IP Issues Paper 42 – After markets


IP Issues Paper 42 – After markets

Introductory notes

The structure of the rights that Copyright law are specifically designed to allow copyright holders to control the aftermarket for the goods that they sell. It is this characteristic which distinguishes “intellectual” property from actual property. In so doing the legislature has effectively greatly reduced the possible scope of application of the Copyright act. By expressly contemplating control of after markets the legislature has imposed compliance costs upon everyone who might participate in such an aftermarket.

It would be ludicrous to suggest that the maker of nails ought to have some rights in a building created through the use of those nails after they had been purchased by purchaser. However, not only does the Copyright Act endorse such an approach, it actually presumes that the value of the house comes from the nails. The control of after markets in this manner is poor policy. The reason it is poor policy is because it creates a pyramid of obligations as between each potential purchaser in the after markets and the original seller of the nails. Moreover, unlike the situation where objects, such as nails, are purchased there are no set rules governing the transaction. Thus, each seller of copyright nails has their own terms and conditions regulating the aftermarket for their own nails. Where a person buys actual nails their rights in relation to the nails are set by custom – that is when they purchased them title transfers to them and that title is unencumbered. Indeed, the lack of encumbrance is enshrined in consumer legislation.

It is certainly possible for property law to support the control of after markets through, example lease leasing and  licensing structures. Tthere is no reason in law why nails could be not “sold” on a licensing basis, with the title in the nails remaining with the original manufacturer. The only reason that this is not happen in practice is that it would be unworkable.  We have already seen such a system in place in relation to real property in the feudal period in England. At the time, the King retained (“allodial”) title in most of the lands land within the domain, with feudal grants being made to lords subject to those lords swearing fealty and undertaking various services to the king (typically knight service). Initially this approach to the holding of land was somewhat sensible but only because there were comparatively few feudal lords and land grants. However, over time the lords chose to sub-infeudate their holdings to lower, or “mense” lords who, in turn, apportioned out lots to individual tenants.  At each level rights in relation to the land were subject to the performance of feudal services. Often the terms upon which tenancies were granted was that the alienation of the land the subject of the tenancy was subject to the approval of the overlord or the king. This created an immense administrative burden tracking and enforcing compliance with this multitude of mutual obligations. The realm recognised that this system was unworkable and passed the statute of Quia Emptores.  This effectively collapsed the pyramid of obligations by substituting newly subinfeudated tenants rather than adding them to the end of the chain of obligations.

It is not appropriate for the legislature to expect that copyright works, which may sell for as little as one dollar to be subject to a licensing structure. The transaction costs involved in determining the scope of the licence and whether a particular use is within scope of the licence granted will, for the vast majority of works, greatly exceed the value of the work itself. This is more so the case as the number of vendors increases. Indeed, this licensing structure can only play a significant role in the economy where the number of vendors and, therefore, the number of licences which may apply he is extremely small. That is, this is a market for the vocal 1%.

By permitting the control of after markets the legislature has robbed certainty from the economy. There have been a number of examples where the purchasers of of electronic materials have had their access to materials restricted or revoked subsequent to their purchase. One would wonder about the wisdom of permitting the manufacturer of nails to recover nails already used to make a house.  Once copyright litigation becomes widespread (cf Rightshaven litigation) the full effects of this poor policy will begin to really show themselves.

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1 Response to “IP Issues Paper 42 – After markets”


  1. 1 http://tinyurl.com/lazewise10640 6 February 2013 at 12:25 am

    “IP Issues Paper 42 – After markets Brendan Scotts Weblog” was a truly awesome blog
    post, . Keep posting and I’m going to continue to keep reading through! Thanks for your time ,Margo


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