Regulating Copyright Extensions: Walt Disney Case
By: Madhav Bindal
Tags: Regulation, Disney, Revolving Door, Lobbying, Copyright

On August 7th, 1888, Theophilus Van Kannel patented his innovation. Soon after, this innovation was customary in the lobbies of business fulcrums to charm the guests of its grandiose and bustling nature. Although inconsequential to the discussion, the short story has three main components: the innovation, the lobbies, and the exclusive rights over the innovation. Starting with exclusive rights, also known as intellectual property rights, they allow the creator of an original work an exclusive right for a defined period. One commonly used tool for granting these rights are copyrights, which are an equivalence of legal ‘dibs’.

Established by the federal law, copyrights were originally conceived to protect printers of books. Since then, the copyright law has undergone many revisions including the addition of other works and a major update in 1978 which saw the copyright period extended to 70 years. However, such extensions have deviated far from their original purpose. Proponents of the extension argue that it creates more incentive to innovate and allows the conservation of the created protection (Posner, 2005). On the other hand, opponents argue that such exaggerations perpetuate monopoly and are economically inefficient (Stiglitz, 1999).

Take the case of Walt Disney Co., the incentive effect should not be in consideration after the Author’s death. So, the 1998 law extension for Mickey Mouse can be viewed as a redistribution of power to Walt Disney and it’s corporate interests. This viewpoint was further supported by Senator Brown’s comment to The Washington Post, “The real incentive here is for corporate owners that bought copyrights to lobby Congress for another 20 years of revenue — not for creators who will be long dead once this term extension takes hold.”

As observed in the Disney case, the extension of monopoly power increases deadweight loss and only leads to a minor increase in incentive for innovation. To regulate the formation of such monopolies, we need to address why these extensions were granted in the first place.

Corporate interests, as described by Senator Brown, hint towards one of the reasons why such extensions were allowed — lobbies. Instead of the literal definition used in the short story above, lobbies refer to the acts undertaken by interest groups to lawfully influence the actions of government officials. Although lobbying can provide decision-makers with valuable insights, it can also lead to undue influence and regulatory capture detrimental to social welfare. Legalized by Lobbying Disclosure Act, lobbying was used to provide access to the legislature and allow individual interests to gain powers in numbers. This socially benefitting characteristic of information transfer enables government decision-makers to easily sort through competing individual interests. But a lack of sound transparency framework in lobbying has resulted in a distortionary public-decision making process. Simply put, concentrated interests outweigh the less organized diffused interests for the regulator, as found by the Stigler model of regulation.

T his is what happened in the case of Disney. On one hand, there were concentrated interests, such as Disney and its corporate beneficiaries, and on the other, there were very diffused interests like the internet publishers and legal scholars. As such, decisions are likely to be biased in the favor of those policies that generate concentrated benefits and dispersed losses.

So how do we prevent this distortionary practice? The regulatory practices aimed at checking lobbying practices to maximize welfare should have dual objectives — increase transparency and recalibrate incentives. To increase transparency, there should be a provision for greater and faster disclosure of campaign spending by PACs and individuals to cover the loopholes in the current law. Specifically, under the current law, inadequate standards and weak enforcement lead to an increase in unregistered lobbyists and a lack of disclosure of lobbying expenditure, both direct and indirect. To regulate this, reform proposals should require individuals to register as lobbyists if they undertake a relatively lower threshold of lobbying activity. Further, there should be mandates requiring detailed disclosure of federal and state-level lobbying expenditures undertaken by PACs.

Under this proposed reform, Disney would be legally required to disclose its PAC donations contrary to its stance on maintaining the privacy of disclosure, as remarked by Thomas J. Deegan, former Vice President of Corporate Communications at Walt Disney Co., in 1998.

As for recalibrating incentives, there is a need to provide incentives to congressional leaders to reach out to diffused interests instead of wealthier corporate interest groups. Such incentives can be achieved by providing additional public funds or tax credits for smaller donations. At a first glance, this reform proposal might seem burdensome — estimating the optimal amount of public funds provided and tax credit rate on each contribution can be difficult. However, such a legal reform already exists in the form of The Government by the People Act, later revised to For the People Act of 2019. The legislation passed the House along strict party lines but has not been passed in the Republican-controlled Senate. Is this likely to change? Only time and Georgia would tell.

The second reason for allowing these extensions is directly related to Van Kannel’s innovation. The revolving door, not the mechanical concoction devised by Van Kannel but instead the movement of personnel between the industries and regulatory agencies. Although it is inevitable for the workers to switch between sectors, the revolving door policy raises concerns regarding the integrity and the impartiality of the public office. Supporters of the policy argue that it allows for a more responsive government to the extent that new members of regulatory agencies are not required to be trained given prior familiarity with the industry. The social benefit of such a policy is realized by the electorate in the form of efficient and experienced decisions by regulatory agencies. For example, a similar trend has been observed in credit analysis by Elizabeth Kempf. According to her, analysts who were hired away from investment banks produced more accurate results than their peers (Kempf, 2017).

Despite this evidence, the conclusion on the feasibility of the revolving door policy is far from settled. In addition to anecdotal evidence, research suggests that the main concern with the revolving door policy is the idea of regulatory capture, as prescribed by George Stigler. That is, the regulatory agencies created to protect the public interest are populated by the members of the industry they seek to regulate. This poses a real risk of unbiased advantage to individual sectors and the use of insider information.

In the case of Walt Disney, the extent of the revolving door policy can be represented by the number of revolving door profiles of their lobbyists. In 2018, 17 out of 19 lobbyists hired by Disney had a revolving door profile. However, the intent of hiring such individuals by Disney is still not clear.

It is important to note that stopping the revolving door would not be a feasible solution as it would prevent the much-needed mobility of talent across sectors. Instead, regulations aimed at slowing down the revolving door is preferred. So how do we slow the revolving door? The proposed regulatory practices should address two key areas: slowing down the churn and reducing opportunities for conflict of interest. To slow the churn, there should be a consideration to extend the cooling-off period for civil servants. The Cooling-off period refers to a required period of non-related employment upon leaving a former position. Under the current FDA Post-Employment restrictions, the prescribed cooling-off period is one year. However, this period has proved to be insufficient as it is hard to foresee the duration of the threat (that is, the use of insider information or unbiased decision making). As such, regulations should consider varying the cooling-off period depending on the seniority of the position and the sensitivity of the information possessed. As for reducing conflicts of interest, there is a need to enforce regulations that reduce opportunities for conflict of interest, including measures that mandate the disclosure of personal assets and interests.

Under President Trump’s administration, the concerns over conflict of interest have risen significantly given the close business ties. And these financial ties to firms can be problematic. For example, Tom Price was not only appointed as Former Secretary of Health and Human Services by Donald Trump but also received private placement offers for discounted stock in an Australian biotech firm.

To regulate this, reform proposals should require government members to report trades and ensure public financial disclosures on agency websites. This is what the STOCK Act, signed into law in 2012, was created to do. However, subsequent legislation has reversed the purview of the act, rendering it ineffective in checking conflicts of interest. Thus, there is a need for regulations to revive the rules and guidelines extended by the STOCK Act.

To conclude, copyright extensions do not seem to achieve the goals assured by its defendants. Specifically, in the case of Walt Disney, allowing extensions further exacerbates the issue by adding to its existing monopoly power. This monopoly power not only increases distortion but also imposes monopoly prices. Thus, the ‘Mickey Mouse’ copyright can be conceived as a tax on people and an expensive one. To prevent this from happening, welfare-maximizing regulators need to address the underlying issues of lobbying and the revolving door policy. Specifically, regulatory practices to check lobbying practices should focus on increasing transparency and recalibrating the incentives for congressional leaders. As for the revolving door policy, regulatory practices should impose constraints on churn across sectors and reduce opportunities for conflicts of interest. The new expiration date for Disney’s copyrights is nearing and its willingness to engage the congressional leadership is yet to be determined. However, it is about time that the framework for enforcing such intellectual property rights be corrected to maximize welfare and not just the welfare of special interest groups like Disney.

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