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Summary:

There’s a brewing conflict over consumers’ rights to use platforms like ReDigi to resell their books, music and other digital property. Now libraries and companies like eBay and Redbox are leading a campaign to pass “You bought it, you own it” laws.

Timebomb
photo: DVARG

It’s easy to borrow a book from the library, rent a DVD or sell CDs to a local record store. Why, then, is it so hard to do the same when this content is in digital form? One reason is that laws that govern how we sell our stuff aren’t very compatible with digital content. As awareness of these issues builds, a war is brewing – with retailers and publishers on one side, and libraries, consumers, and startups on the other.

When you purchase a digital music track, e-book, digital movie or other type of downloaded content, you aren’t actually buying it, as you would a printed book or CD.  Instead, you’re licensing it, in the same way that you license software.  This means that you get rights to that content that the publisher defines in a license agreement, instead of those granted to you by copyright law.

Digital content licenses typically give users the right to play or read the content.  But what if you want to sell, lend, or give away your digital files?  Under U.S. copyright law, you’re allowed to do this for physical media products, thanks to a concept called the First Sale doctrine.  First Sale says that the publisher has no control over what you do with a media product once you buy it.  Used bookstores, video rental stores, and libraries all owe their existence to First Sale.

Yet current U.S. legal convention dictates that in most cases, First Sale doesn’t apply to digital files.  Very few publishers or retailers give you the right to transfer your files to others.  As a practical matter, “Digital First Sale” would mean that you could transfer ownership of your files to others legally as long as you delete your own copies – including backups, copies in cloud storage, and so on.  This implies one of two things: either you are trusted to delete their copies, or there must be a robust, legally mandated mechanism that does it automatically.

Digital First Sale: Not Now, Maybe Later

The U.S. Copyright Office wrote a report on Digital First Sale in 2001 that described an automatic “forward-and-delete” mechanism, but it determined that it would not be practical to require this by law, nor should people be trusted to delete all of their copies; therefore it recommended maintaining the status quo.

Why is this issue becoming a big deal now?  One reason, ironically, is that most downloaded music files and some e-books are now DRM-free.  If a digital file is encrypted with DRM, then First Sale is usually a moot point: you send copies of the file to friends, but they can’t use in on their devices.  With DRM-free files, you can send your files to other users, who can play or read them; but the licensing agreements under which you bought them probably forbid this.

Amazon in particular is quite explicit about this.  The Amazon Kindle Store Terms of Use, for example, give you rights to e-books “solely for your personal, non-commercial use” and state that “Kindle Content is licensed, not sold, to you by the Content Provider.”

First Battlefield: Record Labels and Retailers vs. ReDigi

A startup called ReDigi is testing this law by offering a service that allows people to resell “used” digital music files.  Its software includes the type of forward-and-delete function that the Copyright Office contemplated, though it only works with music purchased from iTunes and Amazon.

ReDigi was (unsurprisingly) sued by one of the major record companies, though it has sought to mollify others by offering them a slice of revenue from each transaction.  Yet this puts the company in a strange place: on the one hand, they claim to be enabling a form of First Sale, but on the other hand, they’re undermining the core idea of First Sale by seeking permission from record labels and giving them a piece of the action.

The forces arrayed against ReDigi are formidable.  Digital files are perfect copies: they don’t have scratches, dog-eared pages, or cracked jewel cases.  Retailers don’t want to be undercut by resellers that will force prices down: imagine iTunes’s reaction if “used” files could be sold on eBay.  Publishers don’t want to lose revenue to secondary markets either.  In other words, both the media and content retail industries are dead set against Digital First Sale.

Second Battlefield: Libraries vs. Publishers

The other growing storm over Digital First Sale is library lending of e-books.  Public libraries currently “lend” e-books by distributing them with DRM so that they expire after the libraries’ lending periods.  Yet while First Sale enables libraries to acquire whatever printed titles they want to lend, publishers get to decide which of their titles they will license for e-book lending and on what terms.

One problem with this is that publishers have divergent e-book lending policies.  Macmillan and Simon & Schuster don’t allow e-book lending of their titles at all. HarperCollins provoked outrage from the library community by putting a limit of 26 “lends” on each title, apparently to mimic the shelf life of hardcopy books before they wear out.

The law gives libraries no leverage against publishers in this situation.  Furthermore, libraries are now facing competition from the private sector: for example, Amazon’s Kindle Owners Lending Library (KOLL) allows Amazon Prime members to “borrow” one e-book at a time at no charge.  Availability of e-books through public libraries is likely to deteriorate further into both chaos and irrelevance if nothing is done.

To break the impasse, libraries are pushing for Digital First Sale rights in the law.  Libraries recently joined together with other, better-heeled entities in a lobbying group called the Owners’ Rights Initiative (ORI).  The ORI, which launched back in October, is a “strange bedfellows” coalition of library trade associations, companies such as Chegg (used textbooks) and Redbox (DVD/Blu-ray kiosks) that could expand into resale of digital content, several companies that sell used IT equipment, and last but not least, eBay.  The ORI’s slogan is “You bought it, you own it.”

Digital music resale and library e-book lending are just two of what will undoubtedly be many digital content distribution models that will touch on the issue of Digital First Sale – a law that, like other aspects of copyright, seems increasingly irrelevant as content moves from physical products to formless bits.  As the controversies and lawsuits grow, the inadequacy of the status quo will be increasingly clear.

Bill Rosenblatt is an authority on digital rights management and President of GiantSteps Media Technology Strategies

  1. With digital, its either one or the other. If we are going to transfer a resale right, then the companies that make billions from the Internet have to respect copyright – which they do not do right now. If copyrights were respected, then content creators could grant this right of resale and believe that they would be treated fairly. That is not the case today on the internet. If an artist wants to give away their music, that is great. The current situation on the internet forces and artist to give away their music. Copyright is a human right. Article 27 of the Universal Declaration on Human Rights “(2) Everyone has the right to the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he is the author.” 42% of all US internet upload traffic is used to upload and download music, movies, games, software and books illegally for free. If it is illegal, why does it continue? ISPs asked congress for a shield from their third-party copyright liability and they got it in the DMCA in 1998. Now they abuse the law they asked for and have reneged on their agreement with congress and the American people. US law says that ISPs only have safe harbor from their subscribers illegally distributing content if they have a policy for terminating repeat infringers (17 USC 512 (i). If they were doing this, 42% of all US internet upstream traffic wouldn’t be used to illegally distribute music, movies, games, software and ebooks. The US Bureau of Labor Statistics says that musicians wages are down 45% since p2p technology arrived.

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  2. This is a tough one – the main reason being that digitally speaking, you lose control of the file and the person buying the license (which is what I use on my site) could easily buy everything off my site and turn-around and be my instant competition overnight without having to do all the work involved with creating the file in the first place… not with one person, but millions! The scale and lack of expertise required – is the main issue.

    I’m on both sides of the fence as both a user of digital files and seller of them, it’s a tough nut to crack in my case as I benefit on both sides but most consumers don’t create, only buy (download) so in their situation, the case for or against licensing is more straight forward.

    Jon
    Founder of CNCKing.com

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  3. As an e-author, I mourn for the future lost sales of my books. Why buy when you can have a “friend” lend you thousands of copies of titles from their personal library?

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  4. Ebay cannot police their sites to prevent illegal sales of copyrighted ebooks right now. If it were legal to re-sell one’s one and only copy of a legally acquired ebook, copyright enforcement would be a joke. There would be no way for Ebay to check that the Seller had deleted his/her original, nor would there be any way for EBay to ensure that the Seller did not sell multiple copies multiple times.

    The grunts running EBay apparently don’t have the first clue about GNU and public domain, and ignorant sellers post preposterous notices claiming that they own GNU licenses to anthologies of tens of thousands of in-copyright works of fiction.

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  5. For instance, one EBay seller posts this disclaimer
    “FANTASTIC COLLECTION

    ALL TOP AUTHERS

    ALL FILES IN SEPARATE FOLDERS FOR EASY INSTALATION

    Items contained on this CD are distributed globally under the terms of the GNU Public License, the GNU Lesser General Public License (LGPL).
    This item does not infringe any copyright, trade mark, or other rights or any of eBay’s listing policies or spam policies.
    All other trademarks are acknowledged as belonging to their respective owners.”

    Authors whose works are being sold…repeatedly… 35 times in the current auction… include Brenda Novak, Rowena Cory Daniels, Joel Osteen, (who would no doubt be astonished to learn that his work is described as Crime and Thriller EBook!), Lorie O’ Clare, Barack Obama (not known for his Crime and Thriller fictions) Jiilly Cooper, John Grisham, Jeff Strand, Jeffrey Archer, David Baldacci, Dean Koontzs, Debbie Macomber, Clive Cussler, Jacquelyn Frank, Jaci Burton, Jayne Ann Krentz, Janet Evanovich, Jeff Corwin, J D Robb, Kekkey Armstrong, Kathleen Bacus, Laurell K Hamilton, S.J. Day, S.L Viehl, Joe Torre, Joey W Hill, Bill O’ Reilly, Blake Crouch, Bianca D’Arc, Mary Wine, Marie Force, Nora Roberts, Orson Scott Card, Patrick Rothfuss and 5,000 others. I have one of the DVDs in my possession. I have no intention of downloading any of the files.

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  6. Attaching a fine print “license” to a digital service doesn’t necessarily make it a legally binding or enforceable contract.

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    1. Um, yes it does. Decades of legal history say so, at least.

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  7. Martin Focazio Sunday, December 16, 2012

    Did we all read the Microsoft “Darknet” paper from a zillion years ago? If not, pause, and read it. Here’s the reality: a creative work that is recorded in any form – including printed – is subject to being copied at will and without compensation to the author or owner, and the laws can’t ever stop this. If it can be seen & heard, and can and will be shared.

    But somehow, despite everything on Netflix being out there for free via Usenet and torrents and what have you, Netflix and Spotify and Apple and Redbox and Vudu and HBO many others still make money.

    Why? Because quality of experience and ease of discovery trumps free. I don’t want a folder full of Harry Potter ebooks. I want a service that maintains a massive library of titles, managed reader software and excellent discovery tools. The work is – quite nearly – incidental.

    As far as re-selling files? It’s not really the issue. Collecting media objects is a habit that digital natives now in their teens never developed. For them, access > collecting.

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  8. A couple of judges in copyright cases have come perilously close to opining that copyright infringement is excusable if the author does not make digital versions accessible.

    Content owners and creators are in danger of being exploited.

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    1. Can you point to a source for this? I’d be interested in reading the decisions, if possible.

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  9. When it comes to media in our culture today, we have two crisp models of acquisition, as defined by contracts, legislation, and case law: ownership and rental. Ownership falls almost exclusively into the “physical media” bucket and “digital media” is generally a rental (licensed) model. I for one hope we can work out a third model for “digital ownership” that works for consumers and for creators and for rights-holders.

    If we as a society can create this third model of “digital ownership” sooner rather than later, we can leave “rented media” behind, in what will be a comparatively small bucket of “non-transferrable assets”. For example, over the last 30 years, US consumers have invested, in 2012 dollars, on the order of a quarter-trillion dollars in physical CDs, each with crisp fair-use and first-sale rights. The comparative total investment in rented digital music in the last 8 years is on the order of 5% of that.

    We should be thoughtful about railing against rights-holders for the legal rights (or lack thereof) of the digital music that consumers have (bought) rented. In theory, we consumers knew exactly what we were getting into. That is to say, the terms of the licenses we agreed to are not unclear. Of course folks can argue whether the average 18 year-old can and will read and understand all that legalese.

    The ReDigi solution strives to expand the scopes of both legislative dicta and case-law. As Mr. Rosenblatt suggests, they’ve chosen a challenging mountain to climb. I’m not so sure I agree with his aside that it’s an odd position for them to take to enable first-sale-like rights AND bring the rights-holders in to participate as well. While this is indeed a deviation from what legislatures and judges have enabled, let’s be open-minded about asking questions like “why not?” as we attempt to sort out these thorny problems.

    The fundamental challenge here (IMHO) is that most consumers of downloaded content assume they have fair-use and first-sale rights. They do not generally have those rights – whether or not they know with utter completeness what those two rights mean. Businesses like Murfie (disclosure: my employer) facilitate digital access of physical media, allowing consumers, for example, to continue extracting value from that $250B investment in CDs. Like the pre-Nixon US Treasury that operated on the gold standard, each disc streamed or downloaded at Murfie is backed by the physical compact disc that remains owned by its consumer and warehoused by us. Each and every day Murfie wrestles with these issues of ownership -vs- rental as we attempt to integrate all of our customers’ music purchases – physical or digital.

    Shawn Broderick
    Murfie.com

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    1. Actually there a putative technical standard for “consumer ownable digital property” that space constraints (believe it or not) prevented me from mentioning in my article. The standard, IEEE P1817, was developed a couple of years ago, and its inventor, Paul Sweazey, spoke about it at one of my conferences. You can see the standard itself at http://standards.ieee.org/announcements/2010/1817.html and my analysis of it at http://copyrightandtechnology.com/2010/07/02/1054/. The initiative seems to have run out of steam, but it’s a worthy effort that merits revitalization as these issues become more and more important.

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  10. I disagree, intellectual property rights should not be thrown out. When you buy a book you buy the right to read and enjoy the intellectual property, not the right to redistribute beyond one individual. In my mind , this is a no brainer, or what is the use having intellectual property laws.

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