Efficient contracting under the U.S. copyright termination law

• Published in: International review of law and economics 2018-06, Vol.54, p.39-48
• Main Authors: Karas, Michael, Kirstein, Roland
• Format: Article
• Language: English
• Subjects: Author-publisher relationship; Bargaining; Copyright law; Efficient contracting; Termination right
• ISSN: 0144-8188; 1873-6394
• DOI: 10.1016/j.irle.2017.10.003

•We provide a bargaining model to highlight the contractual situation between authors and publishers in the presence of a termination right.•We introduce some key principles for contractual designs, which identify differences between terminating and non-terminating authors.•Our results refute the general opinion in the literature that termination rights would force authors into lotteries.•We show the limits of the law with respect to complementary institutional regulations and current norms in creative industries. The American copyright act from 1976 has drawn much attention in the literature, however it has received little consideration by economists. We contribute to this literature by taking up the assumption that publishers may internalize the harm from termination decisions and illuminate the consequences for the contractual relationship between authors and publishers. We provide a bargaining model, the results of which offer new insights and provide a benchmark for future research. We identify differences in contract structures between terminating and non-terminating authors and introduce some key principles for contractual designs. A risk analysis reveals that, contrary to the view in the literature, a termination option does not necessarily force authors into lotteries. In addition, we analyze the limits of the law with respect to complementary institutional regulations and current norms in creative industries.