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Rapid technological progress in information technologies poses new issues for copyright law. Today, a digital file can be copied and instantaneously distributed worldwide through the Internet, thus potentially depriving the copyright holder of revenue from licensed sales. As a result, holders of copyright on creative works in digital format are contesting the right of consumers to make personal copies of copyrighted materials. At the same time, consumers are beginning to chafe at copyright owners' use of digital technologies to prevent or deter copying and other unauthorized uses of copyrighted works.

As digital processing grows more powerful and the high-speed distribution of digital content becomes more pervasive, the debate over copyright issues--in particular, whether copyright law has achieved the appropriate balance between incentives to engage in creative activity and the social benefits that arise from the widespread use of creative works--is likely to intensify. Yet the implications of any change to copyright law extend beyond the producers and consumers of copyrighted material to society at large. Investments in the computer hardware and communications industries, for example, are linked in part to the availability of creative content in digital form. How the current copyright debate is resolved, therefore, is likely to influence the growth of those related sectors of the economy. Potential revisions to copyright law may also have an impact on broader social concerns such as individual privacy.

Revisions to copyright law could impose mandated costs on producers and consumers of copyrighted material, as well as the providers of goods and services used in conjunction with copyrighted works. This Congressional Budget Office (CBO) paper reviews current copyright law in the United States and considers the unique aspects of digital technology's challenge to that law. It also examines the prospects for a market-based resolution to copyright disputes over digital content and explores the effect of potential revisions to copyright law on economic efficiency and equity. While this analysis suggests some issues and concerns that the Congress may wish to consider during its deliberations about any changes in copyright law, in keeping with CBO's mandate to provide objective, impartial analysis, the paper makes no policy recommendations.

Nathan Musick of CBO's Microeconomic and Financial Studies Division wrote this paper under the supervision of Roger Hitchner and David Moore. Helpful review and comments were provided by Robert P. Murphy, CBO's General Counsel; Julie H. Topoleski of CBO; Robert M. Hunt of the Federal Reserve Bank of Philadelphia; and Robert Kasunic of the U.S. Copyright Office. The assistance of external reviewers implies no responsibility for the final product, which rests solely with CBO.

Juyne Linger edited the paper, and Christine Bogusz proofread it. Angela McCollough prepared the tables and graphs. Maureen Costantino designed the cover, produced the figures, and prepared the paper for publication. Lenny Skutnik produced the printed copies, and Annette Kalicki prepared the electronic versions for CBO's Web site.

Douglas Holtz-Eakin
Director
August 2004