Thursday, December 12, 2013

PTO/NTIA hearing: first sale

The First Sale Doctrine in the Digital Age

Moderator: Karyn Temple Claggett, Associate Register of Copyrights and Director of Policy & International Affairs, United States Copyright Office

Previous Copyright Office study concluded that first sale only covers distribution and thus doesn’t apply in digital context where reproductions are involved. Expansion wouldn’t serve underlying purposes of doctrine—right to transfer tangible property—and would risk harm. That was 2001; much has changed in legal and business environment. Increased market for digital goods and increased consumer expectation of what they can do with lawfully purchased digital goods.


Emery Simon, BSA, The Software Alliance

The issue for us is not first sale, but licensing. Nature of licensing is changing and marketplace is changing. Copyright is important to us as foundation of our business, which is licensing.  Software is uniquely license based though other industries are looking at it.  Licensing changes everything. We are in transition from distribution to license to access through the cloud or elsewhere. Licensing is under pressure—in Europe, Eusoft, SAP, Adobe—all of which say that a transaction labeled a license was actually a sale. Those decisions require policing by original licensor, and that’s hard to do.

Goal of license: meet consumer expectations and control secondary markets. Two keys to licensing model: (1) clarity on what user gets, (2) respect for user.  We try to account for customer reaction.

John Ossenmacher, ReDigi

We built a technological mechanism to verify digital goods/ownership and to allow for what we believe is lawful transfer from buyer to seller without making copies. We didn’t intend to go to battle.  Clarity: in our legal research, there’s never been a method of delivery specified in first sale.  The issue is the balance of power between different parties, and will that ultimately effect a good result?  There can be a lawful exchange of digital goods between consumers; the tech exists today. (Now I’m thinking about bitcoin and unique identifiers that prevent double-dipping.)  Can provide stronger protection than existed in the analog world.

Allan Adler, Association of American Publishers

Books are unglamorous. Ten years ago, ebooks were viewed as a flash in the pan.  Hyperbole about how quickly readers were going to adopt them.  Reading community has not yet cast its full bet.  AAP is engaged in analog and electronic versions.  We come just at the time at which people are looking at licensing and deciding it needs to be cut back.  All publishers I represent are producing their works in electronic format and following the traditional software model of using licenses. Should it not be allowed to be treated in the traditional way of other software? Markets move more quickly than regulatory regimes. Hard to imagine copyright has hindered innovation in this field. People are now reading books through their telephones. Market continues to surprise us, and we need to be nimble.

Sherwin Siy, Public Knowledge

Two issues: licensing; can you transfer a digital file.  Step back to first sale, not just as a restriction on distribution right. Its origins are the desire to balance the rights of a copyright owner with consumer’s control over her tangible physical property. This includes things like right to publicly display and distribute, but also includes a lot more than that: the ability to use the thing—read the book, listen to the song.  Private display/performance.  These aren’t usually an issue for tangible goods because there’s no §106 right. But with digital goods those do become an issue.  We talk about advantages of digital media, but there are also restrictions from the nature of digital technology. Statute hasn’t kept up with the fact that mere use and transfers of ownership and private performances/displays involve reproductions, and copyright owners have noticed.

Prof. John Villasenor, University of California, Los Angeles

Challenge is to write language that would allow a digital first sale doctrine without creating gaping loopholes exploited to the detriment of rightholders—short term loan problem. Tech is also doubtful: doesn’t doubt that ReDigi is a good system, but the history of digital security solutions is that equally smart people find ways to get past them. Not optimistic that we’d be able to effectively prevent people from making a copy of what they were supposed to delete.  (I’m sure the DMCA can prevent that, right?)

Q: why is digital first sale or sharing important?

Adler: secondary market in books has always been used books.  Books whose actual condition and therefore their value has deteriorated over time. That’s missing entirely with ebooks.  (As a frequent buyer of used books, I resent this blanket description. No one stands over the reseller making the book deteriorate, no matter how pristine its condition.)  An ebook will be identical to a brand new version.

Ossenmacher: that’s not accurate. First sale is fundamentally about control. Deterioration isn’t required.  There are physical books in excellent condition for resale.

Siy: Digital copies do degrade, and their perserverance comes only from copying—the medium itself lasts much less long than paper. There are games/software we have today only because people were able to hold onto copies and archive them (either because copyright owners weren’t around any more or because of a claim of fair use).  New markets created by copyright owners aren’t sufficient. Secondary markets offer new business opportunities for people who are thinking differently—rental markets for videotapes, textbooks—a vastly underserved market from the publishers themselves.  Also nonpocketbook issues: privacy. If you don’t have a secondary market, every copy can be known and you know who’s reading what. Also prevents diffusion of information.

Simon: sure, secondary markets are good. But we regulate secondary markets in used cars and lots of areas.  The notion of having a good doesn’t mean it’s not without dangers.  We license software with rights and responsibilities; creates privity issues. We worry about downstream users’ rights and responsibilities—we do updates, services. We negotiate for all those things. What rights/responsibilities do downstream users have?  It’s not a simple question of transferring possession.  Now that you’ve done that, now what.

Ossenmacher: privacy comes up a lot. There’s something lost when we move to digital that is decoupled from first sale. Now my transaction leaves all sorts of footprints. Anything digital is a privacy challenge.

Q: assuming a secondary market is a good thing, is this something that requires a legislative solution?  You can share some ebooks from B&N, Nook.  (In my experience, this is limited to the point of unusability; the few sharable books are only sharable once and never again.)

Ossenmacher: not realistic. Note that cars today are very software dependent. Huge progress in having secondary market support primary market. Piracy is the issue that we all want to prevent, but if you give people something of value, won’t people protect that good as something more valuable?  A digital good with zero economic value because it can’t be transferred isn’t as good as a good with a secondary market. 

Siy: There is room for additional actors—the market is restrained now. Markets are created by individuals trading, and that doesn’t happen now. Limits suppliers/sources to a few players, and becomes a poorer market.

Villasenor: premature to conclude that market won’t evolve—only short experience with digital access. We’ve seen interesting developments in ebook loaning, Ultraviolet with the movie industry allowing family members/household members have shared access to content. It’s early days.  (In fairness, I doubt he’s a huge fan of §1201 either, but it certainly wasn’t enacted in ‘wait and see’ mode.)  I challenge proponents to come up with good statutory language—how we can solve the short term loan problem.

Adler: secondary markets do benefit users, but don’t benefit the author or the publisher or the rightsholder, other than exposure of the work.  (Pity the Ford Motor Co., losing so much from resales!)  Students think that textbooks are priced too high, but can always sell them back to the bookstore, and the next person benefits by buying more cheaply, but in those transactions the author and publisher don’t benefit. We’d like to see new business models that continue to benefit author and publisher.  Hard to see why copyright owners would entertain the notion of digital first sale as anything but destructive if they can’t get compensated.

Siy: everyone was talking about markets’ flexibility. Tech for digital content has been around for a while. Adoption speed has a lot to do with the legal issues. It’s a bit strange to try to make the law adjust for existing markets when law is so much more slow. Rely on intelligent self-interested actors to build viable markets when the law accounts for various interests.

Pirates are not waiting for the first sale doctrine to change. They aren’t going to claim “oh I got it used.” 

Villasenor: it’s too soon to conclude that licensing won’t work as content owners respond to demands. Plenty to criticize, but they are becoming more flexible.

Q: If we acknowledge that digital first sale would only apply to copies that you own, wouldn’t we also have to expand it to cover copies you lawfully possess if there’s no such thing as ownership digitally? What exactly do you own? Music files, software, ebooks?

Simon: we’ve been in the licensing business from the beginning. You can lease a car or own a car, rent or buy an apartment. Terminology traps us. We are moving from transfer of physical goods to licensing access. Can have all sorts of restrictions on leasing apartment, such as subleasing, that are different from sale. Don’t think of first sale, but think of reality of marketplace as contractual relationships governed by licenses, and the licenses should be respected or you destroy viable markets of the future.  (Interesting analogy, though the landlord/tenant example suggests a huge role for regulators, including restrictions on transfer restrictions and on termination of transfers.)

Ossenmacher: can’t contract around first sale; contracting around legal rights is dangerous. There is a place for everything, but when I lease my apartment I know it’s a lease. When I buy a home I know I’m buying it. Clarity is indeed important. Society needs clear rules. 50-page incomprehensible EULAs are not that.

Q: does the average consumer realize she doesn’t “own” her ebook or music file?

Ossenmacher: our userbase provides much evidence that they belive they own their files and don’t understand the putative difference between buying a physical book and buying an ebook.  (I note that the buttons always say “buy it now,” not “license it now.”)

Simon: true, there is this expectation. People behave differently depending on how they acquired something. But exploiting that creates more confusion. The marketplace is correcting the confusion: I don’t think I own any of the movies I get from Netflix.  That’s the way a lot of works are moving.  Subscription models generally will do away with that transitional expectation gap. Fact that it exists doesn’t mean it should be exploited.

Villasenor: Dangerous to legislatively/judicially upend contracts. Vernor v. Autodesk: if you have a license, then that’s the end of the story. Alarming that the ECJ thinks differently.  But there could be more clarity.  (One theme here and the previous panel is how differently we are used to treating copyright—so differently that we don’t even notice how wildly different the rules are from, say, proving some other kind of injury when a tort has occurred, or regulating transactions in consumers’ interests.)

Adler: contract law has existed for a long time. Fraud, etc. Education is easily done. Reputations live or die by licenses; if consumers find them untrustworthy, they’ll find other vendors. Books are highly competitive. Library ebook lending: main players in popular works all have very different policies. They are evolving, and fast.

Siy: consumers need a clear idea of what’s happening. That’s why we talk about the sale/license distinction; it has real legal consequences. This isn’t a matter of “upending” contracts—the question is the expectations of the contracting parties—which affects whether it is a sale or a license. Even this crowd doesn’t really read the ToS of Amazon. 

The issue of privity is at the heart of the lease/sale distinction. Bobbs-Merrill was exactly about preventing control because the terms didn’t run with the chattels. When I buy a dud at a retailer, I don’t necessarily blame the manufacturer.

Ossenmacher: the copyright owners don’t want there to be a secondary market, period. If there is going to be one, licensing provides control for the copyright owner.  Question is whether that is good or bad. That’s the only reason they say it’s not a sale.

Licensing is fickle. Record industry talks about licensing two ways: when they speak to artists/bands, they say “it’s a sale” on iTunes because the royalty rate to artists is much higher for licenses; to us they say “it’s a license.”

Q from a person from SIAA: how does this work?

Ossenmacher: ReDigi 2.0: no reproduction involved, access from the cloud. A transaction—exchange of access keys without copying/moving files.

Art Brodsky (sp?): Even if a library gets a Harper Collins book, 26 checkouts; Random House, $85 for a “license” when you or I could download it for $10. Are the publishers going to let us own anything? Is ownership over?

Adler: not eliminating ability to own—consumers will ultimately have a choice (unless they are libraries, of course). Examples are companies trying to meet what they heard from libraries: replicate traditional library lending in digital environment—attempted to take into account differences for replacement copies for physical books. You get what you ask for—difficult for consumers to ask for all the new bells and whistles but still want the business model not to change from what they liked. (In the absence of copyright, we’d probably call that supply and demand.) An ebook is a different kind of product.

Q from audience: ownership is not a matter of convenience.  Very few outlets for producing digital books; libraries are unlikely to want restrictions on number of loans.  Contrast with what Internet Archive does with lending to show what consumers actually want.

Corynne McSherry, EFF: Talking about licensing is required.  Can talk about the statute all we want, but EULAs will take it away if they can.  There is empirical research on who reads EULAs: almost nobody.  People don’t understand them.  Eye to purposes of copyright: promote innovation. Hearing a lot about consumers and expectations, but not hearing a lot about innovation. This is important because many of these licenses include restrictions not just on first sale but also fair use etc. This inhibits the freedom to tinker. People I represent don’t just want access; they want to mess with them, spurring further innovation. When we talk about first sale/licensing, we need to talk about how we protect that.

Andrew Schur (sp?), Owners Rights Initiative: Embedded software in cars, refrigerators. All kinds of goods now software heavy. How do you deal with reselling these? Does the consumer own the entire bundle? Consumer doesn’t have a choice when all cars come with software.

Villasenor: he doesn’t think that carmakers are restricting resale in contracts (though he admits he doesn’t know).

Q: but what if you need updates?

A: you aren’t bound if you haven’t agreed.

Simon: this is fearmongering.  Nobody would do that for cars.  I have software updates that are automatic and a map update I paid for. That’s fine, that’s how markets work.  (Yeah, uh, Omega v. Costco suggests not.)

Siy: The solution is not to say “don’t worry, no one will sue”—that’s what they said in Kirtsaeng, and the Court was not impressed.

Simon: people sue over all kinds of things. But positing that refrigerators/cars justify secondary markets in software is just silly.

Q: authors get no benefits from secondary markets?  Silly. Willingness to pay is affected by ability to resell—whether that’s a house, a car, or a book (also my ability to lend to friends, family). 

Adler: we didn’t say that there was no benefit. We’re talking about compensation. There are also wild cards. Kirtsaeng: 40 years of national exhaustion flipped to international exhaustion, which would have to be under discussion in any change in first sale. A court recently decided that publishers can’t always determine the price at which they offer their goods, because sometimes retailers (Amazon) will be able to tell them what the books will sell for regardless of whether publishers agree.

Brandon Butler, AU WCL: Librarians scoff at the idea that digital lasts forever, unlike paper. It’s exactly the opposite. Paper will last forever if you leave it alone; buying music on different platforms and computers = disappear faster than you imagine. Don’t think that digital doesn’t degrade, doesn’t need replacement.

Villasenor: we’re in a transition period. When you have stuff on personal devices, that degrades. Cloud-based systems can last effectively forever.  200 years, this recording will be viewable. Challenge in providing access to that, but that’s not digital first sale.

Adler: we aren’t saying digital will last forever. But practically when someone buys a physical book used they expect the possibility of some deterioration. Resale markets for ebooks: people won’t find it acceptable if ‘this program no longer does the following things/has the following functions.’ The only ones they’ll buy are ones that work just like the new one.

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