digital first sale · 10/10/2019 · disney sells “combo packs” with dvd, blu-ray, and...

Digital First Sale

Bill RosenblattGiantSteps Media Technology Strategies

October 10, 2019

About Your Presenter

President, GiantSteps Media Technology StrategiesConsulting on technology related to copyright and digital media Expert witness in copyright and patent litigations Advisor to public policy entities internationally Adjunct professor, NYU Music Business programChair, Copyright and Technology conferences Forbes contributor

Outline

First Sale Rights: What Is Digital First Sale?Legal Developments, 1997 to PresentCurrent Market and TechnologyThoughts for the Future

Introduction:

First Sale Rights

What happens when you buy a book?

You can…Read itLend itSell itGive it awayUse as a doorstop

What happens when you buy an e-book?*

You can…Read it~ Lend itSell itGive it awayUse as a doorstop~ Sync devices

*Most e-books in the U.S.

What happens when you buy a CD?

You can…Listen to itLend itSell itGive it awayUse as a coaster

What happens when you buy an MP3 file?

You can…Listen to itLend itSell itGive it awayUse as a coasterSync devices

What happens when you buy an MP3 file?

You may…Listen to itLend itSell itGive it awayUse as a coasterSync devices*

*Via fair use.

Sale vs. License

Physical products Sale § 106 rights bundle Store is a sellerUser is a buyer Publisher and seller

cannot restrict rights

Digital files License (EULA) Store’s Terms of Use Store is a licensorUser is a licensee Publisher and licensor can

set whatever rights they want

The First Sale Doctrine (§ 109)

“… the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.”

Amazon Kindle Store Terms of Use

“… the Content Provider grants you a non-exclusive right to view, use, and display such Kindle Content an unlimited number of times … , solely through a Kindle Application or as otherwise permitted as part of the Service, solely on the number of Supported Devices specified in the Kindle Store, and solely for your personal, non-commercial use. Kindle Content is licensed, not sold, to you by the Content Provider. …Unless specifically indicated otherwise, you may not sell, rent, lease, distribute, broadcast, sublicense, or otherwise assign any rights to the Kindle Content or any portion of it to any third party.”

Digital First Sale

You can and may…Read/listen to itLend itSell itGive it awayUse as a doorstop/coasterSync devices*

*Via fair use.

Legal Developments

Digital First Sale Timeline

1997: Boucher-Campbell bill (failed in Congress) 2001: US Copyright Office Section 104 Report 2010: Vernor v. Autodesk (9th Cir.) 2012: Oracle v. UsedSoft (CJEU) 2016: USPTO White Paper 2016: VOB v. Stichting Leenrecht (CJEU) 2018: Disney v. Redbox (CDCA) 2018: Capitol Records v. ReDigi (2nd Cir.) 2019: NUV & GAU v. Tom Kabinet (CJEU)

Copyright Office Section 104 Report (2001)*

§ 104 of Digital Millennium Copyright Act (1998)Directed USCO to report to Congress on effects of

DMCA on § 109 (and § 117)Many commenters stated that DMCA § 1201 and

“clickwrap” restrictions lead to need for digital first sale right

USCO considered a “forward and delete” scheme for implementing digital alienation while curbing abuses

USCO rejected this idea as impracticable*https://www.copyright.gov/reports/studies/dmca/sec-104-report-vol-1.pdf

Copyright Office Section 104 Report (2001)

“[U]nless a ‘forward-and-delete’ technology is employed, transfer of a copy by transmission requires an additional affirmative act by the sender. … it would be difficult to prove or disprove whether that act had taken place, thereby complicating enforcement. … Even the use of ‘forward-and-delete’ technology … is not a silver bullet. Technological measures can be hacked; they are expensive; and they often encounter resist[a]nce in the marketplace. … Even assuming that [forward-and-delete] is developed in the future, the technology would have to be robust, persistent, and fairly easy to use. ... Even so, the technology would probably not be 100 percent effective.”

Vernor v. Autodesk (9th Circuit, 2010)

Timothy Vernor sold used office equipment on eBay, including software on CD-ROMs

Autodesk makes expensive AutoCAD software Vernor sought declaratory judgment that resale of AutoCAD

CD-ROMs did not violate Autodesk’s license agreement Lower court found for Vernor, 9th Circuit overturnedHolding: terms in a EULA that are more restrictive than

copyright terms are enforceable I.e., “Verbal DRM” is a thing

Oracle v. UsedSoft (CJEU, 2012)

German firm UsedSoft sells “used” software downloads Oracle’s license agreement forbade resaleOracle sued for breach of license agreementCJEU found for UsedSoftHolding: exhaustion* applies for software, but only software Subsequent holding that volume licenses can be split upHolding applies throughout EU

*Term for “first sale” outside the U.S.

CJEU: Why Only Software?

Software is a tool, not a literary, musical, or visual work Software is run on a computer, not rendered for a user Software often comes with license agreements that cover

maintenance & support Software is perpetual; literary, musical, and visual works often

have their “utility exhausted” after one use Software eventually becomes obsolete anywayOther reasons to do with EU Directive 2009/24 on legal

protection of computer programs

VOB v. Stichting Leenrecht (CJEU, 2016)

Vereniging Openbare Bibliotheken (VOB): Dutch Public Library Assn Stichting Leenrecht: collecting society for library lending royalties Lawsuit over whether libraries can lend e-books without explicit licenses Holding: libraries can lend e-books if “… the digital copy of a book made

available by the public library [was] put into circulation by a first sale or other transfer of ownership of that copy … by the holder of the right of distribution to the public or with his consent[.]”

Establishes lending right for e-books in the EU … or does it?

Yet VOB has little practical consequence

Libraries don’t “buy” or “own” e-books, they license the content from publishers

Libraries don’t transfer single copies of e-books, they make multiple variations and distribute them to users

… so the idea of transferring a legally obtained copy that isn’t “bought” or “owned” in the first place is (doubly) irrelevant

Case is remanded to lower court in the Netherlands

USPTO White Paper (2016)

White Paper on Remixes, First Sale, and Statutory Damages: Copyright Policy, Creativity, and Innovation in the Digital Economy*

USPTO advises Executive Branch on copyright issues Difficult to measure impact of loss of resale benefits against harm to

copyright owners from digital resale Market has moved on from ownership to access models Expanded first sale rights could curtail innovative business models USCO Section 104 Report findings still valid Ergo do not recommend changing the law

*http://www.uspto.gov/sites/default/files/documents/copyrightwhitepaper.pdf

Disney v. Redbox (CDCA, 2018)

Disney sells “Combo Packs” with DVD, Blu-ray, and download codes Redbox bought Combo Packs, put discs in its kiosks for rental, then

resold the download codes online Disney claimed that licenses forbade unbundling and resale of download

codes, sought preliminary injunction Judge found that licenses only covered download codes;

DVDs & Blu-rays were sold copyrighted works Judge also found that license agreements were both insufficiently

substantive and overly restrictive (likely copyright misuse) Disney beefed up legal language in license agreements to satisfy Court;

succeeded in preventing Redbox from reselling download codes

Redbox and the Physical/Digital Dichotomy

DVDs & Blu-rays Sale of copyrighted work User can alienate per § 109

Download codes License (EULA) Alienation rights controllable by

“verbal DRM” per Vernor

Disney Combo Packs

Capitol Records v. ReDigi (2nd Cir., 2018)

ReDigi: startup company, ran resale market for iTunes music files ReDigi system made copies of users’ files in order to effect resale Lower court found for Capitol in 2013: copies made are infringing; first

sale doesn’t apply. ReDigi appealed. 2nd Circuit affirmed lower court holdings:

– Copyrighted work must be a physical object– Resale of hard drive OK but individual files not OK– First Sale applies to distribution but not reproduction right

Opinion validates USCO Section 104 Report, 17 years hence ReDigi designed cloud-based “2.0” system that doesn’t make copies to

effect resale (though is enjoined from launching it) But does anyone still care?

NUV & GAU v. Tom Kabinet

Nederlands Uitgeversverbond (NUV) and Groep AlgemeneUitgevers (GAU): Dutch publishers’ trade associations

Tom Kabinet: Dutch “used e-book” sellerUsers upload e-books on website to resell them Possible in NL because most e-books don’t have DRM Lower court finds for NUV & GAU, enjoins Tom Kabinet Tom Kabinet relaunches with “points” model and appealsCourt of the Hague refers questions to CJEUMatter pending before CJEU

Opinion of Advocate General to CJEUSeptember 2019

Downloading requires reproduction and implicates communication to the public but not distribution (3 rights recognized in EU law)

Concurs with U.S. 2nd Circuit in ReDigi:– Distribution is the only right subject to exhaustion, ergo

exhaustion doesn’t apply (unless the law is changed)– “Consistency of copyright law” is not a good reason for courts to

apply exhaustion to digital files Concurs with USCO Section 104 Report:

– “Forward-and-delete” is impracticable Concurs with the USPTO White Paper:

– The market has moved on, so no point in changing the law

Current Market and Technology

Has the Ship “Resaled”?

Music– Downloads now DRM-free– Download market collapsing– Streaming (access, not ownership)

now dominant Movies

– Downloads never a big market– Streaming now dominant

Images / visual works– Images are DRM-free– Market mostly B2B, not B2C– Images have always been

licensed, not sold Software

– Downloaded software has licensing & protection built in

– Software-as-a-servicemodels now dominant

E-books– … hold that thought …

*http://www.uspto.gov/sites/default/files/documents/copyrightwhitepaper.pdf

Recorded Music Revenue and ReDigi

0

1000

2000

3000

4000

5000

6000

7000

2011 2012 2013 2014 2015 2016 2017 2018

ComplaintFiled

SDNYDecision

USPTOWhite Paper 2nd Circuit

Decision

11% and falling

63% and rising

Downloads

InteractiveStreaming

0

20

40

60

80

100

120

140

160

0

1000

2000

3000

4000

5000

6000

7000

2011 2012 2013 2014 2015 2016 2017 2018

Recorded Music Revenue and ReDigi(and Netflix)

ComplaintFiled

SDNYDecision

USPTOWhite Paper 2nd Circuit

Decision

11% and falling

63% and rising

Downloads

InteractiveStreaming

NetflixSubscribers

DRM and Digital First Sale

Restricts usage to individual users or devices Used with videos and e-books* but not music or images Can support cross-device syncing

– And often does (e.g. Amazon Whispersync) Can support format conversion

– But hardly ever does Can support controlled lending & rentals

– And occasionally does (e.g. Amazon Kindle Loan option) Can support resale

– A few unsuccessful startups tried this (e.g. Weed, Peer Impact) Must be used to have an abuse-resistant resale market

– Forward-and-delete can be thought of as variant of DRM

*In US and many other countries; but not NL, AT, HU, SE, IT, and a few others

Blockchain as a Solution?

What is a Blockchain? Distributed ledger (database) of transactions Owned by no one Every participant has complete, current copy at all times Rules & protocols to ensure validity of transactions added to it Highly secure and persistent

34

Block N-3Validation:

45907249027

Previous block

Transaction3258929823




33379719510

Previous block





09217808601

Previous block




Block NValidation:

70064754659

Previous block




Blockchain E-Book Ownership Transfer

E-book purchase recorded on blockchain Buyer can resell, lend, rent, give away Ownership transfers recorded on blockchain Each purchase = one copy (just like print) Requires strong DRM

35

Blockchain – Ownership Transactions

User A User BA B

Sell, Lend, Give

What happens when you buy an e-book?

You can…Read it~ Lend itSell itGive it awayUse as a doorstop~ Sync devices

What happens when you buy a blockchain e-book?

You can…Read itLend itSell itGive it awayUse as a doorstopSync devices

Thoughts for the Future

Alienation Rights on Subscriptions?

Netflix, Spotify, Amazon Kindle UnlimitedPlayStation Now, Xbox Game PassMicrosoft Office 365, Adobe Creative SuitePatreon subscriptions?Health insurance?

digital first sale · 10/10/2019 · disney sells “combo packs” with dvd, blu-ray, and...

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