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Borrowing from the rent dissipation literature that has proven useful in patent analysis, in this Article I provide an economic foundation for copyright’s derivative right to prepare sequels and adaptations and suggest a straightforward doctrinal test for that right. I argue that the suppression of competition in creating adaptations of the same copyrighted expression, rather than being a loss, might instead be the derivative right’s chief economic virtue, giving an author control over adaptations and limiting the production of those that would be close substitutes for one another. In Part I, I explain and question the conventional justification of the derivative right, that the right provides incentives to create copyrighted works. I argue that rather than maximizing the total number of works the derivative right probably greatly decreases the number of derivative works, but also that some works may be more important than others, in part because works that are close substitutes for one another are of relatively little value. Part II reviews the recent literature applying product differentiation theory to copyright and points to an additional area of the economic literature that may provide a more fruitful model for considering the derivative right. I suggest that product differentiation logic applies particularly forcefully to discrete submarkets in which there would be a large amount of demand diversion, as would be the case if no derivative right existed. Finally, in Part III I argue that regardless of whether the derivative right in its current form is normatively justified it requires a conceptual economic foundation to restrict its doctrinal contours. I thus offer a doctrinal approach for assessing the derivative and reproduction right, apply the test to some actual cases and controversies, and comment on the related doctrine concerning the standard for copyrightability of derivative works.

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GWU Legal Studies Research Paper No. 2013-89; GWU Law School Public Law Research Paper No. 2013-89

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