Intellectual Property Rights and Compulsory Licensing: A First Principles Approach to Reform

In 1909, Congress for the first time subjected intellectual property protections to compulsory licensing and rate regulation. A compulsory or statutory license is a legal requirement that mandates that the owner of the intellectual property allow third parties to make reproductions of the protected property, provided the third party pays royalties to the owner. Government sets the prices or royalty amounts to be paid by the third party to the intellectual property owner.

With the Federal Communications Commission now, in effect, proposing to establish a new compulsory licensing regime in connection with new rules governing video navigation devices, it is useful to understand the origin of compulsory licensing regimes and the limited ways they typically have been justified and applied in the past. Absent the existence of any clear legal authority authorizing it to do so, the FCC is considering imposing a compulsory licensing system that would allow those accessing video programming on third-party video devices and video apps to view copyrighted programming. In essence, in a competitive, fast-changing video marketplace in which consumers already have many more choices than ever before, the FCC proposes to set license terms and enforce them – over and against the objections of copyright owners. The agency’s proposal also threatens to undermine existing private contracts regarding cable and satellite carriage rights.

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