Peter Gallagher

You note (Annex B, p 5 of your Dis­cus­sion Draft) that the Copy­right Act per­mits the par­al­lel import of elec­tronic ver­sion of a book and you note in pass­ing that the avail­abil­ity of elec­tronic edi­tions may lessen the consumer-price impact of the PIRs on printed books (with­out, how­ever, offer­ing any data to sup­port this claim —- I accept that you say the data is not available).

A: You have not con­sid­ered all of the costs of the PIRs for con­sumers of elec­tronic books

You must have noticed that, notwith­stand­ing the facil­ity in the Copy­right Act, pub­lish­ers restrict the dis­tri­b­u­tion of elec­tronic ver­sions of works that are pub­lished in Australia.

The most obvi­ous instance of this is the refusal of AMAZON to sell doc­u­ments for the very pop­u­lar Kin­dle reader to Aus­tralian con­sumers, among oth­ers, appar­ently because the (global) pub­lish­ers refuse to license elec­tronic ver­sions of their books for this market.

The costs of this restric­tion to con­sumers in Aus­tralia include:

• higher prices (Kin­dle books are sold at a dis­count to even the dis­counted print ver­sions on AMAZON);
• lack of amenity (the rea­son con­sumers want a Kin­dle at all is that it offers them a more con­ve­nient way to access books and a dif­fer­ent set of ‘book’ ser­vices not avail­able in the printed format);
• higher acqui­si­tion costs (the con­ve­nience, speed of ful­fill­ment is greater in the case of Kin­dle books than in the case of printed books).

B: The restric­tion on sale is due to the PIRs

What incen­tive would the pub­lish­ers have for this restric­tion except that it threat­ens to can­ni­bal­ize the rents secured to them in Aus­tralia by the PIRs in addi­tion to the rents secured to them by Copy­right? Car­tel rents? They may be act­ing as an ‘infor­mal’ car­tel (as the pub­lish­ers of DVDs do when they attempt to enforce their ‘regional’ replay restric­tions). But if that were the case, you and I would pre­dict that one or other publisher—-with the con­nivance of AMAZON—-would defect (‘cheat’) just as EMI defected from the copy­right and DRM restric­tions imposed by other labels sell­ing through the iTunes store.

Alas, after more than a cen­tury of the inter­na­tional book-publishing cartel—and despite the appar­ent end (in the 1970s) of for­mal restric­tions such as the ‘British Tra­di­tional Mar­ket’ scam—the incen­tive pro­vided by the PIRs (in Aus­tralia, the UK and else­where) still seems to pro­vides suf­fi­cient incen­tive for the pub­lish­ers to cartelize the mar­ket by restrict­ing access to high qual­ity elec­tronic ver­sions of books pub­lished in Australia.

Two fur­ther rea­son for think­ing that this restric­tion is moti­vated by the rents in the PIRs:

• AMAZON does in fact sell some elec­tronic books that are avail­able in Aus­tralia (www.mobipocket.com). But these are ‘dis­count’, remainder-list and ‘spe­cial inter­est’ books. They prob­a­bly never fig­ured on the ‘front list’ that is espe­cially pro­tected by the PIRs, as your Dis­cus­sion Draft concludes.
• Sim­i­lar restric­tions apply to the sale of Kin­dle books in the UK where other mar­ket con­di­tions are dif­fer­ent but, as your draft notes, there are anal­o­gous laws restrict­ing par­al­lel imports.

C: Are elec­tronic books and printed books com­pet­i­tive products?

It might be argued that the rents due to the PIRs could not be affected by the sale of elec­tronic books because they are not directly com­pet­i­tive prod­ucts. My alle­ga­tion that con­cern for these rents explains the refusal to sell Kin­dle ver­sions of ‘front list’ books in Aus­tralia could not be true if the elec­tronic and printed prod­ucts are not com­pet­i­tive. The sale of the Kin­dle ver­sions would not, in that case, under­mine the value of the PIRs on the printed books.

But I con­tend that the Kin­dle prod­uct is strongly com­pet­i­tive with the printed ver­sion of the books. Indeed, this is the design objec­tive of the Kin­dle device and it has been appar­ently very suc­cess­ful in meet­ing that objec­tive (the first ver­sion of the Kin­dle sold its entire pro­duc­tion run very quickly).

‘Non-competition’ is not a suc­cess­ful objec­tion to my con­tention that the PIRs explain the restricted access to Kin­dle books.

D: Reme­dies

You sug­gest that the PIRs should be lim­ited to 12 months in order to bal­ance the rights of con­sumers and the ‘cul­tural’ ben­e­fits of the PIRs. I do not agree. Your report acknowl­edges a pub­lic ben­e­fit (‘cul­tural ben­e­fit’) due to the PIRs. But you under­es­ti­mate, for rea­sons out­lined above, both the costs to the con­sumer and the rents accru­ing to the pub­lish­ers from the PIRs.

The pub­lish­ers already receive an exces­sive copy­right ben­e­fit (espe­cially since the absurd ‘life of author plus 70 years’ copy­right term was adopted to com­ply with the Australia-US FTA). This ben­e­fit, too, has been jus­ti­fied on ‘cul­tural’ grounds. Why is there a need for any PIRs to sup­ple­ment the rents avail­able from copyright?

E: Rec­om­men­da­tions

(1) I urge you, in your final report, to con­sider the pos­si­bil­ity that the restric­tion on access to elec­tronic edi­tions of books (specif­i­cally, the ‘front list’ books that are avail­able in the US as Kin­dle books) is a cost imposed on Aus­tralian con­sumers by the PIRs.

(2) I urge you to rec­om­mend that the PIRs be abol­ished and that, if use­ful (I doubt it), the Gov­ern­ment should increase the sub­si­dies to ‘cul­ture’ by directly com­pen­sat­ing Aus­tralian authors of ‘cul­tural’ works for the loss of the PIRs. They should not sub­si­dize the pub­lish­ers. Nor need they sub­si­dize for­eign authors now ben­e­fit­ing from our PIRs (there’s noth­ing in the national treat­ment oblig­a­tions of the AUSFTA that requires us to sub­si­dize US authors).

Thank you.