Bridge Span 14-9: Freedom and First Sale

Last week, the House Judiciary Intellectual Property (IP) subcommittee held a field hearing in New York City to discuss the “first sale” doctrine. The doctrine was first established in a Supreme Court case in 1908 and later codified in the Copyright Act of 1909. For nearly 100 years the doctrine stood without much challenge, but time and technology kept steadily marching on.

First sale is what allows the owner of a copy of a copyrighted work to resell, destroy or loan the copy. As copyright law gives an artist or inventor the exclusive right to distribution of their copyrighted works, this allowance is substantial.

However, first sale does not give any similar latitude in making copies, only in distribution. So, while a person may transfer a CD (because they own it) they may not copy the content of the CD (because the music is licensed from the artist for the CD owner’s use only) and sell those copies — the copy protected material must stay attached to the medium to be transferred. So, someone owning a CD may sell it online, or give it to a friend without concern. This makes sense. Not only does this arrangement generally confirm to what the public expects, it also avoids a really awkward system where a possessor of a copy of a copyrighted work would have to enter into a negotiation with the copyright owner when they wanted to sell or giveaway their CD. So, it is clear and easily understood that the physical medium “bought” imbued with the protected material that is licensed, can be legally transferred to others.

At the field hearing the committee members sought to hear more about first sale in today’s marketplace. They considered such questions as whether the notion that copy protected material is intimately intertwined with a physical medium is relevant today. And whether first sale should be applied to the relatively new world of digital content, where creations are not connected to a physical medium.

To say that technology has advanced radically over the last 100 years is cliché and trite, yet abundantly observable and painfully obvious. That a legal doctrine which is part of the fabric of innovation would need review after more than five generations can hardly be a surprise. That a doctrine fundamentally founded on the state of technology a century ago might not be applicable to new technology is also unsurprising. Few would we be shocked that an area designated “no parking” for horses because of the “pollution” they produce might later be changed to make the area available for car parking. (True story) Facts matter. Change matters.

Access to content today is easier and more pervasive than ever whether music, movies, books or software. Technology provides constant content access at your fingertips. Pandora, Spotify and iTunes; HBO Go, Ultraviolet, Disney Movies Anywhere, Hulu and TV Everywhere; Nook, Kindle and iBooks; app stores galore, just name a few, offer a variety of ways to access content over various devices that simply did not exist even a handful of years ago. We live in age of unbounded consumer choice.

Also, consumers benefit from the wide variety of business models that offer various price points for access to the same content. For example Disney routinely offers a bundle for those who want a DVD, a Blu-Ray disc and digital access. Other producers’ models allow access for a narrow window of time for a different price. Pandora provides an ad supported service for music with an ability to guide the genres, artists and songs a person hears. The consumer is empowered to choose the price that best fits their budget and lifestyle. Digital models also allow consumers to leave the physical medium behind and be able to access content where they want, when they want, with a device of their choosing.

But some argue that this variety must be limited by clinging to models that have more in common with the year of the introduction of the first Model T (1908) than with the technology, markets and consumer desires of today. They contend that a first sale doctrine must exist for digital goods, despite the overtly obvious and critical differences of digital copies.

Digital goods, obviously, have no similar limitations to IP that has been “fixed” in a medium. For example, when IP is fixed in a medium, when that medium is given away, the original owner of it no longer has access to the included creation. Rather, a digital good could be given away over and over again, one copy made into one million in a blink of an eye. The implications are clear. If one digital copy can be “bought,” but then sent to all who may be interested, particularly because such transfer can be done at little to no cost, then the original market for the product ceases. Basic economics teaches that then content creation will be chilled, raising the price of the first legitimate sale by the content creator will have to recoup all of the costs of the content creation, plus a rational profit. Such a “market” is unsustainable.

This is, in part, why the first sale doctrine never has conveyed or included permission to copy, to take someone’s property without asking. First sale only speaks to the right of distribution. On its face, if having the right to distribution means a right to copy, it would not fit within first sale thinking. Nor does first sale somehow convey a notion that any or every piece of IP must be conveyable after a consumer “buys” it. Rather, first sale defines how IP may be conveyed and under what limitations.

Despite the dramatic and obvious differences there are those stubbornly argue that the government should step in and insist a newly crafted first sale doctrine for digital goods. The result would be to lock in a government protected market, rather than allowing the market to continue to adapt to best serve the needs of the consumers. Those who argue for such a radical expansion of the doctrine stand the notion of “fair use” and first sale on its head. They also must deny the rapid advance of science and technology in the last one hundred years, and the market wrecking nature of their proposal.

Certainly such science, and dismal science, deniers should be denied.

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