Hot Topic: Do Consumers Have a Right to Re-Sell Copies of Movies, Songs and Books?

Capitol Records East Plaza 2011

Capitol Records East Plaza

What does it mean to "own" something in an age where goods and information travel beyond borders, often in 1's and 0's?

In the next few weeks and months, two important cases will address the "First-Sale Doctrine," the part of copyright law allowing those who have purchased copies of movies, songs and other creative works to re-sell these goods without the authority of the original copyright owner. On October 29, the U.S. Supreme Court will hear oral arguments in Kirtsaeng v. John Wiley & Sons, Inc., a dispute over whether copyrighted books manufactured outside of the United States can be imported domestically and then re-sold. And in a separate case, a federal district court judge will soon hand down a decision in Capitol Records v. ReDigi, a fight over an upstart digital service that allows its users to buy and sell "used" digital music.

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Both battles have the potential of impacting what people think they know about the meaning of ownership.

At the Supreme Court, a spotlight will soon shine upon Supap Kirtsaeng, an immigrant from Thailand who came to the United States to study mathematics and attempted to save money by asking his friends and family back home to purchase textbooks and ship them to the United States.

After reading up on the first-sale doctrine, codified in USC §109(a), Kirtsaeng began to sell these textbooks to others on eBay. After making $37,000, he was sued by John Wiley, a textbook publisher. A jury found his copyright infringement to be willful. He was ordered to pay $75,000 per work for a total penalty of $600,000. He appealed, and lost at the 2nd Circuit, and is now about to press his arguments to the high court.

Kirtsaeng looks at the Copyright Act and says that the law shouldn't be interpreted to mean that a copy made abroad can't ever be transferred without the permission of the copyright owner. To read the law like this, argue his attorneys, would mean a foreign-made copy could never be imported to the U.S. without the blessing of its maker. To accept this line of thinking, adds Kirtsaeng's side, could mean Hollywood studios preventing Netflix or Redbox from renting or selling used DVDs simply by manufacturing them in Mexico. What's more, goods that have only a loose relationship with copyright could be limited on the secondary market. Recently, for example, the 9th Circuit Court of Appeals considered the case of a Swiss watchmaker that put tiny insignia on watches in order to gain copyrights and stop the "grey market."

Kirtsaeng argues the first-sale doctrine wasn't designed to give copyright owners a stranglehold on the used-goods market, but attorneys for John Wiley point to other aspects of copyright law -- the section governing exclusive distribution rights as well as the section dealing with illegal importation. It's the interplay between these various sections of copyright law where Kirtsaeng's fate will be decided.

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John Wiley -- as well as the U.S. government in an amicus brief -- see the first-sale doctrine phrase, "the owner of a particular copy...lawfully made under this sell...," and argue that the italicized portion makes the right to re-sell subservient to the other sections. John Wiley says that "under this title" isn't the equivalent of "on United States soil" but rather tantamount to meaning that a copyright owner is vested with the ability to obtain a satisfactory price for works in the exercising of exclusive rights.

In other words, by robbing copyright owners of the ability to stop parallel imports of non-counterfeit goods, this would destroy the ability of publishers to set pricing how they see fit. This argument might not gain sympathy from those who fear that libraries would lose the right to rent foreign-produced books, but imagine a student in a third world nation who suddenly can't afford more costly books because a publisher can't risk offering discounted works without fear of importation into the richer nation.

In an amicus brief, the MPAA and RIAA echo this position. "Extending the first sale doctrine to copies made abroad for distribution in a foreign market could impede authors' ability to control entry into distinct markets, limit their flexibility to adapt to market conditions, or undermine territorial licensing agreements," they write.

Other consumer-minded groups are unconvinced.

If the Supreme Court were to accept copyright owners' line of thinking, Public Knowledge and the EFF argue it would vastly inhibit the ability to transfer ownership at large. Forget that hypothetical student in a poor nation. Please consider the economically disadvantaged child in the U.S. who can only enjoy Christmas through a charitable gift. They write, "Under the Second Circuit's interpretation of Section 109(a), both Toys for Tots and the individuals donating toys to Toys for Tots are liable for copyright infringement for all copyrightable toys or toy packages that were manufactured outside of the United States."

The Supreme Court will have this to consider on October 29.

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Of course, much of the discussion before the high court pertains to physical goods like printed books and tangible DVDs and CDs. Many of these goods will be rendered archaic as more and more copyrighted content is sold (or licensed) through digital vendors like iTunes.

For resolution to the growing noise over whether movies, books and songs in digital form gain protection under the first-sale doctrine, another decision is forthcoming, which might be of interest to folks like Bruce Willis, recently rumored to be considering a lawsuit against Apple for limiting his ability to pass along his extensive iTunes collection to his children.

Earlier this year, Capitol Records sued ReDigi, a service that sees itself as a second-hand digital music store. Now, the parties have submitted arguments in anticipation of a summary judgment.

"This is a case of first impression, and here Capitol seeks to create precedent that the first sale doctrine cannot apply to digital goods," says ReDigi in legal papers. "This would be an extremely lucrative and convenient outcome for Capitol, as it would ensure that Capitol could control the use and alienation of digital phonorecords to their own repeated advantage where copyright law does not provide for unlimited, perpetual control."

In reaction, the record industry refutes the very essence of what ReDigi purports to be and offer.

"Digital music files have been around for nearly two decades," says Capitol in its own legal papers. "Unlike ReDigi, no party has been brazen enough to recast them as 'used' or to peddle them in an imaginary 'secondary market' -- notions ReDigi invented -- because it has always been plainly understood that unauthorized digital transfers involve reproduction and distribution in violation of the Copyright Act."

The matter is now before U.S. District Court Judge Richard Sullivan, who on Friday, held a two-hour hearing where both sides put their respective positions forward.

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The discussion at the hearing was as much about the technology at issue as it was about the vagaries of the first-sale doctrine that the Supreme Court will soon be considering.  The record label told the judge that the first-sale doctrine isn't implicated in the instances of a reproduction. But ReDigi is firm in its own belief that its system isn't about reproduction; but rather is about allowing users to control where their music is stored and when and how users can "migrate" that music.

Sullivan's decision should come within weeks, and will likely be appealed, meaning that no matter what the Supreme Court decides, the essence of ownership at the dawn of cloud computing will continue to be cloudy.

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