In testimony last week to the House Judiciary Committee, nonresident senior Fellow John Villasenor offered his argument against modifying U.S. copyright law to introduce a broad digital first sale doctrine. He said that it “would lead to unintended consequences that would dramatically reduce the ability of content creators to be properly compensated for works sold digitally.” (Hillary Schaub explains the unintended consequences in her post on Tech Tank blog.)
What is first sale doctrine and how would it apply to the digital world?
Villasenor, also a professor of electrical engineering and public policy at UCLA, explained it with the example of buying, then lending, a paperback book:
[C]onsider a person who walks into a bookstore in the United States and purchases a brand new paperback book. Suppose that after she has finished reading the book, she decides to loan it to a friend who lives nearby. Thanks to the first sale doctrine, she is able do this without obtaining permission from the copyright holder. In the language of the doctrine, as the “owner of a particular copy” of the book, she is “entitled, without the authority of the copyright owner,” “to dispose of the possession of that copy”—in this example by loaning it to a friend.
No new copies are created when she loans the book, donates it to a library, or sells it at a garage sale. In each of these transactions, the single copy purchased at the bookstore simply gains a new custodian. As a result, the copyright holder’s reproduction right is not implicated. In addition, while loans, donations, and resales are distributions, the first sale doctrine frees the purchaser of the book to engage in these transactions without obtaining the authorization of the copyright holder. Stated another way, the copyright holder’s exclusive distribution right with respect to that particular copy of the book was exhausted after the “first sale.”
This doctrine, Villasenor explained, “has roots in a broader recognition that markets are generally healthier when owners of goods have a high degree of flexibility in determining if, when, and under what terms they are later placed back into the stream of commerce.” A copyright owner’s “right to vend” did not include the right “to control all future retail sales,” according to the Supreme Court’s ruling in the 1908 case Bobbs-Merrill Co. v. Strauss.
“We have the first sale doctrine to thank for libraries, used bookstores, [and] garage sales,” said Villasenor, “where we can rummage through used music CDs, and, just in the past few years, the hundreds of ‘Little Free Libraries’” across the country. “The first sale doctrine has been, and continues to be, a powerful and positive force in the broader culture.”
A Digital First Sale Exception?
In the digital era, by contrast, the transfer of a copyrighted work does not involve the “movement of a physical storage medium such as a vinyl record, CD, DVD, or paper.” Instead, the transfer occurs electronically, and thus a copy is made. Here, one must consider both the “reproduction right” as well as the “distribution right.” First sale doctrine is an exception to a copyright owner’s distribution right. As Villasenor explained to the committee:
In its current form, the first sale doctrine does not enable the owner of a lawfully made digital copy of a work to loan, sell, or otherwise dispose of it through a digital file transfer over the Internet without the authorization of the copyright holder. The reason is simple: The first sale doctrine is an exception to the distribution right, not to the reproduction right. A digital transfer of a file from one location to another implicates both rights, because a new copy of the work is created at the destination of the transfer. …
Another well-recognized aspect of digital works is that the concept of “used” loses its meaning. On average, used printed books, CDs, and DVDs are less valuable than their brand new counterparts. By contrast, a digital representation of a work can be transferred over the Internet thousands of times and remain literally bit-for-bit identical to the version originally delivered pursuant to a first sale. Markets where works offered for resale are indistinguishable from new works will behave very differently from markets where that distinction is clear.
… the first sale doctrine has historically worked in part because physical copies of works degrade with use, because they cannot be traded instantly and temporarily among parties separated by thousands of miles, and because it is impossible to loan a paperback book to a friend while simultaneously keeping it on your own bookshelf.
Changing the current law, which for the purposes of this hearing means mostly 17 U.S.C. §109, according to Villasenor, to create a digital first sale doctrine by adding an exception to the reproduction right would, he said, “be exploited to engage in dispositions that are unique to digital content, opening up a Pandora’s box of unintended consequences.”
Shift to Better Licensing-based Models
In the end, Villasenor argued that “modification of U.S. copyright law to introduce a broad digital first sale doctrine would be a mistake” due to the unintended consequences that would result. Instead, he says, for the licensing-based models that are becoming more common—meaning that consumers are not taking ownership of a digital product—the first sale doctrine does not apply. And instead of modifying the law to add an exception for the reproductions that accompany digital distribution, he told the committee that “Content providers should provide consumers with clearer disclosures regarding the permissible and prohibited uses of licensed content.”
Currently, Villasenor noted, “license agreements can be mind-numbingly complex, often containing clauses with ambiguous wording susceptible to conflicting interpretations even among attorneys who specialize in contract law.” He also wrote that “content providers have at least an ethical obligation—and quite possibly a legal obligation under consumer protection laws—to clearly structure offerings so that consumers are informed about restrictions accompanying their purchases of digital copies of copyrighted works.”
While these issues are of vital importance to the creative content ecosystem,” Villasenor concluded:
they cannot and should not be addressed through changes to copyright law. And they should not be addressed through judicial decisions that might retroactively and improperly reclassify contractually valid license agreements as sales. Instead, they should be addressed by ensuring what in fact should be common sense: that consumers who license copyrighted works have access to clear up-front descriptions regarding the permitted and prohibited uses of the content.
Once that occurs, I am optimistic that market forces will lead to future license-based content offerings giving consumers many more options than those commonly available today. And, in contrast with attempting to address digital content dispositions through a one-size-fits-all statutory approach, allowing the market to experiment with a diversity of solutions is more likely to result in balanced approaches that, among other things, could permit licensees to engage in dispositions of digital content analogous to those that have long been available to owners of tangible copies of works.
Villasenor is author of an article from which some of this testimony was adapted. See “Rethinking a Digital First Sale Doctrine in a Post-Kirtsaeng World: The Case for Caution,” Competition Policy International Antitrust Chronicle (May 2013).