Tag: first sale

The First Sale Doctrine and the Sale of Digital Goods in Light of Kirtsaeng and ReDigi, Inc.

Under the first sale doctrine (17 U.S.C. § 109) an owner of a particular lawfully made physical copy or phonorecord of a copyrighted work can generally lend, resell, or dispose of the item without permission from the copyright holder.* The first sale doctrine doesn’t mean that you can reproduce the work, create derivative works, or publicly perform the work, but it does mean that you can resell that textbook you bought on  Amazon or sell your old DVDs or CDs to a used bookstore or through eBay. Two recent decisions have attempted to clarify the scope of the first sale doctrine: Kirtsaeng v. John Wiley & Sons, Inc. and Capitol Records, LLC v. ReDigi, Inc.

In the Kirtsaeng case, Supap Kirtsaeng purchased foreign editions of textbooks in Thailand, shipped them to the United States, and then resold the books for profit.  The Supreme Court held that the first sale doctrine would apply in this case, as the doctrine extends to copies of a copyrighted work lawfully made abroad.

Previously, we discussed the importance of this ruling for libraries. It is important to note, the Court’s decision in Kirtsaeng is limited to the sale of tangible or physical items. In our advancing technological world, questions remain in how far the first sale doctrine extends to the sale of digital goods. In other words, can a consumer resell songs purchased on iTunes or eBooks they have downloaded to their Kindle?

Traditionally the purchase of digital goods has operated under a license agreement, meaning that consumers do not own the works they purchase. Without lawful ownership of the goods, a consumer does not have the right to resell that good. But recently, some companies have devised a way to resell digital goods. In these instances, the seller of the digital good loses their access to the content once another individual has bought the good. A recent case, Capitol Records, LLC v. ReDigi, Inc., has given us a preliminary look into how courts may handle this digital goods question.

ReDigi is a cloud service that allows users to resell pre-owned digital music files, in the same way a person may sell an old textbook through Amazon’s Marketplace or an old CD through a used record store. Once ReDigi has verified that the digital file is legally eligible for resale (meaning that the user purchased the song legitimately from iTunes), the digital file is pulled from the user’s computer onto ReDigi’s cloud server. From there other users may purchase and download the “used” music file.

Capitol Records brought suit against ReDigi on the grounds of copyright infringement. The United States District Court for the Southern District of New York held that ReDigi’s website infringed Capitol Record’s rights of reproduction and distribution, and that the distribution of the digital music files was not covered by the first sale doctrine. The court reasoned that the process of creating a copy of the work on ReDigi’s cloud server was an unauthorized reproduction (the first sale doctrine applies only to lawfully made copies that are distributed, not reproduced) and that because an additional copy was made for the server, users did not distribute or sell the particular copy that they had originally purchased.

Lawyers for ReDigi have indicated that they plan to appeal, and it is unclear how many other courts will adopt the reasoning of the United States District Court for the Southern District of New York.

For future cases involving digital goods, it is possible that a court may draw a distinction between digital goods and physical goods for purposes of the first sale doctrine, given the differences between the two. Digital copies can be copied and resold an infinite amount of times, and they can be resold in the exact same condition as an original purchase. In other words, it is not the same situation of buying a used (and worn) copy of a work; it is as if you are buying the work brand new. And because the copy is essentially the same, the market for the original good may suffer due to consumers wishing to purchase cheaper “used” goods instead of identical “new” goods.

A court may also distinguish between digital and physical goods based on how the sale occurs, as the district court did in ReDigi. With physical goods you have a physical transfer or distribution. With digital goods, an exact digital copy is made of the work, which can be considered an unlawful reproduction of the work rather than a sale. Any subsequent distribution would be of the (unlawfully reproduced) copy of the particular copy the user was looking to sell. As mentioned above, an individual cannot use the first sale doctrine as a shield to reproduce a copyrighted work without the copyright owner’s permission or to sell any other copy besides the particular lawfully made copy. So, for example, an individual could sell their digital music files by selling the iPod or hard drive on which those files were stored, but could not make copies of those songs and then sell those copies (which is how the court determined the technology worked in the ReDigi case).

On the other hand, the Supreme Court’s decision in Kirtsaeng is particularly important because it reaffirms the basic notion that one has physical ownership of the things that you buy. A court may hold this broad rationale to be equally applicable to digital goods, meaning consumers should be able to resell their digital goods under the protection of the first sale doctrine. In this sense we are simply talking about the digital equivalent of selling an old book or CD, as the original owner of the digital file no longer retains access to the work after selling it, and any incidental copies made in the process may be covered under a fair use defense.

As consumption of digital goods increases and companies pursue secondary market opportunities for digital goods (Amazon has secured a patent for a digital resale marketplace for objects such as ebooks and apps), the scope of the first sale doctrine must become better defined. Whether this will be done through the courts, or Congress, is yet to be determined.

* There is a special exception for sound recordings of musical works and computer programs. Under § 109, owners of these copies of works cannot rent, lease, or lend the work, unless it is being done by a nonprofit library or nonprofit educational institution. There are also exceptions to this exception, which can be found in § 109(b).

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Maria Scheid is a legal intern at the Copyright Resources Center at OSU Libraries and is currently a student at The Ohio State University Moritz College of Law.

Recent Supreme Court decision has impact on America’s libraries.

On March 19, 2013, the U.S. Supreme Court handed down a decision that could have had a number of disastrous outcomes for libraries.

Kirtsaeng v. Wiley involved a graduate student from Thailand named Supap Kirtsaeng who bought cheap textbooks abroad and resold them in the U.S. John Wiley and Sons sued Kirtsaeng for copyright infringement, claiming that he did not have the right to import and then resell these cheaper copies that they created specifically for sale in markets that cannot afford the higher prices of the American market. Kirtsaeng argued that he was protected under Section 109 of the Copyright Act, known as the First Sale Doctrine.

The principle of first sale states that if you have acquired a lawfully made copy of a copyrighted work then you can dispose of that copy however you want. You can lend it to a friend, resell it, donate it to the library, or even throw it in the trash. It is first sale that allows libraries to lend the materials in their collections without having to ask for or pay rights holders for permission.

In the Kirtsaeng case, the question came down to whether or not first sale applies to copies of works that are made by the rights owner but are produced outside of the U.S. Wiley and two lower courts claimed that it does not. Fortunately for libraries, the Supreme Court reversed the lower courts’ decisions in a 6-3 ruling that states that first sale does apply to any legally made copy of a work, regardless of where it was made.

How does the decision affect libraries? Let’s consider a number of ways this decision could have hurt OSU Libraries, and other academic and research libraries, if the Supreme Court had upheld the lower court decisions. First, OSU Libraries has a number of foreign language collections, including Chinese, East European and Slavic Studies, and Japanese. Many of the works in these collections were originally published in foreign countries. If first sale does not apply to these works, OSU Libraries would have to make a tough decision. Do we try to get permission from all of the rights holders or do we stop allowing access to the collections? Trying to track down all rights owners could be impossible and impractical, especially for older works whose creators may be deceased and whose heirs may be unknown. Additionally, the potential cost of licensing permission from hundreds, or maybe thousands, of rights owners would be cost prohibitive. Ultimately OSU Libraries would have to deny access to a large number of works in order to avoid copyright infringement.

While foreign language collections are the most obvious group of foreign made works in the library, OSUL and other libraries also collect a large number of English language materials that are actually made abroad. Jonathan Band and Jonathan Gerafi recently reported that a majority of general publishers, academic publishers and record labels are owned by foreign companies. Many of their works are made in Europe. If the Supreme Court ruled that the first sale doctrine did not apply to works made abroad, this would mean that even many of the English language works in the OSU Libraries’ collections could not be legally shared without permission from the copyright owners. Compounding this problem is the fact that most American companies now outsource the actual printing of books or making of CDs and DVDs to countries where labor costs are much cheaper. It would be almost impossible for a library to know where a work was actually created. All of this would have been highly detrimental to libraries.

The Supreme Court was aware of the potential impact to libraries when making its ruling. The Library Copyright Alliance (LCA) submitted an amicus brief to the Supreme Court that spelled out all of these potential problems if first sale doesn’t apply to foreign made copies. Justice Breyer, who wrote the Court’s majority opinion in this case, specifically referenced the LCA’s brief as a factor in the decision.

The decision in this case is great for libraries. It means that we can continue to pursue our primary function of providing access to the information that we hold in our collections. Libraries have worked under the belief that all works that we collect, whether made in the U.S. or abroad, can be legally shared with our patrons. This decision reinforces that interpretation of the law.

For more analysis of the case, please read Kenneth Crews’ blog. For a more in depth look at how the case affects libraries, and the future possible reactions from publishers and Congress, read the issue brief released by the Library Copyright Alliance.

First Sale Doctrine: Costco, Hawthorns, and the Big Fuzzy Line

The first sale doctrine has been on my mind recently.  It all began with the Supreme Court ruling in Costco v. Omega and ended with a paperback novel I’ve been reading.

The first sale doctrine is codified in 17 U.S. C. §109.  It is also called the doctrine of exhaustion, because under this rule, the copyright holder’s right of distribution is exhausted after the first sale.  This is the law that allows a library to lend materials; allows me to buy a book, read it, and pass it on to my father; and allows my neighbor to sell his vinyl record collection of cheesy 1980s hits at Half Price Books.

The issue in Costco was the application of the first sale doctrine to copies not made in the U.S.  The Ninth Circuit had decided that the doctrine only applies to copies made in the U.S. and to copies made abroad and sold in the U.S. with the rights holder’s permission.  Citing the many problems this decision was likely to cause libraries, the Library Copyright Alliance had argued against this interpretation in an amicus brief when the case went to the Supreme Court.  However, in a 4-4 decision, the Court (with Justice Kagan abstaining) let the lower court ruling stand.

In a recent blog post, Kenny Crews has ably discussed some of the likely ramifications, given the amount of material we buy overseas or that may be manufactured overseas.  He concludes that libraries are unlikely to have problems importing materials, but that lending or selling the material may become problematic.

This led me, in the rambling way that minds work, to a book I’ve been reading for pleasure.   Sybil Marshall’s Sharp Through the Hawthorn is part of a sprawling, out-of-print trilogy about the changing mores in an East Anglian village in the 1960s.  The copy that I am reading was printed and published in the United Kingdom, and I bought it from an out of print dealer that operates internationally.  I don’t know the route that took it from the original printer to the second-hand dealer to my mailbox and so I do not  know whether, under Costco, selling the book to me was legal or whether I can now sell it again.  It seems possible that I cannot.  Perhaps I will live dangerously and send it to my brother if he would like to read it.

The first sale doctrine is growing smaller.  This is most evident to the everyday consumer through the “spectrum of transactions that range from license to sale, with a big fuzzy line dividing the two” for various sorts of electronic media, including ebooks.    But it seems likely that its contraction will also be felt through limits on imports such as a recent textbook case winding its way through the courts.