouwelse, Pawel Garbacki, Dick Epema and Henk Sips,“Pirates and Samaritans: A Decade of Measurements on Peer Production and Their Implications for Net Neutrality andCopyright,” Telecommunications Policy, 32 (2008).

30 Armen Boyajian, “The Sound of Money: Securing Copyright, Royalties, and Creative Progress in the Digital Music

Revolution,” Federal Communications Law Journal, Vol. 62, No. 3 (2010).31 Marshall Leaffer, “The Uncertain Future of Fair Use in a Global Information Marketplace,” Faculty Publications, Paper 467 (2001).32 Ole Bronmo, “Copyright Legislation, Fair Use and the Efficient Dissemination of Scientific Knowledge,” IFLA Journal, 23

(1997); Michael Carroll, “Fixing Fair Use,” North Carolina Law Review , 85 (2007).


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The current debate on reforming the limitationsto exclusive rights has inevitably yielded acomparison between Europe’s copyright regimeand that of the United States – a question

which natural ly arises given the interest on bothsides of the Atlantic in promoting a successfulinnovation regime and driving jobs and growth.Limits on the exclusive rights of copyrightowners have historically been established inEuropean countries via statutes that set out a list

of precisely defined limitations and exceptions.These include exceptions for educational andarchival use, parody and criticism among others.Rightsholders have also been compensatedfor private copying through a broad system oflevies imposed on copying technologies andblank media.33 While the US also imposeslevies on blank media, it has adopted a muchbroader limitations and exceptions doctrineknown as “fair use.” This approach is broadlyacknowledged to be more flexible in response tonew technologies than the European one.

The fair use doctrine enables US judges todefend an unauthorised use of a copyrighted

work as fair on a case-by-case basis byreference to four factors: 1) the purpose andcharacter of the use, including whether suchuse is of a commercial nature or is for non-profit educational purposes; 2) the natureof the copyrighted work; 3) the amount andsubstantiality of the portion used in relation tothe copyrighted work as a whole; 4) the effect

of the use upon the potential market for or thevalue of the copyrighted work. This case-by-caseapproach has enabled US copyright legislationto adapt to new technologies such as theVCR, digital sampling, MP3 players and TiVo

without substantive legislative revision. It hasbeen argued that this f lexibility may have alsocontributed to greater levels of innovation incertain industries, as shown by increased venturecapital funding for cloud computing services inthe US compared to Europe.34

Though flexible, the fair use approach is oftencriticised as unhelpful in identifying which usesare, or should be, legal until a lengthy and costly

litigation procedure has finished.

35

Uncertaintyand delay are inevitable corollaries of a changingenvironment. However, narrow exceptions aremore likely to increase legislative error costscompared to “flexible, open-ended standards[that] are better suited to handle responses fromtechnological innovators in response to legalrules.”36 Ultimately the trade-off is betweenprecisely defined exceptions like the explicitexceptions and limitations approach – whichincrease legal certainty – and flexibility, whichenables legislation to adapt to technological

change. The introduction of a three-step testin Article 5.5 of the EU Information SocietyDirective, which reflects the fair use doctrineby creating an open-ended norm for defininglimitations to copyright, has been criticisedas a worst-case scenario where the nationalframework of exceptions is further restricted bythe three-step test.37 In this context, “the needfor more dynamic, flexible copyright law in theinformation society is almost self-evident,” asBernt Hugenholtz and Martin Senftleben have

argued.38

But what does dynamism in copyrightlaw mean? What exceptions to exclusive rightsare most suitable to stimulate growth in thedigital world?

‘The question is not whether copyright remains relevanttoday, but instead what form the copyright regime shouldtake in order to best promote innovation and growth.’

33 Natali Helberger and Bernt Hugenholtz, “No Place like Home for Making a Copy: Private Copying in EuropeanCopyright Law and Consumer Law,” Berkeley Technology Law Journal, 22 (2012).

34 Josh Lerner, “Boom and Bust in the Venture Capital Industry and the Impact on Innovation,” Harvard NOM WorkingPaper No. 03-13 (2002).

35 Raymond Shih Ray Ku, “Consumers and Creative Destruction: Fair Use Beyond Market Failure,” Berkeley Tech. LJ, 18(2003).

36 Ben Depoorter, “Technology and Uncertainty: The Shaping Effect on Copyright Law,” Part of Symposium: TheFoundations of Intellectual Property Reform, 157 (2009).

37 Martin Senftleben, “Comparative Approaches to Fair Use: An Important Impulse for Reforms in EU Copyright Law,”Methods and Perspectives in Intellectual Property (2014, Forthcoming).

38 Bernt Hugenholtz and Martin Senftleben, “Fair Use in Europe: In Search of Flexibilities,” Social Sciences ResearchNetwork, 1959554 (2011).


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‘Making copyright policy relevant to the digital economyrequires a better understanding of the complexrelationship between economic growth, productivityand limitations and exceptions to copyright.’

Quo Vadis Europa? As a new European Commission settles into itsfive-year mandate, intellectual property rights arenow at the core of European economic policy.

With digitalisation transforming social andcultural life, intellectual property is shifting fromthe sole prerogative of professionals and publishersto a fundamental concern of all citizens. This haspushed intellectual property rights to the forefrontand highlighted the lack of evidence available on

which to base sound policy.39

The harmonisationof intellectual property rights internationallythrough the ratification of WTO TRIPS hasalso prompted numerous questions on the roleof intellectual property rights in internationaldevelopment and increasingly polarised debatesabout the degrees of protection necessary. Newopportunities to regulate copyright online mustbe assessed empirically and the full range ofpolicy options available discussed in a transparentmanner that includes all stakeholders in theemerging digital environment.40

The importance of making sure Europe’s copyrightframework is “fit for purpose” cannot be overstated.Few regions are in a stronger position to leveragethe digital, knowledge-based economy as a driver ofgrowth. This is evident in a number of ways:

1. Investment in Knowledge: The relativeperformance of EU member states comparedto developing nations and BRICS countriesplaces the EU at the forefront of the

global economy in terms of education andinvestment in R&D.41

2. Innovation Performance and ICTInfrastructure: EU nations consistentlyrank as strong performers in the GlobalInnovation Index and the OECD’s innovationindicators.42The ITU Information SocietyIndex and the World Wide Web Foundation’s

Web Index highlight Europe’s substantialinvestment in network infrastructure.43

3. E-Commerce Growth: The Internet economy

is a strong component of EU growth,growing seven times faster than other sectors.EU companies have a strong presence inthis sector.44

Considering its performance in ICTinfrastructure rankings, this trend is likelyto grow. These factors should contribute to agrowing optimism about Europe’s prospectsin the digital age. Successive reports havehighlighted the contribution of the creativeindustries to national growth in the region.45

The EU is poised to benefit enormously fromthe digital revolution. However, it can only doso if it is supported by a copyright policy thatappreciates the new dynamics of innovationand the complex ecosystem in which economicvalue is embedded online. Copyright law, morethan ever before, is integral to the creation,dissemination and exchange of informationgoods and cultural works. The question is not

whether copyright remains relevant today butinstead what form the copyright regime should

take in order to best promote innovation andgrowth? In the words of Australians Birgitte

39 Ian Hargreaves, Digital Opportunity: A Review of Intellectual Property and Growth: An Independent Report (London:Intellectual Property Office, 2011).

40 Richard Hooper and Ros Lynch, Copyright Works: Streamlining Copyright Licensing for the Digital Age (London:Intellectual Property Office, 2012; Ian Hargreaves and Paul Hofheinz (eds.), Intellectual Property and Innovation: A Framework for 21st Century Growth and Jobs (Brussels: The Lisbon Council, 2012); Ian Hargreaves and BerntHugenholtz, Copyright Reform for Growth and Jobs: Modernising the European Copyright Framework (Brussels: TheLisbon Council, 2013).

41 Jan-Frederik Kremer and Katharina Below, “Innovative Capabilities and Market Performance: The European Union inInternational Comparison,” The Jean Monnet/Robert Schuman Paper Series, 12 (2012).

42 See the rankings of the Global Innovation Index (http://www.globalinnovationindex.org) and the OECD InnovationIndicators (http://stats.oecd.org/Index.aspx?DataSetCode=REG_INNO_TL2).

43 See the rankings of the Information Society Index (http://www.itu.int/ITU-D/ict/publications/idi/ ) and the Web Index

(https://thewebindex.org/ ).44 European Commission, Digital ‘To-Do’ List: New Digital Priorities for 2013-2014 (Brussels: European Commission, 2012).45 For an overview, see World Intellectual Property Organisation, Copyright + Creativity = Jobs and Economic Growth:

WIPO Studies on the Economic Contribution of the Copyright Industries (Geneva: WIPO, 2012).

http://www.globalinnovationindex.org/http://stats.oecd.org/Index.aspx?DataSetCode=REG_INNO_TL2http://www.itu.int/ITU-D/ict/publications/idi/https://thewebindex.org/https://thewebindex.org/http://www.itu.int/ITU-D/ict/publications/idi/http://stats.oecd.org/Index.aspx?DataSetCode=REG_INNO_TL2http://www.globalinnovationindex.org/


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Andersen, Lucy Montgomery and BenjaminReid: “Future intellectual property policies mustfocus on creating and expanding markets forideas and creative expression, rather than beingbogged down in analogue-era debates about hownarrowly defined interests of individual industrysectors, formats, channels or business models canbe protected. This is crucial because it is throughthe growth of these markets that research anddevelopment costs will be recovered, innovationincentivised, knowledge spread and competitionand entrepreneurship stimulated.”46

Copyright reform so far has focused onexpanding the scope and length of protection.

Yet, as Carl Shapiro and Hal Varian have written, “Rightsholders should be concerned with maximising the value of their intellectualproperty, not maximising the protection ofthat property.”47 Making copyright policyrelevant to the digital economy requires a betterunderstanding of the complex relationship

between economic growth, productivityand limitations and exceptions to copyright.Quantitative research offers a rich set of toolsto assess the influence of policy on economicactivity. By comparing the impact of nationaldifferences in the scope and flexibility ofexceptions to exclusive rights on productivityand growth, we can start to understand whata copyright policy fit for the digital age mightreally look like. Our empirical analysis suggeststhat broad and flexible exceptions to copyrightembedded within a strong intellectual propertyprotection framework may strike the delicatebalance between incentivising creative outputand generating value from creative content.It is our hope that these preliminary findingsopen the space for further empirical researchand debate on copyright in Europe and, mostimportantly, how copyright policy can supportinnovation, productivity and growth in thedigital age.

‘Quantitative research offers a rich set of tools to assessthe influence of policy on economic activity.’

46 Birgitte Andersen, Lucy Montgomery and Benjamin Reid, Digital Copyright Exchange Feasibility Study: Response to theHooper Consultation from the Big Innovation Centre (Brisbane: Queensland University of Technology, 2012).

47 Carl Shapiro and Hal Varian, Information Rules (Cambridge: Harvard Business Press, 1998).

Evidence for policy

What constitutes good evidence? The UnitedKingdom’s Intellectual Property Officerecently published Guide to Evidence for Policy ,a paper designed to shed important lighton what kind of evidence was most helpfulfor policymakers. It also looked to provideimportant guidelines on how the research

community could best work to ensure it metthose standards in areas where their workimpacted most directly on public policy.Specifically, it set a three-point criteria fordetermining which evidence was most likelyto be influential, stating that good evidenceis evidence that is 1) clear, 2) verifiable, and

3) peer reviewed. Throughout this paper, wehave sought to meet this criteria. As a result,you will find the assumptions used in scoringthe SFEER Index and the ensuing economicregressions described in full in the threeappendices to this paper. We believe this willallow interested scholars the ability to replicate

the findings laid out here, and perhaps helpus to perfect the methodology and continueto deliver better evidence in a policymakingarea where it is so badly needed. For more,visit http://webarchive.nationalarchives.gov.uk/20140603093549/http://www.ipo.gov.uk/consult-2011-copyright-evidence.pdf.

http://webarchive.nationalarchives.gov.uk/20140603093549/http://www.ipo.gov.uk/consult-2011-copyright-evidence.pdfhttp://webarchive.nationalarchives.gov.uk/20140603093549/http://www.ipo.gov.uk/consult-2011-copyright-evidence.pdfhttp://webarchive.nationalarchives.gov.uk/20140603093549/http://www.ipo.gov.uk/consult-2011-copyright-evidence.pdfhttp://webarchive.nationalarchives.gov.uk/20140603093549/http://www.ipo.gov.uk/consult-2011-copyright-evidence.pdfhttp://webarchive.nationalarchives.gov.uk/20140603093549/http://www.ipo.gov.uk/consult-2011-copyright-evidence.pdfhttp://webarchive.nationalarchives.gov.uk/20140603093549/http://www.ipo.gov.uk/consult-2011-copyright-evidence.pdf


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The empirical relationship between copyrightand economic growth has been the subject offierce debate over the last decade. The initialoutpouring of research on copyright, digital piracyand creative industry output in response to file-sharing technologies are based on methods andassumptions that have been widely criticised.48

As the role of the Internet in economic activitycontinues to grow, there has been growingdemand for verifiable empirical work on therole of copyright in incentivising the creation oforiginal works. However, there are numerouschallenges in basing copyright policy oneconometric analysis. Copyright is a generic termfor a broad range of rights that are embodied in ahuge variety of products which operate in diversemarkets without the need for registration. As aresult, hard data on copyright is nearly impossibleto obtain in comparison with other intellectualproperty rights such as patents and trademarks.49

What’s more, scholars like Ruth Towse,

professor of economics of creative industriesat Bournemouth University, have argued that

objectivity in copyright policy is difficult whenthere are no standards on data collection,government statistics on cultural economiesare “woefully inadequate,” and governmentsare subject to regulatory capture. There is nopossibility for truly counterfactual analysis becausecopyright is ubiquitous. Most significantly, the

widespread assumption that the output of thecreative industries is attributable to copyrightnullifies any chance of discovering a causal role.50 This assumption is so engrained that we no longerquestion it. Studies on the economic contributionof copyright are almost without exceptiona quantification of the growth in creativeindustries, while the link between copyright andincentivising creation of original works has yet tobe proven in any meaningful way.

In an attempt to address the paucity of evidenceon the impact of copyright policy, the WorldIntellectual Property Organisation (WIPO)established guidelines on quantifying the

contribution of copyright and related industriesto the economy.51 Multiple reports subsequently

Appendix IThe 2015 Intellectual Property and Economic Growth Index:Methodology and Context

48 Majid Yar, “The Global ‘Epidemic’ of Movie ‘Piracy:’ Crime-Wave or Social Construction?,” Media, Culture & Society , 27(2005); Lee Marshall, “The Effects of Piracy Upon the Music Industry: A Case Study of Bootlegging,” Media, Culture &Society, 26 (2004); Martin Kretschmer, George Michael Klimis and Roger Wallis, “Music in Electronic Markets,” NewMedia & Society, 3 (2001).

49 Ruth Towse, “The Quest for Evidence on the Economic Effects of Copyright Law,” Cambridge Journal of Economics, 37 (2013).

50 Ibid.51 World Intellectual Property Organisation, “WIPO Guide on Surveying the Economic Contribution of the Copyright-

based Industries,” WIPO Publication No 893 (2002).52 PricewaterhouseCoopers, “An Economic Analysis of Copyright, Secondary Copyright and Collective Licensing” (2011).

Objective Estimate contribution toeconomic welfare (public policyperspective)

Estimate value of investment

in copyright content and

expected return (asset

perspective)

Estimate value-added tonational economy by copyright-related industries (industryperspective)

Method Measures level of consumerand producer surplus from agood and deadweight loss

Evidence based on ‘event-studies’ where change in levelof copyright occurs and impacton industry revenue andcontent creation are observed

Measures time spent by authorscreating original works andestimates expected return

Evidence based on identifyingcreators, where they workin the economy, estimatingthe value of their time, andmultiplying the number ofworkers with mean salaries foreach occupational group

Classification of industrysectors into core, dependent,partial, and non-dedicatedsupport industries (WIPO)

Measures each industry’scontribution based on value-added data and recognises thatinvestment made by creatorsserves as a catalyst for a widerange of economic activities

Table 3. Quantitative Approaches to Measuring Economic Contribution of Copyright52


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adopted this approach in quantifying copyright’seconomic contribution to national economies (thismethod will be discussed in greater detail below).

Other reports quantified the economic contributionof fair use in copyright, an equally significantresearch objective plagued with perhaps even moreempirical issues.53 A 2011 PricewaterhouseCoopersreport categorised existing approaches to measuringthe economic contribution into three major themes(see Table 3 on page 15).

Each of these approaches captures significantfacets of copyright’s economic value but noneare comprehensive. They are primarily staticmeasures that obscure the long-term dynamics

of incentivising creative work. They do notincorporate wider impacts such as humancapital spill overs – the transfer of valuabletacit knowledge between sectors that occursas workers that have developed creative skillsand competencies change jobs – as well as theimpact on value chains in creative industries.54

As the shift towards decentralised entrepreneurs,micro-multinationals and ever more non-institutionally represented creators accelerates,measuring copyright is likely to become even

more complicated.55

A recent NESTA reporttitled A Dynamic Mapping of the UK’s CreativeIndustries also highlighted the limits to previousUK Department of Culture, Media and Sportmapping documents by emphasising that theclassification of copyright-related industriesomitted many industries with high creativeintensity, such as software development.56 Acorollary to this was the recognition that thecreative industries themselves contain numerousadministrative and managerial functions thatare not particularly creative. NESTA proposeda method for determining which occupationsare creative based on a rigorous scoring of eachoccupation against a grid of five theoreticallygrounded criteria.

This type of research is a positive step becauseit moves beyond a narrowly defined creativeindustries perspective and instead adopts a

creative economy approach that emphasisesthe interplay between creativity, culture,technology and economic activity in all sectors

in the digital age. Though the research doesnot aim to make value judgments aboutcopyright’s legislative framework, it is importantto note that it too assumes copyright’s role inincentivising creativity in the economy. Thecore assumption in the model thus precludesdeeper understanding of the causal relationshipbetween copyright and creative output. This isan unfortunate symptom of the issues related togathering evidence on copyrighted works.

Any study on the economic impact of copyright

will be limited by some, if not all, of theseissues. Exploring the impact of the scope andflexibility of exceptions to exclusive rights incopyright law, as we have done in this paper,

while still beset by many of the issues inevidence gathering, does not encounter thisproblem because it does not assess the causalrelationship between copyright and creativeoutput. Instead, it investigates the relationshipbetween economic growth indicators andthe exceptions and limitations to exclusive

rights that exist among nations where levels ofcopyright enforcement are largely uniform.

There is considerable debate on the relativemerits of copyright regimes that list exemptionsto exclusive rights exhaustively in statutesand a fair use copyright regime like the US,

which employs an open-ended four factor testto counterfactually determine infringementthrough court proceedings.57 The approach thatlists exceptions and limitations to copyrightis widely considered less flexible because itcannot adapt to new technologies withoutlegislative revision: a use of a copyrighted workthat does not fall into the explicit categories ofexceptions and limitations is highly unlikelyto be deemed fair in judicial proceedings.However, approaches that list exceptions andlimitations to copyright exhaustively tend toconfer more legal certainty regarding which uses

53 Thomas Rogers and Andrew Szamosszegi, “Fair Use in the US Economy: Economic Contribution of Industries Relyingon Fair Use,” CCIA Report ( 2010).

54 Ibid.

55 Ann Mettler and Anthony Williams, The Rise of the Micromultinational: How Freelancers and Technology-Savvy Start-Ups areDriving Growth, Jobs and Innovation (Brussels: Lisbon Council, 2011).

56 Hasan Bakshi, Alan Freeman and Peter Higgs, A Dynamic Mapping of the UK Creative Industries (London: NESTA, 2013).57 See US Copyright Act of 1976, Section 107.


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are not infringing. The three-step test recentlyintroduced in Article 5.5 of the EU InformationSociety Directive, which adopts a fair use,

open-ended norm approach to limitations tocopyright, could reduce this certainty becauseit enables national frameworks of specificexceptions to be expanded or restricted ona case-by-case basis. However, the resultingdivergence in national legislation has led tofragmentation in the market by allowing somecountries to forge ahead while others heldback – impeding the development of a trulydigital single market in Europe and leading toa legislative regime that is fully “harmonised”on paper but still effectively split into 28 widely

differing legal standards in practice.58

Finding the Right Data Relevant data falls into three broad categories:1) raw time-series data on economic output andICT infrastructure indicators at the nationallevel; 2) existing estimates of contributionsof creative industries to national economies;3) weighted indexes on innovation capacity,ICT infrastructure and intellectual propertyprotection. We believe data in categories two and

three (i.e., estimates of contributions to creativeindustries and weighted indexes on innovationcapacity, etc.) provide a useful starting pointfor comparing performance of countries in aneffort to finalise a selection of countries for moreadvanced econometric analysis. By assessing therelative performance of countries in terms of theeconomic value of their creative industries, it ispossible to identify key players in the creativecontent market in Europe. National comparisonsof ICT infrastructure indices and innovationindices illuminate which economies are in the

strongest position to benefit from the burgeoningdigital economy. This includes the EU InnoScoreboard, EU Digital Scoreboard, OECD

Innovation Indicators, Global Innovation Index,ITU ICT Development Index, and WEF GlobalCompetitiveness Index. Finally, indicators onthe strength of IP protection provide an initialmeasure to explore the relationship betweencopyright and innovation. The only known

weighted index of this type devoted entirely tointellectual property is the Global IntellectualProperty Center’s International IntellectualProperty Index.

Econometric analysis of the relationship

between copyright and economic growthrequires reliable, time-series data across allcountries of interest. We believe the databaseslisted in Table 4 below meet these criteria.

The availability of long, time-series data for eachcountry was also important because more datapoints result in stronger econometric modellingand augment the robustness of results. TheEU/World KLEMS database was selectedon this basis. It contains data for all relevant

countries at an industry-specific scale (based onInternational Standard Industrial Classification(ISIC) Rev. 4 classification of industries). Thisdata has been systematically aggregated in areliable, verifiable manner. Data exists for a largenumber of output indicators including valuedata (value-added, number of person engaged,total hours worked) and growth accounting(labour compensation, capital compensation,labour services, capital services, growth rate ofvalue-added, contribution of hours to value-added growth, contribution of ICT capital

OECD STAN OECD SBS & TIE OECD iLIBRARY EUROSTAT WORLD BANK EU/WORLDKLEMS

Value-added

Wages andsalaries

Persons engaged

Exports of goodsand services

Enterprise birth

rates

Number of

bankruptcies

Persons

employed

Survival rates

Technology BoP

Productivity

Science and Techindicators

Internationaltrade in services

Telecoms

indicators

Internet

penetration

Internet

affordability

Internet users

Science and

Tech indicators

Charges for useof IP

Internet users

Mobilesubscription

High-tech exports

ICT goods exports/

imports

Output data

for all relevant

indicators at

industry-specific

scale

Table 4. Database Candidates for Econometric Analysis of Copyright-related Industries

58 Hargreaves and Hugenholtz, op. cit.


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services to value-added growth and total factorproductivity). The data has been compiledall the way back to the 1970s within the new

ISIC Rev. 4 classification scheme. All data ispublically available on the EU KLEMS website.These factors made it the most valuable sourceof data for the project.

Selecting Countries for the Survey The EU/World KLEMS databases includetime-series data for all relevant indicators forthe following 12 countries: Austria, Belgium,Finland, France, Germany, Italy, Japan, theNetherlands, Spain, Sweden, the UnitedKingdom and the United States. This list was

refined in order to accurately calculate a SFEERIndex score for each country.

Copyright is widely regarded as a major factorin stimulating the creative output of nationaleconomies. Consequently, the 2013 GlobalInnovation Index’s Creative Goods and ServicesSub-Index provided a useful measure to refinethe initial set of 12 countries.59 The scoreis a weighted aggregate of audio-visual andrelated services exports, national feature films

per million of population, paid for dailies incirculation as a percentage of the population,printing and publishing manufacturers as apercentage of GDP, and creative goods exportsas a percentage of GDP. The score is sensitiveto population and market size differences thatmight prejudice larger economies. The 2013scores for the country sample are shown inTable 5 on this page.

Starting with the winner, the ranking ofcreative output according to this index is: 1)The Netherlands; 2) UK; 3) US; 4) Japan; 5)Sweden; 6) France; 7) Belgium; 8) Spain; 9)Germany; 10) Austria; 11) Finland; 12) Italy.Eight countries needed to be selected in order tomake the calculation of the SFEER Index scoresfeasible within the project timeframe. By thatcount, Germany fell just short of the selection.

However, as the largest economy in the EU anddue to the high-profile role of its collective rightsmanagement organisation GEMA in monitoring

online rights infringement, Germany was anobvious choice for understanding the role ofcopyright on economic growth. It thereforereplaced Belgium, which is the smallest marketin the top eight countries. The final selection foranalysis was therefore France, Germany, Japan,Netherlands, Spain, Sweden, UK and the US.

The Scope and Flexibility ofExceptions to Exclusive Rights IndexIn order to explore the economic impact ofnational differences in the scope and flexibilityof exceptions to exclusive rights, this studyintroduced a novel benchmark index method.The benchmark score was compiled using aset of criteria that differentiate between thecopyright regimes along several lines relatedto the scope and flexibility of exceptions toexclusive rights. These include whether thenation adheres to the Berne Convention three-step test as well as the standard subjects forexemptions both in the public and privatesphere. Table 6 on page 19 outlines the criteria

and scoring method for the benchmark. Eachcountry in the survey was given a score basedon the criteria shown in the table. This gave anaggregate score out of 16. The aggregate score

was then transformed onto a scale from 1 to10. This enabled easy comparison of the scopeand flexibility of exceptions to exclusive rightsthat exist among the countries. The lower thescore, the more limited the set of exemptionsto exclusive rights. The higher the score, thebroader the set of exemptions. Table 9 onpage 21 gives the final scores awarded, andTable 7 on page 20 lists the relevant copyrightlegislation that formed the basis for the scores.Tables 8 and 9 on page 21 provide the scores foreach criteria, the totals for each country and thefinal, transformed score that form the basis foreconometric modelling and comparison using avariety of economic output variables.

Austria Belgium Germany Spain Finland France UK Italy Japan Netherlands Sweden US

43.6 46.2 44.7 45.1 41.3 46.6 58.4 35.7 49.9 60.5 48.5 55.6

Table 5. 2013 Creative Goods and Services Sub-index Scores for Country Set

59 Cornell, INSEAD and WIPO, The Global Innovation Index 2013: The Local Dynamics of Innovation (2013).


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Many of the individual scores for the criteriarely on a tripartite classification that defines theexceptions and limitations as broad (score of

1), narrow (score of 0.5) or non-existent (scoreof 0). The choice to give a country a score ofzero is straightforward. It specifies that nostatute exists in national law for that particularexception to exclusive rights. The decisionregarding whether a country has a broad setof exceptions and limitations compared to anarrow set is inherently more problematic. Thisis because “broad” and “narrow” are descriptiveterms with indeterminate boundaries.Consequently, the score given in a particularcase is by definition a qualitative judgment

based on the language adopted in the statute. While this is certainly a limitation of themethodology, it is a necessary one. Without

it, the econometric modelling would not bepossible. Several steps were taken to ensurethe scoring approach was both rigorous and

transparent. Firstly, the statute underpinningeach score is cited in Table 7 on page 20. Thismeans anyone can cross-check the score givenin a particular case with the statute that formedthe basis for the score. It also means that thescoring system is easily revised based on inputfrom experts and in the case of legislativereform. Secondly, the scores for a given criteriaare based on a comparison of the language usedin one country’s statute against the languageadopted for the corresponding statute in all theother countries in the sample. This comparative

approach permitted more accurate judgmentsregarding whether a particular statute wasbroad or narrow.60

CriteriaScoreType

Score SystemScoreRange

Berne 3-Step Test

Exclusive right of owner

to authorise reproduction

Binary 1 = meets criteria; 0 = does not meet criteria 0 – 3

Reproduction permitted

without authorisation in

special cases

Audio or visual recording

defined as reproduction

Scope ofExceptions andLimitations(for public use)

Criticism, comment and

review

Scale

1 = Broad set of exceptions and limitations

0 – 9

Parody

Reporting of current

events

Education (classroom use,

non-commercial)

0.5 = Narrow exceptions and limitationsScholarship (research,

non-commercial)

Libraries and archives

Parliamentary or judicial

proceedings

0 = No exceptions and limitationsIncidental inclusion

Temporary copy during

transmission

Scope ofExceptions andLimitations(for private use)

Private copying

Scale

1 = Broad set of exceptions and limitations

0 – 3Time-shifting 0.5 = Narrow exceptions and limitations

Format-shifting 0 = No exceptions and limitations

Private CopyingCompensation(levy system)

Levies on private copying

equipment and blank

media

Binary 0 = levy system in place; 1 = no levy system 0 – 1

Raw Total 0 – 16

Transformed Total 0 – 10

Table 6. Measuring the Scope and Flexibility of Exceptions to Exclusive Rights


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CRITERIA US UK Germany Japan France Netherlands Spain Sweden

Exclusive right of

owner to authorisereproduction 106 II.16 Art. 15 Art. 17

L121-2 /

L121-5 Art. 1 Art. 17 Art. 2

Reproductionpermitted withoutauthorisation inspecial cases

107 IISection

VIArt. 30

– 47L1225 Section VI Ch. II

Art.11-26

Audio or visualrecording definedas reproduction

106 II.27 Art. 21 Art. 8 L122-3 Art. 14Art. 114-

117Art. 2

Criticism, commentand review

107 III.30 Art. 51 Art. 32 L122-5 (3a) Art 15a (1) Art. 32 Art. 22

Parody 107 - Art. 24 - L122-5 (4)Art. 16(1.a.2)

Art. 39 Art. 4

Reporting ofcurrent events

107 III.30 Art. 50 Art. 41 L122-5 (3b) Art 16a Art. 34 Art. 25

Education(teaching, non-commercial)

107 III.32Art. 47 /

Art. 52AArt. 33

- 35L122-5 (3e) Art 16 Art. 32

Art. 14 /Art. 18

Scholarship(research, non-commercial)

107 III.29Art. 53 /

Art. 47Art. 30Ter L122-5 (3e) Art 16

Art. 32

+ Art. 37Art. 16

Libraries andarchives

108III.37 –III. 43

Art. 52BArt. 31 /

Art. 42terL122-5 (8) Art 15c Art. 37 Art. 16

Parliamentary/ judicial/ governmentalproceedings

Williams &

Wilkins Co. v.

USA / Religious

Tech. Center v.

Wollersheim

III.45 Art. 45 Art. 42 - Art. 22 Art. 31 Art. 26

Incidental inclusion 107 III.31Art. 44A

/ Art. 57

Art. 30bis - - -Art.

20 aTemporary copyduring transmission

111 III.28A Art. 44AArt.

47quaterL122-5 (6) Art. 17 - Art. 11a

Private copyingSony Corporation

v. Universal StudiosIII.29 Art. 53 Art 30 L122-5 (2) Art 16b Art. 31 Art. 12

Time-shiftingSony Corporation

v. Universal StudiosIII.70 - - - - - -

Format-shiftingRIAA v. Diamond

Multimedia- - - - - - -

Table 7. The Scope and Flexibility of Exceptions to Exclusive Rights – Legislative Basis 61

60 For example, the UK was given a score of 1 for the “criticism, comment and review” exception criteria while theNetherlands was given a score of 0.5. In the UK, this exception is covered by paragraph 30 (1) of the Copyright,Designs and Patents Act, which states that “fair dealing with a work for the purpose of criticism or review... doesnot infringe any copyright in the work provided that it is accompanied by sufficient acknowledgement and providedthat the work has been made available to the public.” In the Netherlands, this exception is covered by Article 15a (1)of the Copyright Act, which states that “quotations in an announcement, criticism, polemic or scientific treatise shallnot be deemed an infringement of copyright in a literary, scientific or artistic work where: 1) the work from which thequotation is taken has been lawfully communicated to the public; 2) the quotation is in conformity with that whichmay be reasonable accepted in accordance with social custom and the number and length of the quoted passagesare justified by the purpose to be achieved; 3) the provisions of article 25 have been taken into account; 4) the sourceis clearly indicated, together with the indication of the author if it appears in the source... We reserve the right todetermine, by order in council, what is to be understood in paragraph 1 sub 2 by ‘reasonably accepted in accordancewith social custom.’” Comparing the language adopted in both statutes makes it immediately apparent that theNetherlands imposes additional, albeit limited, restrictions on exceptions for the purpose of criticism, comment andreview when compared with the UK. As a result, the UK’s set of exceptions for this criteria is defined as broad (1) while

the Netherlands is defined as narrow (0.5).61 This is a tabulation of legislation (and case law where applicable in the US) relevant to the scope and flexibility of

exceptions to exclusive copyright. Each statute cited in this table forms the basis for the score in Table 8. See thebibilography for a full citation of each country’s copyright law.


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Rank Country SFEER SCORE

1 US 8.13

2 UK 7.81

3 Germany 7.50

4 Sweden 7.19

5 Spain 6.88

6 Japan 6.25

7 France 6.25

8 Netherlands 5.94

Table 9. The Scope and Flexibility of Exceptions toExclusive Rights – Country Ranking

CRITERIA US UK Germany Japan France Netherlands Spain Sweden

Exclusive right of owner to authorise

reproduction

1 1 1 1 1 1 1 1

Reproduction permitted withoutauthorisation in special cases

1 1 1 1 1 1 1 1

Audio or visual recording defined asreproduction

1 1 1 1 1 1 1 1

Criticism, comment and review 1 1 1 1 1 0.5 1 1

Parody 1 0 1 0 1 0.5 1 1

Reporting of current events 0.5 1 1 1 1 1 1 1

Education (classroom use, non-commercial) 1 0.5 1 1 0.5 1 1 0.5

Scholarship (research, non-commercial) 1 1 1 1 0.5 0.5 1 0.5

Libraries and archives 1 1 1 0.5 1 1 1 1

Parliamentary or judicial proceedings 0.5 1 1 1 0 1 1 1

Incidental inclusion 0.5 1 1 0.5 0 0 0 1

Temporary copy during transmission 0.5 1 0.5 0.5 1 0 0 1

Private copy 1 0.5 0.5 0.5 1 1 1 0.5

Time-shifting 1 0.5 0 0 0 0 0 0

Format-shifting 1 0 0 0 0 0 0 0

Levies on private copying equipment andblank media

0 1 0 0 0 0 0 0

TOTALS 13 12.5 12 10 10 9.5 11 11.5

TRANSFORMED 8.13 7.81 7.50 6.25 6.25 5.94 6.88 7.19

Table 8. The Scope and Flexibility of Exceptions to Exclusive Rights – Country Scores62

62 Tables 6 and 7 have been included in order to make the country scores for each criteria in Table 8 as transparent aspossible. This framework is designed to be easily revised in light of feedback from experts and easily adjusted whenpolicy reform is enacted. The idea is to create a toolkit for further empirical investigation.


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Assumptions and LimitationsThe approach relied on several assumptions.Most importantly, levels of copyright

enforcement in the country sample areassumed to be uniform. This assumption isreasonable when one considers the relativelyhigh performance of the target countries inall indexes that measure levels of intellectualproperty protection around the world.

Another assumption is that the limitations andexceptions to exclusive rights that exist at thelegislative level demonstrate the de facto scopeof exceptions in the target countries. Themodel does not take into account the mannerin which courts apply the law nor the potentialgap between what copyright law permits and

what people actually do in practice. It alsodoes not take into account current agendasfor copyright reform in the countries (suchas those being discussed in Germany andrecently implemented in the UK). Whilethese reforms are welcome and likely to havea positive long-term inf luence, they have hadno impact on economic behaviour as yet andare therefore irrelevant to the current study.63 However, a benefit of the matrix scoring

methodology introduced here to calculate theSFEER Index is that it can be easily revised infuture research to accommodate for reform.

All of these assumptions are necessary in orderto accurately model the relationship betweenthe calculated score and economic growth ineach country as well as compare the relativeperformance of the different countries.

Given these assumptions, it is importantto highlight a number of limitations to themodel. Most important is that the index is astatic indicator. It does not capture changes

in legislation over time or the impact ofthose reforms. It is therefore a relativelycoarse measure of the scope and flexibility

of exceptions to copyright law that is notsensitive to policy adjustment. Despite this, we believe it remains a useful indicator bothfor immediate econometric analysis andas a starting point for developing a toolkitto understand the long-term dynamicsof copyright and economic growth. Itis also worth noting that the index doesnot include statutory limits to copyright,such as the length of term of protectionor anti-circumvention laws. Digital rightsmanagement technologies, protected

against circumvention by statute in manycountries, expand copyright in ways thatcan increase deadweight loss by enablingexcessive monopoly pricing and control. Theability of rightsholders to control any typeof access (regardless of whether it is fair ornot) is a further restriction to exceptionsand limitations to copyright that is drivenby technological developments. Though animportant facet of copyright in its own right,it is beyond the scope of this paper to discuss

these issues.64

The private copy levy criterion has beenincluded because levies on private copyingtechnology are effectively a compulsorylicense paid by technology manufacturers tocompensate rightsholders for private copyingenabled by limitations and exceptions tocopyright. While it is not an exception tocopyright, a levy system is a tax on innovatorsof private copying technologies and thereforeshould be included in any index that tries togauge the scope and flexibility of copyright

63 On 01 June 2014, the UK Intellectual Property Office brought into force several reforms based on the findings ofthe Hargreaves Review of Intellectual Property and Grow

Documents

The 2015 Intellectual Property and Economic Growth Index (1)