Page 143 - A Study on the Role of UGC Platforms in Copyright Law：An Intermediary-oriented Approach

A Study on the Role of UGC Platforms in Copyright Law: Chapter 5 Formulating a Non-commercial UGC Creation Levy Scheme
An Intermediary-oriented Approach

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promise the freedom of a significant number of individual users to use copyrighted works.
Considering the large scale of UGC creation that does not substantially affect the market
for pre-existing copyrighted works, and based on UGC platforms’ active role in facilitating
UGC creation, this thesis argues that levies should be imposed on UGC platforms and other
devices or services whose value is substantially enhanced by facilitating UGC creation. This
would allow platform users to use copyrighted works to create UGCs for non-commercial
use (hereinafter the ‘non-commercial UGC creation levy scheme’).
The economic consideration for adopting the permitted-but-paid rule is to change
copyright protection from a property rule to a liability rule. Under law and economics
scholars Calabresi and Melamed’s ‘property rule/liability rule’ formulation, a property
rule requires the user to obtain ex-ante permission and thus leaves the control of the work
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and the pricing power to the copyright owner. Conversely, a liability rule allows a user
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to use a work by paying damages determined by a third party. Calabresi and Melamed
adopted transaction costs as the criterion for choosing between property rules and liability
rules. Robert Cooter and Thomas Ulen separated transaction costs into (i) search costs,
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(ii) bargaining costs and (iii) enforcement costs. Property rules are more efficient when
transaction costs are low because property rules only allow voluntary transactions through
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negotiations between parties. Voluntary transactions can bring about desirable outcomes
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for both parties, but they only take place when transaction costs are low. When transaction
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costs are high, liability rules are preferable. Through third-party pricing, liability rules
artificially create a new condition for transactions: anyone who pays the price can obtain the
entitlement without relying on private negotiation.
In a normal case, copyright protection takes the form of property rules that promise
copyright owners’ exclusive exploitation of their works. Private copying is governed by the
liability rule in the form of a levy because private copying involves significant transaction
costs, considering the difficulty of tracing and identifying the individual users (search costs),
the ambiguity of whether private copying should be considered fair use (bargaining costs) and
the minor damage each user brings (enforcement costs). Compared with private copying, UGC
creation can incur even greater bargaining costs. UGC creation involves the transformation
and making publicly available of pre-existing copyrighted works, which could engender many

79 Ibid.
80 Guido Calabresi and A Douglas Melamed, ‘Property Rules, Liability Rules, and Inalienability: One View of the Cathedral’
(1972) 85 Harvard Law Review 1089, 1106.
81 Ibid.
82 Ibid 1096.
83 Robert Cooter and Thomas Ulen, Law and Economics (6th edn, Berkeley Law Books. Book 2 2016) 88.
84 Calabresi and Melamed (n 80) 1106.
85 Ibid.
86 Ibid.

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