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People can be surprised to discover that they don’t actually own the digital books and songs they buy, but that they instead rent them from large companies like Amazon(s amzn) and Apple(s aapl). In response, Congress is asking whether copyright law should be changed to ensure people can resell or lend out their digital goods.
This week, the House Judiciary Committee heard testimony from publishing and technology executives as well as public interest groups over whether the government needs to update a long-standing rule known as “first sale” that lets people do what they want with works they lawfully purchased.
The short answer, based on this week’s hearing, appears to be no as members of Congress and those testifying appeared skeptical that people should have the same property rights in digital goods as they do in physical ones. But some suggested that it might be time for companies to do a better job of explaining to consumers about what they are allowed to do with the books and music they “buy.”
A centuries-old property right declines with digital
The “first sale doctrine” is a technical term, but all of us know what it is in practice. It is the right to sell, lend or give away used things without getting the permission of the copyright holder. First sale is what lets libraries distribute a paperback copy of The Hunger Games to hundreds of patrons, or people to sell used records or DVDs at a garage sale.
The rule, which basically ensures that there can be a legal market for secondhand goods, works by saying that copyright owners can’t control distribution of a work after it has already been sold. Part of English law for centuries, the U.S. Supreme Court affirmed it in a 1908 case involving a publisher that had put a sticker on its books saying “The price of this book at retail is $1 net. No dealer is licensed to sell it at a lower price” (the sticker trick didn’t work).
Despite its long pedigree, the power of the first sale rule has shrank dramatically in the digital age. The reason is that copyright owners, wary of how easy it is to copy and share works online, have found a way to make sure that no one technically buys a book, music album or video in the first place.
Rather than selling the books or songs outright, publishers are instead giving consumers a license to use the work. This means that there is no “sale” in the legal sense of the word, and so the first sale rule doesn’t apply.
While this licensing system gives publishers more control, it also means consumers can’t do many of the things they have always done with physical property: sell it, or lend it to friend or leave it to loved ones in a will.
A digital first sale right?
The House Judiciary Committee, which is in the process of reviewing U.S. copyright law, held a field hearing in New York on Monday to get the views of publisher John Wiley, the New York Public Library, and tech CEO John Ossenmacher among others as to whether Congress should require a digital resale right.
For practical purposes, a change in the law could mean giving consumers the right to sell their iTunes library, or to lend ebooks bought on Barnes & Noble(s bn) to a friend.
The mood at the committee hearing, chaired by Rep. Bob Goodlatte (R-Va), was skeptical, however. Several of the witnesses pointed out that requiring first sale for digital media, which is so easy to exchange and reproduce, would likely bring major harm to the primary market for books and music. Others noted that second hand digital files don’t really become “used” or become deteriorated like books and records.
The only one to argue forcefully for a digital first sale right was Ossenmacher, who once offered a digital locker service called ReDigi that allowed people to sell songs to one another. A federal judge ruled the service liable for copyright infringement last year, rejecting ReDigi’s argument that its technology, which checks to make sure the original owner hasn’t kept a copy of what he or she is selling, made it eligible for the first sale rule.
Ossenmacher claimed at the hearing that technology like ReDigi’s makes it possible to create online equivalents of book and record stores. Although the members of Congress and other witnesses didn’t appear to agree, some did express concern that the current licensing system is too harsh on consumers.
Meanwhile, attorney Sherwin Siy of Public Knowledge, a consumer advocacy group, warned that publishers have started trying to get around the first sale doctrine in the physical world too. Siy pointed to the example of a legal textbook publisher who tried to impose a software-style license on its books, requiring students to return the books rather than resell them.
Overall, though, the most popular solution to the problem of diminished property rights appears to be better licenses.
Buy, rent or lease?
Companies that sell digital media often place a big “BUY” buttons to encourage people to make a purchase — even though consumers aren’t really buying anything, just obtaining a temporary right to use it.
This is a problem, according to UCLA Professor John Villasenor. At the hearing, he argued that the emergence of a “license-based ecosystem” for digital goods means that the first sale doctrine is largely irrelevant in the online world, but that the licenses in question are hopelessly complicated.
“I believe that content providers have at least an ethical obligation — and quite possibly a legal obligation under consumer protection laws — to clearly structure their offerings so that consumers are informed about restrictions accompanying their purchases of digital copies of copyrighted works,” he testified.
In Villasenor’s view, market forces may eventually lead companies like Amazon and Apple to compete with one another on the basis of their license terms — with companies trying to stand out by offering simpler and more advantageous offerings.
In practice, this might lead companies to place a “lease” button next to a more expensive “buy” option. In the “buy” scenario case, the company would provide tools to treat the digital good like an ordinary piece of property, letting the consumer resell it or give it away or bequeath it in a will (see also “3 ways to deal with digital music when you die“).
Indeed, such a future might not be that far off since Amazon already offer lending options to some Kindle customers. What’s more, both Apple and Amazon have obtained patents describing a used marketplace for digital goods. Here’s an image from Amazon’s US Patent no. 8,364,595.
The “parade of horribles” after the Kirtsaeng case
The New York hearing also provided an opportunity for publishers to ask Congress to rewrite first sale rules in the wake of a well-publicized 2013 Supreme Court decision called Kirtsaeng.
The case, brought by publisher John Wiley, challenged the right of so-called “gray market” importers to buy books overseas and then import them back into the U.S. for resale.
The case attracted widespread attention in part because libraries feared that a change in the rule would make it illegal to lend a large portion of their collections, and because some feared that a change in the law would let copyright owners exert control over backyard garage sales. Citing this “parade of horribles,” the Supreme Court ruled against Wiley.
In response, Wiley CEO Stephen Smith told the hearing that Congress should amend copyright law to say that unauthorized importing is forbidden, but that domestic distribution is not — a situation that he claims would not harm libraries and used bookstores.
Greg Cram, Associate Director of Copyright at the New York Public Library, testified, however, that Congress should not disturb the Kirtsaeng ruling. According to the NYPL, the right path for Congress is: “Protect first sale for physical items and monitor evolving digital business models.”
The Bottom Line
When it comes to digital goods, there appears to be little hope of using traditional property rights to protect consumers purchases and to ensure a second-hand market. As a result, many of today’s consumers will have far weaker rights in their libraries and digital music collections than previous generations, and the right of “first sale” will become less familiar.
This isn’t necessarily a bad thing, given how cheap and easy it is to find and distribute digital media. The problem for now, however, is that consumers’ control of the the media they purchase depends largely on the whims of large companies who use contracts to tell people what they can and can’t do with media they lawfully bought.
In a perfect world, these companies will soon compete with each other to give consumers more rights and to be more transparent in their licenses. If they don’t Congress will have to rewrite copyright and consumer protection laws to substitute for property rights lost in a digital world.
This story was amended on June 7 to note ReDigi was “liable for copyright infringement” not “shuttered”.