Resale Markets for Digital Music

This chapter considers the ways in which the shift to digital distribution of copyrighted works alters the legal status of secondary markets for music. For centuries, the principle of exhaustion and the first sale doctrine have permitted owners of copies to resell or otherwise transfer their purchases. In a market largely defined by licensed digital downloads and streaming services, the application of those legal principles is uncertain. As a threshold matter, consumers may not count as owners for first sale purposes. Moreover, the transfer of digital files may entail acts of reproduction beyond the scope of the statutory first sale doctrine.

Controlled Digital Lending

Controlled digital lending is an intriguing model for libraries to make books available digitally. Building on fair use and the first sale doctrine, libraries digitize their print books, put the print books in dark storage, and lend one electronic copy for each print copy on a platform that prevents users from copying or redistributing electronic versions. The concept empowers libraries to digitize in-copyright books when there are no alternatives available in the e-book licensing market. AMBS Library experimented with a small pilot controlled digital lending collection using Internet Archive’s established digitization and controlled digital lending services. This session reported on the results of that experiment.

Intellectual Property's First Sale Doctrine and the Policy Against Restraints on Alienation

The first sale doctrine decouples intellectual property and physical property. Suppose, at an auction at Sotheby’s, someone bought a contemporary painting by Chuck Close. The buyer now owns the physical painting, but the copyright to the painting remains with the owner of the copyright—the painter Chuck Close or whomever Close may have transferred the copyright to. Absent the first sale doctrine, if the buyer either sold the painting or displayed it to the public, the buyer would potentially infringe the copyright in the painting. The copyright owner has the exclusive right to display copies (including the original, the first copy) of the painting to the public and to distribute copies to the public. However, the first sale doctrine provides that the owner of an authorized copy may display or distribute that particular copy without infringing. The distribution right and display right no longer apply; these rights are “exhausted.” Permission from the copyright owner is not required to resell copyrighted works or to display them. First sale permits a broad swath of activity. Used bookstores, libraries, swap fests, eBay, students reselling casebooks, and many more may rely on first sale to protect their distribution of copyrighted works. Museums, galleries, archives, bookstores, and more can likewise display their copies of copyrighted works without infringing under first sale. First sale (more commonly called “exhaustion” in patent law) also applies to patented products. Someone who buys a patented product (such as a pharmaceutical, computing device, or printer cartridge) can use or resell that product without infringing the patent, even though the patent owner has the rights to exclude others from using or selling the invention. First sale enables markets for resale or lease of patent products, from printer cartridges to airplanes. First sale has its limits. In copyright, it applies only to the rights to distribute and to display the work. The copyright owner also has the exclusive right to make copies, to adapt the work, and to perform the work publicly, which are not subject to first sale. The painting buyer would potentially infringe if the buyer made a copy of the painting or adapted it into another artwork, but the buyer could not infringe the performance right, because one cannot perform a painting. The owner of a copy of a musical work may infringe if she performs it in public, which is why bars need licenses to play copyrighted music, even using copies they have purchased. The owner of a copy of a movie may infringe if she adapted the movie, such as making a sequel—or even dubbing the movie in another language. In patent, first sale likewise would not authorize the purchaser of a product to make additional copies. Similarly, first sale in patent would authorize the buyer of a patented item to use it or resell it, but not to make another one. First sale is long-established, by statute in copyright and by judicial interpretation in patent. The underlying policy of first sale, however, has been unsettled. First sale can be seen to rest on either of two rationales. The first is a contract-based, gap-filler approach. If someone sells a painting, one would expect an implicit agreement that the buyer could display the painting or resell it, as both actions are customary with artworks. To simplify transactions, the rights to resell and display are automatically included in the transaction. The other justification is the policy against restraints on alienation, borrowed from the law of real property. Someone who sells property may not impose unreasonable restraints on the buyer’s ability to resell the property. As transplanted to intellectual property law, once a party voluntarily parts with a copy, she should no longer be able to control what the buyer does with it. Hence, her rights are “exhausted” in that particular copy. The underlying rationale is important for determining the extent of the first sale doctrine. If first sale is a gap-filler, then the parties could contract around it, agreeing that the property sold would not be subject to first-sale rights. If first sale is a policy-based bar against unreasonable restraints on alienation, then first sale is mandatory—it is not subject to the agreement of the parties but rather is the opposite: a limit on the enforceability of their agreement. Both strains can be seen in the case law. Two recent Supreme Court cases, however, decisively rested first sale on the restraints-against- alienation rationale, expressly rejecting the proposition that parties can contract around first sale. This Article explores the implications of those cases for the boundaries of first sale, focusing on two issues. First, California’s resale royalty law required that artists receive 5% of the proceeds on resale of their work. The Ninth Circuit held that the California statute was preempted by the first sale doctrine of federal copyright law. We conclude that, if first sale serves to prevent unreasonable restraints on alienation, such resale royalty statutes should be valid. Rather than an unreasonable restraint on alienation, they permit resale, imposing a modest burden for a purpose entirely consonant with copyright law: rewarding authors. Second, software sellers have long avoided first sale by characterizing software sales as mere licenses, while formally retaining ownership of the software after delivery to the buyer. Courts have enforced transactions according to the parties’ contract. We conclude, however, that such transactions, which are intended to prevent resale of software, should be characterized as sales in substance, triggering first-sale rights to resell the software, overriding the contractual restraint on alienation.

Libraries

Public and academic libraries have been among the very best customers for publishers. The publisher–library relationship is effectively symbiotic with mutual benefits. However, the digital revolution, changing cost structures, long-term declines in library funding, open access, changes to copyright, fair use, and the first-sale doctrine have unsettled longstanding practices. Perhaps inevitably these transformations have led to libraries experimenting with establishing their own publishing initiatives, helping patrons to publish their own work, or in the academic setting partnering with existing university presses to develop new publishing models. The responsibility for curation, previously largely resting with libraries, has now become a responsibility shared to varying extents with publishers. —However, the way publishers and libraries interact is changing—considerably.

Revisiting Copyright Theories: Democratic Culture and the Resale of Digital Goods

This study surveys theoretical justifications for copyright and considers the implications of the notion of cultural democracy in regard to copyright law and policy. In doing so, the study focuses on the first sale doctrine and advocates for the doctrine’s expansion to digital goods based on a discussion of the doctrine’s policy implications and a review of the arguments for and against a digital first sale doctrine. The study argues that democratic copyright theories, in general, and the notion of cultural democracy, in particular, can and should guide copyright reforms in conjunction with a digital first sale doctrine. This study contributes to the growing discussions about the democratic theories of copyright by demonstrating their applicability to copyright policy and doctrine.

Why License Agreements Do Not Control Copy Ownership: First Sales and Essential Copies

In this paper I argue for an analytic approach that courts should employ when determining ownership of a tangible copy of a copyrighted work. Courts are surprisingly divided on this apparently simple question, as I will detail several distinct and conflicting approaches, sometimes adopted within the same Circuit. I argue that a correct approach to determining copy ownership must be logically correct, must respect precedent, and must respect congressional choices. To be logically correct, a court's approach must not equivocate with respect to the ambiguously used term "license" and must not conflate ownership of a copy with ownership of a copyright. It also must not look to factors that are wholly orthogonal to resolving the issue. To respect precedent, a court's approach must consider the lessons of the few relevant Supreme Court cases – which are now rarely cited at all – and should not needlessly create Circuit conflicts. These precedents suggest that the Supreme Court is hostile to boilerplate attempts to use contract to thwart the first sale doctrine and has repeatedly rejected contract restrictions that attempt to expand the monopoly granted by Congress beyond its intended scope. To respect congressional choices, a court's approach should recognize how the careful enumeration of a copyright owner's rights in 17 U.S.C. § 106 and the limitations on and exceptions to those rights in sections 107 through 122 act together to create federal policies, embodied in the Copyright Act, that achieve the purposes and objectives of Congress. Once these sections and their interaction are properly understood, courts must at least ask whether the enforcement of un-negotiated contracts of adhesion between parties of unequal bargaining power is statutorily or constitutionally preempted. In presenting the approaches taken by courts and in arguing for a correct approach I will conclude that a right to perpetual possession of a copy is the primary, if not the dispositive factor, in correctly determining copy ownership. I conclude by applying this approach to the facts of MDY Industries LLC v. Blizzard Entertainment, Inc. in order to illustrate why the district court's holding on copy ownership was erroneous.Suggested Citation: Brian W. Carver, Why License Agreements Do Not Control Copy Ownership: First Sales and Essential Copies, 25 Berkeley Tech. L.J. 1887 (2010).